Analytics in Business

About the authors

Giridhar Ramachandran

Giridhar (Giri) is currently a research scholar at the Department of Management Studies at IIT, Madras with research interests in social networks and CRM. In the past, Giri has worked extensively in the analytics industry in both captive units and analytics service providers and provided analytics solutions to clients in the CPG, retail and technology industries.

Pritha Choudhuri

Pritha is a co-founder of Analytics Quotient, a marketing analytics firm that counts leading marketing companies in the world among its clients. Pritha has previously worked in the analytics industry for several years, largely in the CPG space.
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• Amazon offers you a list of items you might like based on an analysis of your past purchases and those of customers like you. 
• Your credit card company gives you a “credit score” to estimate your likelihood of making future card payments on time. 
• Retailers, led by Tesco, are increasingly using knowledge about their customers to tailor products in each store to local needs.

However, this is already common knowledge. So is this all there is to analytics? What really is analytics? Are there different types? Which companies work in this area? And what skills does it take to be successful at it?

Powered by increased availability of data, much-improved computing, and huge gains from analytics seen by the early adopters, business analytics is fast moving from being a competitive differentiator to a necessary investment for any company relying on understanding its customers to stay in business. Businesses are looking to either create analytics capability within their organizations or are actively seeking analytics talent to partner with. Large banks, IT behemoths, retailers, are all strengthening their internal analytics groups. This has however not deterred the growth of analytics specialists - companies whose special skill is to look at data and find ways of making this data useful. Also, this has fuelled the analytics surge that we see today from service providers ranging from top-end management consulting companies to large and venerable market research firms. Each of these companies today has a large and growing analytics practice.

A combination of increased credibility of the outsourcing/ offshoring model and availability of large pool of relevant talent has put India prominently on the global analytics map. As mentioned earlier, the analytics providers in India are either captive or external vendors. Amongst external vendors, there are pureplay analytics providers, large BPO and IT companies interested in the analytics pie and management consulting and market research organizations extending into this space to provide a full service offering. The multitude of organizations providing analytics services today means that a wide range of services is bundled under the umbrella term “analytics”. From developing executive reports/ dashboards to predictive analytics to optimization, analytics has become a catch-all for anything to do with rows and columns of data.

                                                          Technique Sophistication

The analytics landscape

What are some of the typical problems that an analytics company might try to solve?

These might range from credit scoring to grouping consumers to generate better insights, to answering specific questions about consumers or products. As analytics practitioners, we often get asked simple business questions by our clients. 

Here are some examples -

• What is the relative importance of shopper attributes in the shopper decision-making process? 
• Is there a range of price my product should stay within to maintain market share? 
• How does this change for each sku? 
• How do competitor prices impact this? 
• What are the right metrics to assess marketing performance? 
• How can a firm realign marketing dollars to ensure optimum returns? 
• What will the customer buy next and when? 
• In which segments does the firm’s product have a right to win with customers? 

How are these questions answered?

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Electric cars - Present or Future?

What is an Electric Car?

In its simplest form, an electric car is just like any other car in appearance but is propelled by an electric motor instead of an internal combustion engine. The source of energy in an electric car is a set of batteries unlike fossil fuels like petrol, diesel or gas in a traditional car.  However, if one was to get into details, an Electric Car is very unlike a traditional car in more ways than one.

This article explores the history of electric cars in brief, their obsolescence and come back, the current electric car market and future outlook.

Electric Cars – A brief history

Electric automobiles dominated the small automobile market that existed in the early 20^th century. The key reason for this was that electric motor technology at that point in time was much more mature than any other propulsion method. Moreover, technical features of an electric motor – like the power-torque characteristic are very favorable for being used as a drive-train as it needs little modification. Electric cars had a significant share of automobiles in the first two decades of the 20^th century. Some of the well known players then were Baker Electric, Columbia Electric and Detroit Electric.

However, with the advent of compact and safe internal combustion engines, Electric Cars lost their market share very quickly. This was further supported by the low prices of fossil fuels in the early 20^th century. Vehicles powered by petrol & diesel were much more powerful than the electric vehicles of those times and were easy to refill and use over a long range. All these advantages made electric vehicles fade into oblivion very quickly.

