Incentivizing charitable activities

There is a need for support from think tank of large charities to apply their collective wisdom to come out with more workable propositions between the government and NGOs with transparent objects, management structure and revenue models, especially for education and healthcare

Earlier this year, finance minister (FM) P Chidambaram while promising newer reform initiatives spoke of pushing doses of ‘bitter medicine’. This bitterness needs to be tempered with a slew of radical measures to unshackle well performing voluntary sector institutions or non-governmental organisations (NGOs). These institutions or NGPs are successfully implementing urgent socially relevant tasks that the state has failed in discharging during the course of its mandatory duties more particularly in education and healthcare. Although the FM spoke before the budget, sadly he has not translated this into action in the Union Budget 2013.


Even after six decades of Independence, the government’s performance on many fronts in failure to deliver to the desired expectations has been extremely dismal, more particularly on the education and health care fronts. At the same time, institutions run by the voluntary sector continue to perform phenomenally well, despite roadblocks placed at various stages by the authorities beginning with start up and obtaining the initial Income Tax (I-T) exemption registrations.


Case studies

The Hindu Business Line (August 6, 2013) carries a report of how 600 students from seven Universities across the US managed to raise $15,000. These students gave Rs3 lakh for a restroom for girls in a Karnataka school, a sparkling computer lab for the Lal Bahadur Shastri High School in north Karnataka, Rs5 lakh for providing solar lanterns to artisan and weaver families in Manipur and Mizoram also to make available clean drinking water and sanitation facilities.


Bangalore-based Anuj Viswanathan, the co-founder of online fund raising platform Milaap, says their activities are part of the ‘Live below the Line’ initiative. This is an international campaign set up to address concerns of extreme poverty by creating a scenario in which people must live on $1 a day in a bid to highlight the difficult decisions made daily by people living in extreme poverty. Their global campaign, which focuses on grass root advocacy with youth participation, also seeks to finance micro-loans, provide vocational education training classes for poor workers and help purchase raw materials to increase outputs. This year their anti-poverty campaign raised $450,000. Last year with the participation of more than 15,000 they managed to raise over $3 million.


Harnessing black money

India lost a whopping $123 billion during 2001-2010, out of which $1.6 billion during 2010 alone in black money, making the country eighth largest victim of illicit financial outflow says a report released by the US-based research and advocacy organization Global Financial Integrity (GFI). Its lead economist and co-author, Dev Kar, sadly laments – “It has very real consequences for Indian citizens. This is more than $100 billion, which could have been used to invest in education, healthcare (italicized by me) and upgrade the nation’s infrastructure. Perhaps last summer’s electrical blackout would have been avoided if some of this money had remained in India and been used to invest in the nation’s power grid.”


GFI director Raymond Baker very rightly points out – “The focus on recovery of black money, that is already lost, is futile as long as the Indian economy continues to haemorrhage illicit money. Curtailing the ongoing outflow ought to be priority number one.”   


It very rightly emphasises the urgent need to drive within India the black money to larger investments in education and healthcare.


Information on illicit funds has started forthcoming from countries like France and Switzerland once the government seriously invokes the provisions of the Double Taxation Avoidance Agreements (DTAA) signed with various countries. Just out of the fear of prosecution and penalties, the account holders will ensure that the monies return; for others still sitting on the fence, carrots of incentivization may have to be dangled.


Incentivizing the home-grown billionaires

To the funds stashed overseas, need to be added are the accounted and unaccounted wealth of our ever-growing tribe of millionaires fast turning into 4% of the world’s billionaires! In local banking parlance they were initially termed high net worth individuals (HNIs). When their numbers shot up phenomenally they were upgraded to the glorified status of ultra-high net worth individuals (UHNIs). Funds lying in hoarded hard cash with these individuals are too substantial to quantify and immensely significant too. It only needs the political will on the part of the powers that be at the capital to come out with effective measures to mobilise their full potential.


“India, home to 4% of the world’s billionaires and about 400 million population living below the poverty line, has both the need and the resources for private philanthropic actors to make significant contribution to its socio-economic development. Two decades of economic liberalizations that pulled the country into middle income status has opened the doors to growing domestic inequality that resulted in more pressure on national politics and domestic sources of distribution,” writes Emily Jansons, a research award recipient at the International Development Research Centre in Canada.


The pipelines of foreign aid, especially from UK and the Euro zone have virtually dried up. For the emerging economy country that is India, foreign institutional investments (FIIs) are now a source of large capital inflows. But this unfortunately is extremely hot money that always has tendency to be pulled out any moment depending upon market conditions at home and abroad. Cyprus is one example.


