Tax within the context of philanthropic giving
12 March 2013
There are many myths and assumptions about Indian philanthropy, generally starting with the fact that there is not enough of it and not enough that is strategic and developmental.
However unlike certain countries that have never had a tradition, India, across its many religions, has a history of giving to the needy, a charitable approach that sees temples accruing fortunes through daana, tithing and wakf.
In recent years India’s social problems, social innovation, social entrepreneurship and the need for a more local solution rather than a reliance on international aid, are all subjects that have become more commonplace in dialogue and the media. Bill Gates has visited on a number of occasions to tout his pledge idea, but India is slowly starting to build its own momentum and own agenda for building a more equitable society.
The leading lights of Indian philanthropy are industrialists such as the Birlas, Bajajs and Godrejs who all founded their endeavours pre-1900 and maintain a culture of family and corporate giving. The real role model in India, however, has to be the Tata family who started their foundation in the late 19th Century and are today the most respected philanthropic institution in the country. The various Tata trusts control 66% of the shares of the main Tata holding group Tata Sons.
Building on this rich tradition, philanthropy in India has really come to life in recent years: over 62% of foundations in India today were founded since the economic liberalization of 1990. By 2010 private philanthropy in India had nearly doubled from figures reported in 2006 – reaching almost 0.4% of GDP and over $5 billion. Yet a recent Bloomberg TV debate carried the motion that ‘India is mean’. Compared to the US, where private philanthropy amounts to c.
2.2% of GDP, Indian philanthropy is still relatively low, particularly for a country ranked fifth in terms of the number of billionaires, 46 at the last count by Forbes magazine.
A large constraint on the growth of philanthropy is the tax system, which is much less generous than in the US or the UK. At present, only 50% of a charitable donation is eligible for a tax deduction and even this is capped at 10% of gross total income. Grantmaking is hampered by the lack of regulation of the charity sector. There is no equivalent to the Charity Commission and, worse, no single ministry or governing body oversees the non profit sector. There are over 12 different ways of registering a non profit and only the ‘Section 25’ non profit company has the level of transparency on reporting that could be helpful to a
philanthropist. When the Indian government surveyed the non profit landscape back in 2009 it estimated that there were over 3.3 million registered entities. The sector is large, poorly governed and opaque. As a result, a large proportion of these foundations have been set up as operational foundations, developing their own projects rather than supporting and scaling high impact non profits.
This lack of information is compounded by the weakness of the philanthropy advice sector. Intermediary organizations and advisors are emerging slowly but from a low base and the advisory sector is still tiny compared to the non-profit sector. A number of online platforms such as Guidestar, GiveIndia, Credibility Alliance, Samhita, have emerged recently but rarely analyse and present information about more than a few hundred charities or go beyond the mainstream sectors of health and education.
Despite these problems, there is a huge and urgent opportunity for givers in India. India has more poor people in its eight poorest states than in the whole of
Sub-Saharan Africa. India is home to 30% of the world’s poor, 25% of the world’s birth-related deaths, 25% of the world’s people with no access to improved
sanitation, and c. 37% of the world’s illiterate men and women, two thirds of whom are women. India is also a functioning democracy, has large-scale government schemes and not only a fast growing high net worth class but also a burgeoning middle class. There is freedom of the press, a growing interest in equitable growth and philanthropy across the media, and with less exposure to the global financial crisis the general environment for solving social problems is far more conducive than in more unstable countries.
The most effective philanthropy in India will be collaborative, long term and strategic. It will deploy knowledge (research and evidence-based decision
making), funding (long term, strategic) and people (networks, skills, experience and leadership). We need to get local philanthropists working together with
international donors, ensuring that global best practices are understood, local context is paramount, and local networks can be tapped. The good news is that there are organisations emerging who are driving this change – Dasra is now in the 4th year of its Indian Philanthropy Forum – a collaborative giving platform that sees donors commission research and join giving circles that are raising in excess of $1 million for selected high growth non profits. The forum hosts regular events such as Dasra Philanthropy Week in Mumbai 4-6 March. http://www.dasra.org/events-rsvp where over 600 social sector and business leaders will meet to discuss how to solve some of India's critical social problems.
There is a big difference between charity and aid – reacting to disaster and hardship with a short term solution and the kind of long term, sustainable problem
solving that can be achieved with strategically deployed philanthropic capital. I believe that in India there is an exit strategy for international charity eventually, and far sooner in India than many countries, so if you were to take a value for money approach – a £1 invested in India now has the potential to deliver far more value for money and lasting impact than a £1 invested in many other countries.