Come-back of Electric Cars

While Electric Cars, fuelled by development of new battery technologies, saw continued interest in terms of academic research over the years, the 1990s saw a revival of commercial interest in the product. This was driven mainly by the rising oil prices and growing dependence of the industrialized countries on imported oil. Initiatives to reduce pollution and government incentives for such research served as additional reasons for commercial interest in electric cars. The past two decades have seen every major car manufacturer in the world devote considerable resources to build a commercially feasible electric car.

It is of interest to note that when electric cars made a comeback, the technology they started with (DC Motors powered by Lead Acid batteries) was almost same as those of the early electric vehicles. This is additional evidence that indicates a lack of commercial interest in Electric Vehicle technologies ever since it was replaced by IC engines.

Current status of the Electric Car market

Even today the market for pure electric cars, that is cars powered only by an electric motor and a set of batteries, is miniscule. The only player in the Indian market is Reva. Reva has sold electric cars in India since 2001. Apart from the traditional Lead Acid powered cars, Reva has also launched models based on newer technologies like Li-ion batteries and is consistently engaged in research & development with new prototypes showcased at major auto shows every year. Recently, Mahindra & Mahindra bought a 55.2% controlling stake in Reva, after which the company was renamed as Mahindra Reva Electric Vehicles Private Limited. General Motors India had also tied up with Reva in 2009. However, this tie-up did not last long and was called off in May 2010. Such alliances indicate a strong interest in the electric car market amongst the major automobile industry players in India and not just within niche companies.

Apart from Mahindra and GM, Tata Motors and Mitsubishi are other big names that have evinced interest in this market. Lesser known firms like Hero Electric and the clock maker Ajanta have also announced their plans to enter the domestic electric car market. In the international market too, all major car makers are engaged in sustained Research & Development efforts in electric car technologies. This is apparent from the presence of several prototypes of electric cars at all international auto shows. In the global market, Nissan Leaf, Mitsubishi iMiEV, BMW Mini E, Tesla Roadster are some of the electric vehicles that are commercially available or are in advanced stages of road testing. Hyundai has also ventured into this market with its ‘Blue On’, which is expected to be mass produced by 2012.

Future Outlook for Electric Cars

Year on year, auto makers have come to the realization that electric cars still continue to be ‘cars of the future’. Despite all the R&D that has been going into electric cars by the major auto makers of the world, they continue to face two major constraints – price and convenience of use.

Electric vehicles are priced significantly higher than traditional cars with similar features and performance. Electric cars using the old lead acid batteries have to carry a considerable load and hence compromise on space and performance. Cars with newer battery technologies like Li-ion are very costly. Moreover, in order to reduce weight the electric car body and other components also use more expensive materials. One solution to this problem is subsidies offered by governments for zero pollution vehicles. Another solution is that the batteries are not owned by the car owner but are rented. This reduces the one time burden on the car buyer. However, neither of these solutions has proved successful on a large scale.

The second issue is that of convenience. Electric vehicles have either a limited range (per charge of batteries) or a low maximum speed/power. Most electric cars are not meant to be versatile – that is capable of being used in cities as well as on highways. This becomes a bottleneck in the absence of supportive infrastructure (like charging stations) for electric cars.

In the near term, hybrid electric vehicles that can run on both gas and electricity provide a more pragmatic solution. Some automakers have tested reasonable commercial success with these vehicles. Prime examples are the Toyota Prius and Honda Civic Hybrid. A specific variety of hybrid vehicles, the plug-in hybrids have received more attention recently. Plug-in hybrid cars can run on both gas and batteries and also allow the batteries to be charged directly by plugging in.

It appears that pure electric cars would continue to be the next generation technology at least as long as the hybrid electric car market grows and matures. Till then, let’s hope that we continue to find new sources of fossil fuels.

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Strategy Digest Vol 1 (Jan)

BMW and Affordability

An affordable BMW sounds like a classic oxymoron. Surprisingly, BMW has gone ahead with a well thought out strategic move to launch the entry level SUV - BMW X1 - in India. The X1’s price tag at INR 22 to INR 29 lakhs puts it in direct competition with the Honda CRVs and Toyota Fortuners of the extremely fast growing SUV segment in India.

