Milind S. Kothari

Managing Partner

BDO India

milindkothari@bdo.in

Prime Minister Narendra Modi’s team presented an ambitious agenda for initiation in the first 100 days of their third term. The calendar included bold policy changes, a steadfast commitment to job creation, sustainable growth, and a relentless push for technological innovation. It also included an emphasis on strengthening infrastructure and simplifying the business landscape.

As promised, the Modi administration has made significant policy changes and introduced various schemes to fuel India’s industrial and economic growth. In healthcare and family welfare, the Government has launched several groundbreaking initiatives, driving innovation, pandemic preparedness, and the development of indigenous medical solutions toward a more resilient Atmanirbhar Bharat (self-reliant India). To date, Infrastructure projects worth USD 36bn have been approved, spanning sectors from road construction to aviation.

One of the key reasons for the surprise election outcome that denied the present Government a full majority of the house, was the lack of job creation in the economy, an issue that resonated with the country's youth. In the Union Budget presented on 23 July 2024, the Finance Minister Ms Nirmala Sitharaman introduced incentives focused on providing financial support for first-time employees while stressing the need to create formal jobs. The task of job creation is a daunting one, as in the next ten years, nearly 8-10 million young people are expected to join the workforce. Incidentally, the reality today is that employment generation has steadily declined across every major sector of the economy.

A leading factor contributing to the job creation issue is moderate investments by the private sector. In 2019, the Government offered a generous corporate tax cut with the intent to propel investment. However, the tax incentive did not seem to have moved the needle. The Gross Fixed Capital Formation (GFCF) which measures the addition of permanent assets as a percentage of the GDP, has only recently picked up, mainly due to extensive Government spending on physical infrastructure. While the GFCF as a share of GDP in FY23 was 34% of GDP, the share of the private sector in capital formation has steadily been falling, with the Government being the major contributor to capital formation.

Another growing concern is the drop in Foreign Direct Investment (FDI), to USD 26.5bn in 2023-24 from USD 42bn in 2022-23, and we are now trailing behind Brazil and China. To improve the flows, there are measures under consideration that will reduce the cost disadvantages for companies relocating to India, along with improving the ease of doing business and establishing a framework for evaluating proposals to boost investments.

Against this backdrop, the Government is considering a revision of the FDI policy on inflows from China. Due to border tensions between the two countries in 2020 and thereafter, geopolitical relations have soured, leading to the curtailment of Chinese investment in India. However, in a momentous turnaround, the Economic Survey, tabled in Parliament in July, suggested that increased FDI inflows from China can help increase India’s global supply chain participation while lifting exports. Incidentally, China has emerged as India's largest trading partner with USD 118.4bn in two-way commerce in 2023-24, edging past the US. The Government’s go-ahead with investment proposals from certain Chinese companies in electronics manufacturing is seen as a recalibration of India’s stance on economic engagement with China. For India, the critical priority is to sustain its domestic development agenda, which would benefit from the inclusion of the Chinese economic heft. It is advantageous to set up a new economic compact between Asia’s two most important economies so that India continues to leverage the Chinese economy for its internal consolidation, even as it keeps a close eye on the implications for national security and strategic policy.

In the drive for technological innovation, India seeks to become a major player in the global semiconductor market in the next ten years. With the Government promising a predictable and stable policy regime, it is proclaimed that India has the wherewithal to become a reliable partner in the diversified semiconductor supply chain. The India Semicon Mission, a specialised and independent business division within Digital India, is likely to receive a second budgetary allocation of up to USD 10bn as it has almost exhausted a similar allocation in the first phase. The success of ‘Make in India’ and the chip production is sine qua non for providing impetus to the nation’s journey of becoming a developed country by 2047.

India stands a great chance of being counted as a developed economy with a consistent 7% GDP growth if it can avoid the middle-income trap that poses a threat to most countries in their growth phase. To this end, the Government, the private sector, and the people of India are ready for the long haul.

Rajesh Thakkar

Partner and Leader

M&A Tax and Regulatory

Deal Advisory Services

transactiontax@bdo.in

M&A in India

Between 31 July 2024 and 30 September 2024, around 153 M&A deals were announced, of which 58 M&A deals were closed. The aggregate value of deals announced is USD 5,099.29mn; dominated by 127 domestic deals (USD 2,314.12mn) and 26 cross-border deals (USD 2,785.17mn).

