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.