The high end luxury car market in India is growing at an astonishing 74%. The playground offers attractive rewards with ever growing sales figures and BMW seems to have played the card just right. The BMW brand tag offers much more value to the Indian customer than a Toyota or a Honda and that is exactly where the BMW X1 scores over the competition.

However, if BMW really wants to conquer the Indian market even more convincingly it needs to capture the depth of the market that extends beyond the metros of India today. It needs to establish a robust after sales service network to make sure that models like X1 realize the sales potential they seem to possess. The X1 is a great launch and it’ll be interesting to see how Toyota, Honda and Hyundai face the new found competition from the grand daddy of automobiles.

The Mobile Store: Ready to evolve

With over 1200 stores and a 45% share of the organized cell phone retail market in India, The Mobile Store has been going great even with a strong pressure on margins. With a drastic shift in consumer preferences towards smart phones and falling price tags, The Mobile Store plans to change the phone shopping experience for its customers.

The Mobile Store plans to develop 300 of its stores across 50 cities into experience stores. These stores will allow users to get a feel of the phone, utilities, apps and new technology. It plans to do away with the cheap plastic dummy phones that we get to see presently. With trained Mobile Store personnel who will help the consumers choose apps and phones according to their needs, it plans to make it interactive for its consumers to make a wise choice while they buy a phone.

This plan undertaken by The Mobile Store is capital intensive and will surely put heavy pressure on the already squeezed margins in cell phone retail. Currently a retailer earns anywhere between 5-8% on the price. Moreover, the market is heavily price conscious and people make it point to get the cheapest deal even after they try out phones at outlets such as The Mobile Store. The implementation of the plan on a massive scale is also an issue with aggressive retailing tactics being employed by a growing number of competitors. 

Bypassing investment bankers in valuations

The selling of Honda’s stake in Hero Honda, Ranbaxy’s sale to Daiichi, Fortis-Wockhardt deal and the $3.7 bn Abbott-Piramal deal among many have a strikingly common story: There were no bankers involved in the valuations. It is a recent trend that has emerged lately when a lot of corporates strongly feel that “No Banker can ever know their business better that them”.

To add to it, more than 80 percent of the banker-madated deals in India are conducted completely by the promoters themselves and the bankers are left to pure mathematical execution. This trend seems to be fully justified and also enhances the confidentiality aspect of the deals. Information leaks have been a major cause of mammoth deals being brought down in a matter of days and bypassing the bankers seems to be a way of avoiding that. Other major examples include the TATA-JLR deal where the valuation was done by Tata’s close team and not bankers advising or executing the deal.

The bankers on the other hands are not losing out on the dealbook business but their profile of work is shifting more towards the financing, fund raising and implementation phases of the deals. It will be interesting none the less to follow the role of bankers in the deals to come in 2011.

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Home Shop 18 - Developing a brand in a nascent market

Continuing with the theme of companies surviving in tough times and situations, we decided to have a look at Home Shop 18 - the way they managed to make a mark in a completely nascent market. Home Shop18, a venture of the Network18 Group, is an online & on-air retail marketing and distribution venture that was instrumental in launching India’s first 24 hour Home Shopping TV channel on April 9, 2008.

Situation at hand in 2008: Indians have always been the touchy-feely kind of buyers and shoppers. They want to compare things before purchasing, venture out to malls to spend their weekends enjoying the atmosphere while they shop and make all purchases an experience. With such a target segment, the TV shopping avenues were limited to small slots on prime channels in the day, or time slots in the night, when there was hardly any viewership. Even the products that featured were either health products or something related to spirituality, or rarely kitchen appliances. Hence, when Home Shop18 thought of entering this market with a 24 hours TV channel, there was no precedent that they could depend upon. 

Reason for entry: The penetration of television in a country like India is massive. Home Shop 18 calculated that there were about 100 million cable & satellite homes in India, and about 20 million direct-to-home television connections. But malls were present only in about 35 cities (a number which has grown since) and internet population was about 40 million. So, television was the best medium to penetrate into the smaller cities and towns, as they did not have easy access to brands, because of lack of malls and less number of internet connections.

Also, television gave the opportunity to create a captive audience, which seemed exciting to Home Shop 18. Television gave it synergies with the parent company in terms of programming and distribution. But a lot of effort was required. A call-centre would be required to interact with the customers, a merchandising team would be needed as well as a logistics system to ensure timely delivery of products to customers.