In terms of sectors (considering only closed deals), Information Technology sector saw deals worth USD 1,002.19mn, followed by Utilities sector with deals worth USD 489.31mn and Consumer Discretionary sector with deals worth USD 127.24mn.

Significant deals closed between 31 July 2024 and 30 September 2024

Saumil G Shah

Partner/ Cyber Security, BDO Digital

saumilgshah@bdo.in

API Standardisation – Revolutionising cross-border transactions and customer experiences

Digital evolution has led to increased services, goods, and people moving across borders, enhancing the need for cross-border and quick payments, a topic of significant urgency and importance.  However, these payments involve multiple institutions to complete a single transaction, exposing them to financial risks like fluctuating exchange rates and conversion costs and disparities (interoperability) in technology and infrastructure, that may cause delays. Moreover, too many actors in the transaction journey hinder the reconciliation, transparency, and control challenges.

Going by the current trend, borderless payments are expected to reach around USD 4bn by 2027, and to cope with this growth, a safe and quick way to conduct these transactions is imperative. As a solution, API (Application Programming Interface - responsible for processing the data transfer between different systems and modules) is an ideal approach that can help FinTechs and financial institutions enhance borderless payments by eliminating the complexities of traditional cross-border transactions.

API can create a seamless and secure payment network between consumers, businesses, and financial institutions in a real-time environment, while also enforcing an authentication mechanism and encryption protocols to enhance security. It also provides businesses and individuals insights into real-time currency exchange rates to manage forex loss, significantly reducing transaction costs and helping make calculated decisions. Moreover, API integration is controlled and integrated only among trusted partners, which enhances border access to customer data and provides faster innovation. The unified data also helps verify the AML (Anti Money Laundering) and CFT (Combating Financial Terrorism) transactions in real-time.

• From an API compliance perspective, there are established standards such as the General Data Protection Regulation (GDPR), Revised Payment Services Directive (PSD2), Payment Card Industry Data Security Standard (PCI DSS) and Digital Operational Resiliency Act (DORA), along with National Institute of Standards and Technology (NIST), Health Insurance Portability and Accountability Act (HIPAA) and Federal Financial Institutions Examination Council (FFIEC). General Data Protection Regulation (GDPR)- Article 25 states that by design and default, which translates to technical measures, such measures must ensure that safeguards are enabled to protect personal data.
• Revised Payment Services Directive (PSD2) – Enforcing and governing Banking and FinTech to adopt and integrate APIs allow consumers to use third-party providers for their payment and financial transactions services.
• Payment Card Industry Data Security Standard (PCI DSS) - Regular checks must be performed on the application's behaviour to detect logical vulnerabilities.
• Digital Operational Resiliency Act (DORA) - Article 3 states that it is essential to perform regular testing on vulnerabilities and authentication controls.

There is an urgent need for financial regulators to collaboratively create a task force for establishing an API framework to standardise a seamless cross-border transaction ecosystem outside the existing pockets, like the EU, India, Oceania, North America, etc. The lack of collaboration among regulatory bodies to create something akin to the SWIFT Network can be attributed to insufficient ‘trust’ and concerns about disruption to the existing ecosystem, as a result, FinTechs are restricted to a slower pace of innovation.

Regulators and FinTechs must come together to establish unified API standards that are adopted and governed so that various players can innovate under this framework and build better products for enhanced customer experience. The adoption of common API standards will continue to fuel the growth and evolution of cross-border ecosystems, while it enables seamless collaboration and data sharing across different platforms and geographies.

Regulators’ concerns around privacy and security should be leveraged to create secure solutions with a seamless experience. A standardised API framework/ guidelines also helps FinTechs align their security practices, to protect sensitive data against unauthorised access and potential breaches. It will also drive FinTechs to adopt better security standards to streamline authentication processes while utilising advanced security protocols/ methods like OAuth 2.0 and OpenID Connect. Such industry-enabled frameworks enhance the security of APIs as they provide secure token-based authenticated access. Standardisation also provides a better platform to integrate advanced encryption methods. Leveraging such encryption mechanisms, FinTechs can safeguard data exchanges, while ensuring compliance with local and cross-border regulations. Such standardisation may help FinTechs streamline customer experiences, where interfaces and data exchanges are consistent and predictable.

