A few decades ago, Fixed Deposits (FDs) were India’s favorite investment instruments. But with interest rates on FDs declining over the past years to levels still insufficient to combat rising inflation rates, they have rapidly lost popularity. For fear of losing the value of money, millennials have since started to venture into other forms of investing. This trend saw a sharp rise in 2019.
The impact of COVID-19 on the markets
The pandemic has brought a huge wave of investors to the stock market. Fed rates were low, the market was buoyant, and there was a huge influx of foreign investment into the Indian market. In addition, the prolonged work-from-home situation has saved the rent and travel expenses of the salaried class. With all these stars perfectly aligned, the stock market and the cryptocurrency market saw a huge boom among Indian investors, most of whom were millennials. The data also shows that Indian investment in the United States grew by more than 200% year-on-year in 2021.
This was conclusive proof that people were open to — A) actively investing in places that aren’t “mainstream” and B) jumping on the digital bandwagon as they used fintech apps to invest in both of these markets. .
While both of these markets catered to investors’ needs, the nascent crypto market was not recognized by the government. The 2022-23 budget introduced a 30% crypto tax on winnings and TDS on certain crypto transactions. The announcement officially recognized the digital assets, which is good news for crypto enthusiasts.
While it is unclear whether losses in crypto can be offset against gains to calculate taxable amounts, millennials hope that would be the case so that only net gains would be taxable. The other requirement is that a TDS (advance tax) of 1% will apply to considerations of Rs 50,000 for specific individual players and Rs 10,000 for others. While crypto exchanges should simplify this to help users, this requirement could discourage short-term crypto exchanges.
Impact on millennials and the digital rupee
New developments in crypto will likely push many millennials further into the stock market, and the volume of crypto investments would decline in the years to come. The budget also reduced the long-term capital gains (LTCG) surtax, capping it at 15%. This helps make the stock market a place for long-term investments rather than a place to make a quick buck.
Now coming to the other big announcement – the government’s plans to launch the digital rupee.
As mentioned earlier, the confluence of all factors responsible for the rise of millennial investors in both markets has been fostered by the digital revolution of fintech applications. People don’t just need convenience in their daily lives, they demand it now. This is one of the reasons why Central Bank Digital Currency (CBDC) is being introduced by the government.
The CBDC is a natural progression from money to its digital form, giving a boost to the digital economy. Depending on the implementation, the CBDC can be more decentralized and even anonymous. It also greatly improves the convenience of cash handling. Merchant fees associated with credit and debit card payments, which are indirectly levied on customers, would also not apply to CBDC payments.
On top of all that, the CBDC facilitates easier and cheaper cross-border payments. This would have a huge impact on the investment and savings behavior of millennials. For example, if someone is saving for a US master’s degree, they could save in USD savings instruments and mitigate currency risk. Investments in global markets are also becoming more accessible due to lower transaction costs.
It is still unclear whether or not the digital rupee will be built on the blockchain. However, private sector participants can work with the central bank to develop their services in addition to the CBDC infrastructure. With the appearance of the fintech network, it could also simplify saving and investing in the future.
— The author, Sumit Gwalani, is co-founder of Fi, a neo-bank. The opinions expressed here are personal.