Pilot Project: Ferns & Petals, a famous flower retail chain, was the first partner for Home Shop 18. They were asked to help in delivery, and the other things were taken care of by Home Shop 18. A Ferns & Petals toll-free number was flashed on Network 18 channels, small call centre with 18 seats was rented. This pilot was successfully received by the audience, as there were 250 calls on Day 1 of the initiative, which increased to 500 after Week 1. But there were mess-ups at the call centre end, and that led to errant deliveries.

Call Centre Operations: The learning that Home Shop 18 took from this pilot was that a full-fledged self-run call centre would be required. Hence, Home Shop 18 CEO Sundeep Malhotra set up a call centre with 450 employees in Noida, which had the capacity to facilitate 20,000 calls per day. The ratio of successful converts per call was low (5%) in the beginning, but it has gradually increased to 30-35%, the average talk time has reduced from 14 to 7.5 minutes. This was possible by training given to employees, and the results have helped reduce costs. The biggest issue was trust, which is slowly increasing, thus raising the average price of purchases from Rs. 650 to Rs, 2650.

Logistics: Home Shop 18 has integrated its IT system with its vendors. As soon as an order is taken at its call centre, it is sent electronically to the vendor and a courier company. The courier company collects the product from the vendor, delivers it to customer and then collects the money and sends it to Home Shop 18.

Product Portfolio: The kind of reach that Home Shop 18 had to offer, of 3000 cities, was a good proposition to offer to brands to induce them to join the brand portfolio of Home Shop 18. But since there was no precedent, Home Shop 18 had a tough time convincing them. But gradually they have managed to create a strong portfolio of 480 brands and 23,000 products. In terms of sales, 45 per cent is still constituted by jewelry, appliances and kitchenware.

Value Proposition: The customers purchase products on Home Shop 18 due to two reasons- either they find the product unique or they find the deals better monetarily. Thus, a good collection has been a necessity right from the beginning. As for the deals, monetarily though they may not be priced cheaper, they are bundled in ways to make them attractive. Sometimes they are priced cheaper, since because no margins need to be given to retailers and wholesalers in between, it is possible to price them better.

Problems: Since the system is such that payment is made on delivery (to build trust with customers), about 23% of the goods are returned on delivery. This causes huge sunk expenditures. Also, currently it takes a week for the money to reach Home Shop 18, after which it sends the money to the vendor. To reduce this week-long cycle, several innovative methods like swipe machines etc. are being tried out.

Growth Opportunities: In its 2 years of operation, Home Shop 18 has built a very rich database of customer information, their preferences, shopping habits etc. It has recently started using this database to contact customers upfront to sell products of their choice. Currently about 7% of the sales of Home Shop 18 are by this sort of selling, this is expected to grow in the future, especially since with repeat customers, trust is already established which makes selling simpler. Also, a later aim is to add services as offerings, in addition to the current product portfolio.

When Home Shop 18 started as a 24-hour TV Shopping Channel, the industry mocked at them and so did the target segment. Before they ventured into this market, the things that sold via TV were magical necklaces and Lose-Weight belts. So everyone thought that Home Shop 18 was going to be a failure. In 2009-10, it made sales of Rs. 330 crore and 2.5 years later, Home Shop 18 is not just standing, but growing at a tremendous rate. It has succeeded without having a precedent whose model it could emulate, it has tried its own model, failed and learnt, re-worked to make the perfect model. That is what defines real strategy.

Reference: Business Standard

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SpiceJet - Surviving and succeeding in a bleeding market

When times are going good, the economy is in boom, stock market is on an uptick and the respective sectors are growing, all companies that succeed get talked about and written about in books. But when times are good, it is anyways quite simple to succeed. It’s only when the going gets tough that real strategy is able to emerge. A classic example of real strategy emerging in difficult times is Spice Jet.

In an era when Air India is bleeding probably without repair and Kingfisher and Jet Airways owe thousands of crores of money to fuel companies, Spice Jet is one of the very few airline companies that has managed to make a profit in 2009-10.