We need to establish accountability and responsibility by establishing standards and an overseeing body to govern and guide the institutions involved in the borderless payment world.

Shashank Karincheti

Deputy CISO & DPO

Razorpay

shashank.karincheti@razorpay.com

Standardising APIs in FinTech: Unlocking a World of Possibilities

At the heart of India's bustling FinTech revolution, where innovation and disruption strike a delicate balance, the power of standardised application programming interfaces (APIs) emerges as a beacon of progress. As a participant in this dynamic landscape, I've witnessed firsthand how these unassuming interfaces hold the key to unlocking a future where financial services are not just efficient and accessible, but truly transformative.

Fueling Innovation and Collaboration

Standardised APIs create a common language for financial institutions, start-ups, and regulatory bodies to communicate seamlessly. This interoperability is the foundation upon which innovative services are built, allowing for faster integration and reduced time-to-market for new products.  

India's Unified Payments Interface (UPI) exemplifies this perfectly. This standardised API has revolutionised digital payments, enabling real-time fund transfers across multiple bank accounts with a single mobile application. UPI's impact is staggering: in FY 2023, it processed over 117.6 billion transactions valued at more than USD 2.19tn

The Power of the Identity Stack

The standardisation of APIs has been particularly transformative for India's digital identity infrastructure. The India Stack, with its foundational layers like Aadhaar for identity verification and eKYC for remote onboarding, has created a robust framework that FinTech companies can easily integrate into their services.  

This standardised identity stack has been a game-changer for various FinTech sectors:

• PayTech: Seamless integration of identity verification has made digital payments more secure and accessible. UPI alone has over 260 million active users as of December 2023
• LendingTech:Standardised APIs for identity and financial data sharing have streamlined credit assessments. The Account Aggregator framework has enabled over 2.12 billion accounts to be linked for seamless data sharing as of June 2024
• InvestTech: Easy onboarding and KYC processes have lowered barriers to entry for retail investors. The number of demat accounts in India surged from 40 million in 2020 to over 120 million by September 2023, a 200% increase in just three years

Reducing Costs and Streamlining Operations

API standardisation significantly lowers operational costs for FinTech companies by eliminating the need for complex, custom integrations. Industry estimates suggest that standardised APIs can help organisations achieve a 30% reduction in integration time and a 40% reduction in integration costs

The Account Aggregator framework is a prime example of API-led efficiency. This standardisation streamlines the sharing of financial data between institutions, simplifying processes like loan applications and wealth management. By adhering to these standards, even smaller FinTech players can compete on a level playing field, accessing a broader customer base without the burden of developing proprietary systems for each financial institution they wish to connect with.  

Ensuring Regulatory Compliance and Building Trust

From a regulatory perspective, API standardisation is a powerful tool for ensuring compliance and managing risk. The Reserve Bank of India's (RBI) regulatory sandbox demonstrates how standardised APIs can facilitate innovation while maintaining regulatory oversight. Since its inception in 2019, the sandbox has enabled the testing of over 100 innovative FinTech products across multiple cohorts

Enhanced Security and Resilience

As a Cybersecurity practitioner, I'm particularly attuned to the security benefits of standardised APIs. They often come with built-in security mechanisms, simplifying the implementation of robust authentication, authorisation, and encryption protocols. This standardisation also streamlines troubleshooting and issue resolution, minimising downtime and reducing the financial impact of potential failures.  

The Road Ahead

In this API-driven wonderland, financial services transcend traditional boundaries. Imagine a day when your wearable device detects a surge of optimism and your investment portfolio automatically adjusts, shifting towards higher-risk, high-reward assets, capitalising on your confidence. API standardisation would become more of a catalyst, propelling us towards a future where financial services are as ubiquitous and accessible as the air we breathe.

Google Cloud

The evolution of APIs has been significant, from web services and micro services to their current phase of AI-powered capabilities, running parallel to the changing needs of businesses and advancements in technology.
In this video, Nils Swart from Google Cloud talks about the role of APIs as products, beyond just technology. He elaborates on how APIs play a crucial role in getting value quickly to customers, as well as getting value back in the form of revenues/ monetisation. Additionally, Swart talks about the ways APIs drive cost and further optimisations, and ensure customer data and business IPs remain secure. 

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