State of Indian Philanthropy

India The following is a post I had written for Give2Asia Forum:

“India leads other developing nations in charitable giving. However, we still lag far behind developed countries,” said Arpan Sheth, a Mumbai-based partner at Bain & Co., in his speech on the State of Indian Philanthropy at the Indian Philanthropy Forum. Organized by Dasra, the forum was launched on March 18 in Mumbai, and is a giving circle that brings together a community of philanthropists committed to high-impact effective solutions to poverty in India and requires a membership fee of INR 20,000 to join.

Arpan Sheth started his presentation by providing some figures on charitable giving in India as compared to other countries. In 2006, India’s giving totaled close to $5 billion; in 2009, that would grow to $7.5 billion. Based on Bain’s analysis, philanthropic donations would amount to 0.6% of India’s GDP. This is better than Brazil (0.3%) and China (0.1%) but compared to the US (2.2%) and UK (1.3%), India still has a long ways to go.

In the US, individuals and corporations are responsible for 75% of charitable gifts. In India, individual and corporate donations make up only 10% of charitable giving. 65% comes from India’s central and state government and the remaining gifts are provided by foreign organizations.

Arpan believes that the growing number of wealthy individuals should give more and that they can afford to make larger donations. For example, he points out that Bain’s research shows nearly 40% of the nation’s wealth is controlled by the top 5% of India’s households. There are now 115,000 high-net worth individuals in India, a number that is growing at an average of 11% annually. However, he found that “giving does not necessarily rise with income and education.” The wealthiest have the lowest level of giving.

Arpan then argues that Indians are generous people, but that there are three main factors that constrain giving in India.

1. It takes about 50 to 100 years for philanthropic markets to mature. The number of wealthy grew after economic reforms in the 1990s. Those with hard-earned wealth are not ready to part with their money yet.

2. Donors believe that support networks are not professionally managed and are afraid that their contributions would not be put to good use – or are at risk of being misappropriated.

3. Personal giving and corporate social responsibility initiatives are blurred. Many Indian corporations are family-owned or -controlled enterprises. They view corporate giving as an extension of their own philanthropy.

Donation-support networks such as legal and tax structures and non-profit groups are at their infancy but have the potential to gain donor confidence. Arpan states that the US tax structure provides incentives for creating private foundations, but this is not the case in India. Despite this, there are some wealthy individuals in India who are establishing foundations, and he provided the Bajaj trusts and the Bharti Foundation as examples.

Arpan then mentioned that there are some two million charities in India, but only 500 are large enough to be effective. With more than 400 million people, or around 40% of India’s population, living below the poverty line, he argues that charities need to be more professionally run with proper staff and operating transparently so that more people will contribute.

Finally, he points out that there are many hurdles and laws that make the work of charities more difficult. For example, the current tax deduction structure in India does not encourage charitable donations. Charities must obtain a Foreign Contribution (Regulation) Act certificate in order to receive foreign funds. In addition, the bureaucratic process to obtain tax exemption status is cumbersome. However, Arpan ended his presentation with high hopes and “expects a culture of philanthropy to firmly take root in India.”

At Give2Asia, approximately one-third of our charitable funds are invested in India. Many of our donors have a personal or business tie to India, and wish to give back and support organizations there. As Arpan mentioned, our tax structure in the US provides incentives for charitable giving, and our donors are able to make tax-deductible gifts to support projects in India. In the future, I hope India can create an enabling environment for philanthropy to thrive inside India. In addition, I hope the culture of philanthropy in India includes the best practices we have in the US, as well as the inclusion of core values inherent in the Indian culture.

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