Airline	Net profit (2009-10) in crore rupees
Jet Airways	-420
Kingfisher Airlines	-1647
Spicejet Ltd.	61

After Sun TV’s Maran acquired a 37.7 per cent stake with a 20 per cent open offer in Spicejet, its CEO Sanjay Agarwal quit the company and has since joined Kingfisher Airlines. But we ascribe the success of Spicejet in 2009-10 completely to the decisions taken by Sanjay Agarwal who had taken charge in Dec 2008. Hence in this post, we will talk about the changes that he brought about while he was at Spicejet.

Increase in aircraft utilisation: There is a metric “aircraft utilisation” that airlines use to indicate efficiency. This means the number of hours that an aircraft flies in one day, and obviously has a direct impact on the revenues. In 2008-09, SpiceJet had an aircraft utilisation of 10.5 hours/day, and it managed to increase this to 12.5 hours in 2009, when the average for Kingfisher was 9.5 hours, for Jet it was 10.5 hours and for Air India it was 8.5 hours. It was able to manage this change by small improvements in ground handling, reducing refuelling times and then strategically rescheduling flight times. This helped reduce its cost per available seat km much below Kingfisher and Jet.

Cost Avoidance: Apart from cost-cutting, SpiceJet followed a strategy of cost avoidance. Fuel costs constitute 40% of costs for airlines in India. SpiceJet was able to reduce that cost due to two reasons. Firstly, unlike other airlines which owed huge dues to fuel companies, SpiceJet paid its fuel bills on schedule, which helped them negotiate a 15% discount in the fuelling contracts. Secondly, they made small tweaks to the flight operations by adjusting ascent and descent profiles of the planes. They ensured that short-haul aircrafts did not ascent too high and long-haul aircrafts ascended to their right height quickly. This helped reduce the fuel expenditure by 14% in 2009-10.

Providing Good Quality: The biggest challenge that SpiceJet faced was to maintain a perception of good quality in spite of its low-cost personality. It needed to create this belief in its quality both to attract customers and to retain employees.  To create that perception, SpiceJet launched a new ad campaign that focused on a “value-led” proposition rather than a “promo-driven” proposition or “cheap rates” proposition. The brand message that was being communicated was "Get more when you fly SpiceJet". In line with this brand image, the quality of in-flight meals was also improved and advertised about. Though food sales, which in fact increased by 200% in 2009-10, do not contribute much to the revenue, but they help attract passengers. Also, to create a plush and clean feeling while travelling, the inside aircraft maintenance staff was increased, frequent painting was done, carpets were changed, regular washing of the aircraft was carried out etc.

Much of the credit for all the innovative measures taken at SpiceJet goes to the top management who implemented the required changes and motivated the other employees to contribute to SpiceJet’s mission to succeed. In fact, with the exit of Sanjay Agarwal and his team of 10 people, it will be interesting to see how SpiceJet fares from now on with its new management.

SpiceJet was able to make cost-cuts where they were needed and where the impact would be the most, while still investing to maintain or build a reputation of a good-quality carrier. It managed to do this at a time when the airlines industry was in shackles, and all its competitors were bleeding badly. It came out of the crisis relatively unscathed because of the innovative strategies that it deployed. That is what real strategy is all about.

Reference: Business Standard

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Green consulting: The way to go

We at IIM Ahmedabad's Consulting Club have started a new initiative on this blog where we will regularly publish articles contributed by corporates working in the area of consulting. We hope that these insights from the professional world will be interesting for our readers and will help contribute towards making this blog an active forum for students and professionals related to the world of consulting.

The first article in this series has been contributed by Gensol Consultants Pvt. Ltd. who have been working in the area of Green Energy Consulting for about three years. 

Talk about green jobs and the image of men operating wind-turbines, solar energy plants or environmental activists lobbying for water or forests conservation conjures up in the mind. Little does one wonder about people advising the corporates to lower their carbon emissions--called carbon footprint--through innovative strategies or helping the government devise policy initiatives aimed at mitigating climate change. But the landscape of green jobs has undergone a rapid transition to include advisory jobs that are aimed at transforming existing work practices with due regard to the mother nature.

The basic premise on which the consulting business operates is the expert advice on a certain subject, whose inherent complexity could impair the ability to achieve the objectives of the business in the absence of an expert guidance. In this vein, a consultancy that advises on the best possible strategies to low carbon emissions would require a deep acumen of the policy inputs specific to climate change and its mitigation. Given the kind of opportunities presented by the climate change mitigation and adaptation measures around the world, the role of a green consultant is a promising field to make a career in.

