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Existing ecosystem impeding charity

Existing ecosystem impeding charity
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First Published: Sun, Feb 06 2011. 09 47 PM IST

Updated: Sun, Feb 06 2011. 09 47 PM IST
The first few months of this year will see some high-profile visits by American philanthropists such as Bill Gates and Warren Buffett as also the leadership of Hewlett-Packard and other foundations. All of them are active in India and are coming here to see how they can stimulate large-scale giving by rich Indians.
One must understand their concern. India is no longer seen as an indigent country desperately in need of philanthropy. With Indian companies making waves globally and stories of super-rich Indians and their extravagant weddings and lifestyles filling the media pages, the question that American philanthropists will pose is why India’s super rich cannot match their scale of giving. One reason for this is that the ecosystem for philanthropy in India is far more disjointed.
One big difference between the US and India is the inheritance tax. In the US, the tax, which kicks in at a relatively low level of wealth, encourages rich individuals to part with their wealth when they can decide what to support. A related incentive is the fact that family controlled charitable foundations can continue holding the shares of firms that are the basis of family wealth. In India, the sorry experience with the estate duty, which was quite ineffective and was abolished in 1985, has meant that rich Indians can pass on their wealth and control of family-run companies to their children at no cost. The fiscal incentives for charitable giving in the form of deductions under section 80G and 35AC of the Income-tax Act are very limited in their impact because of the low cap on the deduction.
But the lack of incentives has not stopped Indians from giving. According to a 2002 survey, more than 40% of Indians, including many who are quite poor, give to charity. Much of this is for religious purposes which includes funding for education, healthcare and social welfare schemes run by churches, mosques, gurudwaras and temple trusts. Indian industry also has a long record of supporting educational, health and cultural institutions as also social welfare activities, generally targeted at their communities. But with a few exceptions such as the Tata Foundation, the giving has been more as acts of personal generosity and patronage rather than the systematic pursuit of a developmental vision. In the US, on the other hand, family foundations have been professionalized and pursue well defined goals with clear strategies for giving.
Both in the US and in India, a new class of philanthropists has come up lately, as entrepreneurs who have profited greatly from the new economy. They are employing the same aptitude in charitable giving. Instead of the traditional “hospital in my grandfather’s name”, the new technology billionaires of Bangalore such as Azim Premji, N. R. Narayana Murthy, Nandan Nilekani and their Infosys colleagues and others such as Sunil Mittal are deploying their philanthropy more to promote performance rather than create new foundation- controlled institutions.
Looking at philanthropy as a venture investment in non-governmental organization (NGO) activity is actually a fruitful analogy. As in commercial venture funding, the focus must be on returns averaged over several ventures and defined in terms of desired outcomes such as children immunized, pupils retained in school, area of degraded land rehabilitated and so on. The role of the funder now extends to monitoring the giving. It will involve some hand holding and networking help that could be quite substantial for start-ups and less so for more established users. To stretch the analogy, NGOs who have wide public recognition can be encouraged to go “public” and raise their money through small donations from the general public.
Philanthropy as venture funding requires a deal flow—a steady supply of viable and credible proposals from NGOs for using funds creatively for the purposes that the philanthropists want to support.
How well placed are we for this? Gandhiji’s emphasis on constructive work led to the establishment of a large number of localized NGOs that focused on education, healthcare, village crafts and agriculture. Many of them continue to operate and have the trust of the local community. Some have morphed into broader activist movements with a strong policy agenda. A closely related group are the faith based NGOs that do similar work. These community based organizations need support, financial and managerial, to expand the scale of their operations. But they are often run by people who are not from the urban English speaking elite. Hence, one challenge for philanthropy is for its functionaries to reach out to “people who are not like us”. Intermediary NGOs can play a role in bridging this culture divide.
Another strand is provided by today’s Gandhians who are refugees from the rat race in the private sector. They include doctors, scientists and technocrats who want to make a difference, idealists who want to dedicate their skill to make a difference or, lately, young persons who have opted out of the corporate rat race. These are the classic start-up stories of venture investing. Some of them have an idea that is truly different and the will to not only carry it through, but also scale up. That is the way it is with all start-ups. The challenge for philanthropy is to devise a system that quickly ramps up support to those that succeed and cut off funds to those that are going nowhere.
Philanthropists must also understand the limits within which their ecosystem operates. Their resources cannot be a substitute for public funding and right policies for the social sector. This is why support for policy dialogue and advocacy must be a part of every substantial philanthropist’s portfolio. A robust and integrated ecosystem would then include carrot and stick fiscal incentives, professionalized philanthropic foundations and performance instead of personality-oriented NGOs.
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First Published: Sun, Feb 06 2011. 09 47 PM IST