Mandating CSR spending makes little sense in Indian conditions

Exerting pressures by mandating a spend of 2% of the pre-tax profits through compulsory corporate social responsibility (CSR) in the new Companies Bill has to be seriously rethought as it makes for no real sense. The majority of our businesses are family owned. There is a blurring of corporate and personal philanthropies. At times there also exists a close connect too. The families have now come to realise it makes good business sense to go in for more and more into charitable activities more out of part-risk management or smart thinking or self–introspection.


It also flows more out of public pressure on an increasing educated middle class entering into the mainstream of the growing inequality gap between wealth and aspirations and the threat of social unrest fuelled the anti-corruption movements and exposes. One present or gen-next tycoon is quoted to have conceded – “With so much appalling poverty all around, how long will common people tolerate such inequalities? I certainly would not if I were them. I resent it like mad.”  This is the reaction of all right thinking middle class India to-day.


The need of the hour

Our schools and college education, even the Mumbai University are in extremely bad shape. Broken down school buildings, without doors or windows, no blackboards or benches, stinking and overflowing toilets, frequently absent teachers are the bane of schools. Many student-resident doctors of Mumbai’s LTM Medical College are afflicted by chronic TB and hepatitis as a result of insanitary living conditions; the state of affairs at the Grant Medical College is no better. The Mumbai University, once India’s oldest and most revered of institutions, with paper leakages, disputed appointments and marks scandals, forged degree certificates desperately cries for help.


The 8th Annual Status of Education Report 2012 brought out by an NGO Pratham after a study of schools across the country shows that number of Class V students who could not read Class II level text books or solve simple two digit substractions rose from 46.3% in 2010 to 51.8% in 2011 and shot up to 53.2% in 2012. Madhav Chavan from Pratham says, “Measures the government is taking are not working. Since 2012, things are moving in the opposite direction. Discontented with the state-provided education, parents are turning towards private schooling with a vengeance – the percentage of 6-14 age group enrolled there jumped from 18.7% in 2006 to 28.3% in 2012 and this is expected to hit 50% in the course of the next 10 years.”


New born babies die almost every day in the public hospitals from Kolkatta to Srinagar; in Delhi hospital oxygen cylinders run dry leading to death of patients in the ICU. Mumbai’s KEM hospital Paediatric Cardiac Surgery is without an essential hear-lung machine with 700 suffering kids in the queue and 20 patients have already died since January 2012. The Municipal Corporation of Mumbai (BMC) is still in the tendering process. There is an urgent need for the authorities to call upon the privately managed hospitals to fulfil their mandated statutory obligation to treat such emergency cases.


Hand-holding charitable activities with PPP models

Vastness of our country demands putting into place all modes of innovative workings for cause-specific charity models – the model that holds good for education may not necessarily work in the health care segment and vice versa.

We have large corporates like the Tatas, Birlas, Infosys, Wipro, Singhanias, as also religious orders like the Ramakrishna Mission, Swami Narayan, Art of Living, Brahmakumaris, the Jesuits and other Catholic orders, individuals and families  that have set up and been efficiently managing charitable institutions running educational institutions, hospitals and clinics. Their expertise gathered over the years needs to be put to effective use with the GOI encouraging public-private-partnership (PPP) models with them.


As a part of the reform process the government should  hand over  to run under the PPP model, healthcare institutions to Trusts or NGOs with excellent track records of the  likes of the Ramakrishna Mission at Kolkatta and Mumbai,  Dr Devi Shetty’s Narayan Hrudualaya and Manipal Group in Bengaluru, Bombay Hospital that are all running well managed health care institutions. It equally applies in the education and University sector where some of Deemed Universities like the Manipal University have made names for themselves.


The models

The states and autonomous bodies like the Railways, ports, airport authorities, municipal corporations, public sector undertakings (PSUs), India Post and Defence Services are sitting on vast hectares of idle lands that can easily be developed into state-of-the art education and health institutions.


In the PPP model, the land and the buildings constructed thereon can constitute the public contribution and the participating private partner– the Foundation or NGOs can manage them on a build-operate-transfer (BOT) or management fee basis. The governing board can comprise equal representation for each stakeholder in addition to the active participation of locally based apolitical members of civil society with clean credentials forming the third component. This will make for a truly representative and transparent organization. There is also a need to build in representation for those funding like HNIs/FIIs and others choosing to invest substantially.


The taxation laws need to be tweaked in this incentivization process by building in self-regulatory conditions like ensuring adequate information for donors and sponsors, accounting for spending and recognizing arms-length dealings with those at the helm of affairs. As it is practically all educational and healthcare institution are registered as not-for-profit entities to remain outside the tax net. 

All this calls for support from think tank of large charities to apply their collective wisdom to come out with more workable propositions with transparent objects, management structure and revenue models.


(Nagesh Kini is a Mumbai-based chartered accountant turned activist.)

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