It is the passion to harness the huge potential of this business that Gensol Consultants Private Limited (GCPL) set itself on a path to become one of the big names in the green advisory business, to a point that when you say 'green consulting', Gensol's name quickly makes waves in your mind. Notably, Gensol had made a humble beginning in the year 2007. And during this short span of three years, Gensol has already etched a strong presence in the global CDM market, by clawing more than 25% share of CDM advisory market in India, with more than 350 clients under its kitty.

While it is true that CDM advisory was the primary business for GCPL, the heightened sense of responsibility towards preserving environment the world-over has certainly presented opportunities to spread our wings even wider. To put this context, it would be notable that developing nations have fashioned a very mature response to the problem of climate change and they are time after time giving out policy responses to this important issue. For example, with a view to emerge as a low carbon economy, India had released its first National Action Plan on Climate Change (NAPCC), in June 2008, outlining existing and future policies and programs addressing climate mitigation and adaptation. Under this Plan, eight national missions have been the identified, namely the National Solar Mission, the National Mission for Enhanced Energy Efficiency, National Mission for Enhanced Energy Efficiency, National Mission on Sustainable Habitat, National Water Mission, National Mission for Sustaining the Himalayan Ecosystem, National Mission for a Green India, National Mission for Sustainable Agriculture and the National Mission on Strategic Knowledge for Climate Change. Importantly, the solar mission seeks to add 20,000 MW of solar-based generation capacity by 2022, the energy efficiency mission aims to yield savings of 10,000 MW by 2012, the sustainable habitat is intent upon promoting energy efficiency as a core component of urban planning and the water mission has set a goal of a 20% improvement in water use efficiency through pricing and other measures.

Meanwhile, goals under the green India plan include afforestation of 6 million hectares of degraded forest lands and expanding forest cover from 23% to 33% of India’s territory, the sustainable agriculture plan aims to support climate adaptation in agriculture, while the sustainable Himalayan Ecosystem scheme aims to conserve biodiversity, forest cover, and other ecological values in the Himalayan region, and the mission on strategic knowledge for climate change envisages a better understanding of climate science, impacts and its  challenges.

While a lot of green consulting activity has already been done while framing this policy, the path of implementation unveils a much more lofty scale of opportunities for us to grab. Each mission embodies a vast gamut of business potential, in light of the huge scale of activity the country has tounfold in order to achieve its  dual aim of inclusive growth and a better environmental standing. For example, the solar mission is a great platform to improve the business potential since solar power generation is still in a nascent stage and requires a lot of desk as well as field research to find a site that is suitable for the installation of the solar panels. Given the fact that solar power generation is a capital-intensive business, the role of a consultant cannot be left without attention. Then again, the Green India mission is another potential area where Gensol is eyeing a big game, given that forestry carbon projects have always been on the agenda of the international climate change summits. The role of forests as stocks of carbon has been an area of heated discussion in light of the fact that they are non-permanent sinks of carbon and, therefore, require suitable forestry models to maximize revenues--another potential area of green consulting. Similarly, other missions also present a bunch of business opportunities for Gensol as a green consultant.

Besides, there are numerous avenues where the consulting business could be expanded. A stellar example in the Indian context would be the renewable energy certificates (REC) mechanism, which a market-based instrument to promote renewable energy power. Under this scheme, the power generating companies would be required to generate a certain percentage of the total electricity consumption in their area--called renewable purchase obligation (RPO)-- from renewable energy sources, like wind, solar, biomass, among others. The existing disparity in the renewable energy sources across the country would allow these companies to purchase these certificates from the energy exchanges in order to meet their RPO targets. It is estimated that the REC market is worth more than Rs. 14,000 crore, which further enhances the scope of our business. A similar budding opportunity is the energy saving certificates (ESC) scheme, under the national energy efficiency plan, under which, the units of energy saved could be tradable in a similar operational framework, whereas Green IT and Green logistics remain robust candidates on our business radar. Not only this, Gensol has carved out its global expansion plans, with its maiden overseas venture being the U.K's Carbon Reduction Commitment (CRC) program, which is a U.K-specific version of the global carbon trading market. Gensol hopes to grab a fair share of this market, by helping the corporates cut costs, make money and improve their environmental standing.

