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Business News/ Economy / Social sector spending short of target, deficit to reach 15 tn by FY28

Social sector spending short of target, deficit to reach ₹15 tn by FY28

According to a report by Dasra in affiliation with Bain & Co., India’s social sector spending stood at roughly at ₹23 trillion ($280 billion) in FY23, which accounts for 8.3% of the GDP.

Public sector spending accounted for 95% of the ₹23 trillion as the givings in the sector grew from 6.7% of GDP in FY18 to 7.8% in FY23. The spending on the health (26%) and education sectors (36%) remained the major driver of this growth. (Reuters)Premium
Public sector spending accounted for 95% of the 23 trillion as the givings in the sector grew from 6.7% of GDP in FY18 to 7.8% in FY23. The spending on the health (26%) and education sectors (36%) remained the major driver of this growth. (Reuters)

New Delhi: India's social sector spending deficit could increase to 15 trillion by fiscal year 2028, as it continues to remain below NITI Aayog's recommended spending threshold.

According to a joint report, India Philanthropy Report 2024, by philanthropy organization Dasra and global management consulting firm Bain & Co., India's social sector spending in FY23 was around 23 trillion ($280 billion), accounting for 8.3% of gross domestic product (GDP), which is below the NITI Aayog recommendation of 13% of GDP.

“Inequalities persist in India despite strong GDP growth, a burgeoning middle-class, and a goal to become a $5-trillion economy by FY25… Despite robust growth over the last five years in social sector spending, India still falls 4.7% short of NITI Aayog’s annual social funding target," it said.

In FY23, member countries of the Organization of Economic Co-operation and Development (OECD), and Brazil, Russia, India, China, and South Africa (Brics) nations reported significantly higher spending rates of 24% and 11%, respectively (FY22 numbers).

However, India has not been able to keep pace with its OECD and Brics counterparts due to moderate growth in corporate social responsibility (CSR) and donations from high-net-worth individuals (HNIs) or affluents, despite a growing donor pool, the report added.

While Niti Aayog estimated a 57% disparity between demand and supply in India for FY23, over the next five years, this could decrease to 35% as the country's social sector funding deficit rises to 15 trillion, the report said.

Public sector spending accounted for 95% of the 23 trillion, with the sector's contribution growing from 6.7% of GDP in FY18 to 7.8% in FY23. Health (26%) and education (36%) spending were the primary drivers of this growth, with respective five-year compound annual growth rates (CAGRs) of 18% and 9%.

“India’s social sector needs to focus on improvement in the quality of social spending, especially public spending. It’s also crucial to balance allocations across sectors by directing funds towards underrepresented sectors and geographies while looking at solving for improving societal outcomes," said Amit Chandra, the founder of ATE Chandra Foundation.

Private sector spending in FY23 saw 10% growth, reaching 1.2 trillion, fuelled by rising contributions from family philanthropy and retail donors. This trend is expected to persist, driven by them and CSR. In FY23, CSR reported moderate growth of 7% complying with the mandate, to an estimated 28,000 crore, while share of domestic private spending rose to 30% following increased compliance and profit growth.

Healthcare and education were key funded sectors, with environment and sustainability witnessing a substantial inflow of CSR funds in recent years. “There has been a notable increase in corporate givers, as evidenced by the proportion of companies complying with the CSR mandate (2% of profits), which increased from approximately 30% in FY18 to more than 60% in FY22. Additionally, the share of non-BSE 200 companies participating in CSR initiatives rose from 50% in FY18 to 59% in FY22. CSR spending, however, grew moderately at 7% in FY23," the report added.

Moreover, in FY23, family philanthropy expanded by 15%, witnessing a growth of over 60% in ultra-high-net-worth individual (UHNI) contributions, propelled by concurrent donors. Donations from HNIs and affluent individuals grew moderately at 7%.

“Data indicates HNIs and affluent individuals have a higher propensity to give than UHNIs. Hence, there is potential to unlock a significant upside in donations from this segment with the surge in the Indian economy and capital markets," it said. Family philanthropy is projected to grow at an annual rate of 16% until FY28.

“We anticipate an increase in philanthropy among HNIs and UHNIs in India, driven by growing wealth in capital markets and a strong desire to contribute to society. Maximizing this segment’s giving potential and impact requires a focus on transparency, governance, and heightened awareness within the sector," Sonali Pradhan, head of wealth planning at Julius Baer, said in the report.

The report also highlighted emerging data from GivingPi, indicating diversity in family philanthropy, exemplified by the giving approaches of various cohorts, especially women, Now-Gen, Inter-Gen, and professionals. The number of collaboratives established in India per year surged by about five times over the past three years, but future growth will hinge on domestic momentum, it added.

Finally, retail donations, propelled by compelling narratives, continued to effectively address urgent community needs, overcoming critical barriers. Retail sector donations grew 12% in FY23, reaching 37,000 crore, fuelled by 25-30% rise in donations to NGOs, and 5-10% increase in community giving, primarily for healthcare.

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Naman Suri
Naman is a skilled business journalist who excels in breaking down complex financial details. He specializes in the corporate sector, providing thorough coverage of the pharmaceutical industry, the dynamic field of sports business, and the fascinating area of white-collar crime. Naman has a knack for making sense of numbers and presenting them in an understandable way.
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Published: 29 Feb 2024, 07:00 AM IST
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