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Philanthropy and Charitable Giving – The Challenges of COVID-19 in India

-Dr. Joshy KJ and Manoj Morais

Philanthropy is often referred to as the desire and action to promote the welfare of others, expressed typically by the generous donation of money to a good cause. In Economic science, philanthropy is a benevolent behaviour towards the wellbeing of others. It is also seen as a mechanism of wealth redistribution. Philanthropy and charitable giving are often used interchangeably, but they are different concepts. Charity is the immediate, impulsive and compassionate response to distress, and is essentially for the short term whereas philanthropy is a reasoned approach keeping in mind the larger picture and adopts a long-term perspective. Philanthropy is much more strategic and it is built-on the principles of rethreading the socio-economic structures whereas charitable giving is largely an immediate call of action or response towards a welfare cause.

Background of Philanthropy in India

Philanthropy does have a long tradition in India and the concept of ‘daan’ is very much familiar irrespective of religion and culture. India’s socio-economic roots of philanthropy date back to ancient times which in turn established the traditions of philanthropic engagement, social service and voluntary work. In this connection, the charitable giving in India was always guided by religion; its principles, values and beliefs and it continues to influence the giving behaviour of its followers. Apart from religion, certain factors related to the socio-economic and political aspects have also indeed influenced and further accelerated the emergence of civil society and shaped the role and practice of philanthropy in the country as we see today. In the background of Indian tradition, the legend on charitable giving was built with respect to the charities made by rajas and sultans. Such charitable acts were also taken up by merchants, courtesans and even the ordinary households. To make it brief, it is evident from India’s philanthropic history that the concept of ‘daan’ or charitable giving was guided by religion and the holy scriptures of all the major religions do reflect the same principles and values which directly or indirectly encourage the faithful to actively engage in charitable giving.

Philanthropy sector and its Growth in India

There has been a remarkable increase in the charitable giving from individuals in India as the figures show a six-fold increase in recent years, approximately to ₹36000 crores in 2016 as compared to ₹6000 crores in 2011. This gives us a clear signal that the Indian philanthropy market has matured over time mainly due to the rise in funds contributed by the individuals faster than the funds flowing from the foreign sources and corporate social responsibility (CSR) channels. The improvement in the macroeconomic conditions in the post-independence period, more particularly in the post-economic reform period (after the introduction of liberalisation measures in Indian economy), has given rise to the emergence of ‘ultra-high-net-worth individual households’ that in turn has given a fillip to more philanthropic activities. Also, an increase in the individual philanthropists in India is indeed an important phase in the growth of Indian philanthropy sector. Since then, India’s philanthropic donors and charitable donations have made remarkable growth in terms of its number, value, and public profile as well.

Figure 1: Private funds vs Central government funds for social sector in India

 

Accordingly, the growth rate of private funding has been at 15 percent annually between 2014 and 2018 thus outnumbering the growth rate of public funding which has constituted only 10 percent per year. Similarly, the report also indicates that there is a slowdown in foreign funding, especially in recent years owing to the stricter norms introduced by the Central Government. As per the recent changes in the Foreign Contribution (Regulation) Act 2010 (FCRA), the entity seeking registration has to file an affidavit stating that it is not fictitious, has not been prosecuted or convicted for indulging in forced religious conversion or creating communal tension, and is not engaged in the propagation of sedition or found guilty of misutilising funds. Nevertheless, the private funding led by the individual philanthropists continues to grow year by year.

Figure 2: Private funding breakdown by segment (Total INR 70,000 crore)

 

The private funding segment has recorded an enormous growth with about 21 percent per year in the last five years which currently contributes around 60 percent of the total private funding, estimated to be at INR 43,000 crore. However, it is worth mentioning that a significant portion of this is contributed by few established figures. For instance, more than 80 percent of the funding from the ultra high net worth individuals’ 55 percent (shown in red in figure 2) is from Azim Premji Foundation, solely funded by the well known industrialist Azim Premji.

The huge growth of the Indian philanthropy market is credited with strong macroeconomic fundamentals with a consistent rise in income and greater interest in the wellbeing of the society. The increase in individual philanthropists constitutes an important phase in the growth of Indian philanthropy market. Alongside, the number of ultra-high-networth individual Indian households has doubled since 2011 and their net asset base has trebled during the same period.  Also, it is worth mentioning that the individual charitable contributions have been outpacing the contributions made by foreign sources and corporate social responsibility (CSR) shares over the recent years.