In this background, it might be apropos to say that Gensol is well on the path of its vision to become a 360o carbon solutions provider, with minute focus on 'green and the shades of green'.

Credit: Mr. Anmol Singh Jaggi, Director, Gensol Consultants

             Ms. Tisha Dwivedi, Gensol Consultants

             http://www.gensolconsultants.com/

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Philanthropy in India

Azim Premji’s recent donation of $2 billion has put him in the league of socially responsible and proactive billionaires working towards the betterment of the world. This distinguished league boasts of names like Bill and Melinda Gates, Warren Buffett, Carl Icahn and Mark Zuckerberg. Melinda and Bill started The Gates Foundation, one of the biggest and most transparent organisations working for improving health and eradicating poverty. This Foundation has received donations from numerous billionaires like Warren Buffett (who has pledged 99% of his wealth to philanthropic activities). In order to carry the message of philanthropy to all US billionaires, ‘The Giving Pledge’ was started by the Gates and Warren Buffett. This is a pledge to invite the wealthiest individuals and families to commit a majority of their wealth to philanthropy. One of the latest members to take this pledge was Zuckerberg, the founder of Facebook. It is said that he took this pledge and donated $100 million just before the release of the movie “The Social Network” which paints him in a negative light.

Premji’s generous donation goes to Azim Premji Trust, which works for promotion of primary education in India. This activity is being misconstrued as CSR(Corporate Social Responsibility) by the media although it is his personal wealth that he’s donated as an individual, in no way related to his companies. Historically, the Tatas and Birlas have been socially responsible conglomerates, encouraging education in India without calling their activities with fancy names like CSR. With the advent of MNCs in India, CSR is viewed with scepticism since it is seen by MNCs as just another policy to be implemented. Sometimes the CSR activities carried out seem like giving a royal feast to poor people for a day and then forgetting that they need food for subsistence all through the year. It is artificial and just another foolish way of spending shareholders’ wealth.

As a country, India leads other developing nations in philanthropy with charity contribution at 0.6% of GDP. However, it lags far behind the developed nations. Looking at the complete package that gets disbursed in India, only 10% is donated by Indian individuals and companies while 75% comes from abroad. The government and individuals donate largely for disaster relief and not on a regular basis as is a trend in USA and Europe. Another interesting observation is that in India, the higher class donates lesser than the middle class and the same holds true for the middle versus lower class(in terms of percentage of household income). As income and education levels rise, why is it that donations do not? On a more fundamental level, why is it that Indians do not loosen their purse strings for the poor and needy?

One of the reasons is the recent accumulation of wealth by individuals. Normally, it takes about 50 to 100 years for the donation market to mature after an economy matures. At a micro level, in a developing economy every individual considers his wealth as a statement of his social standing. Charitable donations do not command the same social status as money in one’s bank account, hence parting with it is not easy. Another popular reason is the mistrust with which NGOs and philanthropic organisations are viewed. Given the high levels of corruption in India, along with the non-transparency of such organisations, Indians would rather keep the money for their future generations than give it away to unknown people who might misappropriate it. Traditionally, Indian society is pro-saving and wealth is kept in the family for generations. Hence, giving away money to an organisation which would benefit a village in some remote corner of India does not appeal to the public. Although they are generous people, personal donations tend to be even more personal - in the form of giving away food, clothes or money to poor servants and slum dwellers around their own area of living.

The good news is that India is waking up to the idea of philanthropy and many industrialists including Azim Premji, Sunil Mittal and Bajajs have set up their own foundations. In order to promote the culture of individual philanthropy India needs to introduce new tax laws (like inheritance tax in USA which is close to 50%). Bureaucracy and archaic laws which make non-profit organisations and donors run around for operations and tax savings respectively dissuade individuals from making charitable contributions. These should be reviewed by the government.

Social development as an investment is being promoted by a few institutions around the world. This approach attacks the problem that philanthropy is trying to solve in a novel way and may prove to be successful. Since India ranks high among foreign investors, inviting investments in the social sector is not difficult and is being carried out successfully by MFIs or MFI related companies like Legatum and Omidyar Network India Advisors. These investments are done in rural energy, health, farmer loans, education and other areas of empowerment such as property rights.
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