Warren Buffett and Bill Gates are in India this week to promote philanthropy and motivate ultra wealthy Indians to get involved in philanthropic activities. Can philanthropy truly help India How can philanthropists help tackle Indias vast social challenges Which philanthropic model can have the most impact in India Should government be doing more to encourage philanthropy These are the questions swirling around the trip; Mr. Buffett and Mr. Gates will probably face these questions from potential philanthropists, the media, and policy-makers.
Wealth is accumulating at an astonishing rate in India. Whether we count dollar billionaires or millionaires, we will soon have more wealthy people than any other country in the world except for the US and China. This is a natural byproduct of Indias rapid economic growth that will likely continue for many more years. Unfortunately, our economic growth has also been somewhat inequitable since it has resulted in income being concentrated at the very top of the economic pyramid rather than trickling down to the base of the pyramid. Moreover, these income effects have been compounded by our tax code that allows assets to accumulate over generations. Under these circumstances, it is vital that the Indian wealthy recognize how fortunate they have been and step up their philanthropic activities.
Mr. Buffett and Mr. Gates visit is therefore timely. Mr. Gates own efforts on behalf of the Bill & Melinda Gates Foundation (BMGF) demonstrate how philanthropy can help India. BMGF has already had significant impact on public health in India and has been instrumental in launching the Public Health Foundation of India. The Tata Trusts and the Birla Trusts are Indian philanthropies that have demonstrably improved Indian society through the various institutions that they have built and supported over many decades. But philanthropy is not just about financial capital. In many cases, the management and governance support provided by philanthropists is much more important than the money. Philanthropists have to create professional organizations and devote sufficient time to their philanthropic organizations to truly achieve enduring impact. Only then will philanthropy truly help India.
Indias new philanthropists can help tackle Indias vast social problems by providing capital and expertise to social entrepreneurs that are addressing problems at the base of the income pyramid. Because this goal can be achieved by both businesses and NGOs, investments in for-profit and non-profit enterprises make equal sense. In each case, philanthropists should seek innovative organizations with strong leadership teams pursuing a well-defined mission.
Social entrepreneurs seek to tangibly improve the lives of millions people year after year. People should be able to do things much better because they have now have access to new products or services that they could not afford or access earlier. For example, widely distributed solar lanterns from d.light design have significant societal impact because they replace kerosene lanterns. Replacing kerosene lanterns will save money in terms of total cost of ownership, reduce the carbon footprint, reduce the governments fuel subsidies, and improve health by reducing indoor smoke and particulates.
Philanthropists could also focus their efforts on sustainable enterprises for-profit companies and/or NGOs which require financial support only for a few years and then become self-sufficient. Sustainable financial returns for a for-profit company imply that the company is able to earn at least its risk-adjusted cost of capital. Sustainable financial returns are essential for such companies to attract high-quality human talent and to raise sufficient growth capital. For NGOs the economic sustainability test applies differently. NGOs have to create sufficient, demonstrable societal value to attract a diversified base of donors or generate multiple revenue streams.
Omidyar Networks experience with more than 100 enterprises (for-profit companies and NGOs) has demonstrated that the best organizations are able to achieve both outstanding social impact and economic sustainability. These organizations focus laser-like on satisfying their customers, running disciplined enterprises, controlling costs efficiently, and being responsible stewards of their resources.
Government support can accelerate philanthropic activities in India. Philanthropists and the government have been working together closely for decades in India. The Tata Trusts have established several major institutions such as the Indian Institute of Science and Tata Institute of Fundamental Research that are now supported by the government. The Birla Trusts working together with the Ford Foundation, MIT, and the Indian government set up BITS Pilani. The Ford Foundation was also a key participant in the Green Revolution in India. Pratham has been helping improving the quality of education in Indian schools and receives substantial support from the Hewlett Foundation. The Premji Foundation is working with government schools across the country to improve educational outcomes.
Tax policies might support philanthropy in India. Charitable contributions are tax deductible in India, as they are around the world. However, we do not have estate taxes and thus a tax-advantaged way to set up Foundations. The US estate tax system encourages the establishment and regulation of public, private, and community foundations. We need public debate and discussion on whether such approaches would spur more philanthropic activity in India.
Philanthropy is much more than just giving by the ultra wealthy. It requires commitment, time, and a genuine desire to improve the lives of the poor by all Indians that are at the top of the economic pyramid. Many Indians are already dedicating themselves to improving our society and helping the less fortunate. We need to make this a movement for positive social change in India.
The author is managing director, Omidyar Network Advisors India. These are his personal views