Role of Charity Organisations During COVID-19 Times

The lockdown in India, starting from the middle of March 2020 tallies to many days now. Even if, the restrictions pertaining to lockdown have been eased to a great extent, people at different income and social status, ranging from migrant workers to middle class households are confronted with numerous hardships, especially due to the loss of livelihood and lack of financial support. Similarly, the owners of start-up units and small and medium scale enterprises are facing the heat due to the closure of the business for this long time at the expense of different overhead costs with no or falling business. However, the condition of the migrant workers is worse, as the majority are stuck, with little or no money at hand, but still forced to meet both ends somehow. In the same way, people who are homeless and largely depend on the public for meeting their basic necessities are also prone to hunger, acute poverty and miserable living conditions.

This situation calls for an immediate action from the people and the government in the form of charitable giving which would definitely support those who are in need. Charitable giving is not necessary in the form of money alone; it could also be gift in kind or a volunteer’s time. Although, various personalities from politics as well as from film fraternity have come forward to help those in need, we, India as a society requires much more to produce an optimum output.  Since, such actions do have social benefits, it indeed provides positive externality. The analysis in economics addressing positive externalities calls for an increase in the output to be socially optimum due to the benefits received by the society at large. In this case, we need more people to come forward towards making charitable donations to help those in need.

Ideally, there should be more NGOs, religious organisations and public sector undertakings possibily taking initiatives during a pandemic time like this in connecting the people in need (demand side) and the people ready to provide (supple sid) through all possible channels including online portals. They should be transparent in terms of their operations and clearly state their objectives in front of the public. For example, they need to issue public notification regarding the contributions and let the people know the mechanisms to provide food and shelter to people in certain areas and how they would be doing it. They would be responsible for supplying the details about how much is the spending per head and the costs associated with the fundraising and in carrying out the operations. These organisations can take the lead in mobilizing the other necessary items like clothing and housing. They can take initiatives in ensuring the availability of basic facilities for transportation and communication, including the provision of vehicles for workers and ambulances for patients. They need to take active role in spreading awareness among the people about the importance of social distancing. In addition to the organisations mentioned above, private parties can also take up charitable activities and support the government programmes in place.

However, raising funds or gifts for charity purposes, during pandemic times, may not be as easy as we think. First, it requires a lot of efforts in convincing the people, particularly the donors, at large. Second, there would be a drastic fall in the charitable giving, at least for a short period owing to the macroeconomic factors like decline in income, employment, aggregate demand etc. Some of the researches in the field of economics with respect to charitable giving spell out the way to find solutions to successfully attract potential donors. For instance, a sample survey among the whitecollar employees in Bangalore concludes that the decision to make donations is influenced by three sets of factors, namely benevolence, warm glow and socio-demograhphic factors like gender, age and education. I this,  benevolence and warm glow are attitude related factors. At the same time there are gender differences in charitable giving, as some of the studies point out that women are more altruistic than men. Likewise, factors like age and education do have a positive relationship with charitable giving. It implies that the fundraisers can evolve fund-raising straegies based on the three factors mentioned above in order to attract potential donors, by way of different means including the online platforms.

Indian Economy in the face of COVID-19

The outbreak of the pandemic, unparalleled to many earlier economic episodes, characterised by both demand and supply shocks resembles a war-like phenomenon. Charitable organizations around the world have suffered in recent months with income and fundraising streams drying up as tens of millions of people lost their jobs or faced greater financial difficulty. According to a survey carried out for Dunham+Company, about 53 percent of donors said they plan to be giving more carefully during the pandemic but will continue to still donate, while 20 percent said they would stop until there’s a return to economic growth. It shows the immediate reflection of charitable giving market on the face of the global pandemic.

As we know, Indian economy largely relies on consumption driven growth and service sector jobs, is a naked truth. The crisis has its own adverse impact on the labour market, goods market and financial market. It has reduced the income levels of people leading to a decline in the household consumption expenditure. It in turn will definitely have a huge negative impact with reverse multiplier effect, both in short and long periods. On the supply side, this would necessarily mean cut in production which would obviously result in job loss and further increase in unemployment levels. The revised GDP growth rate forecasts for FY2020-21 by international credit rating agencies (Fitch ratings— 2 percent, ADB– 4 percent, S&P Global Ratings– 3.5 percent, Moody’s Investors Service for calendar year– 2.5 percent) cast shadows on the future of Indian economy. It must be noted that with 520 million workers, the Indian labour force is the world’s second largest as of 2019. When the economy turns towards a recession due to both severe demand and supply shocks, it may eventually lead to stagflation, characterised with the coexistence of high inflation and unemployment percentages.

Based on pre-COVID-19 projections of India’s GDP, the average daily GDP value for 2020-21 is estimated to be at about $8 billion. On the one side, the extended lockdowns will heavily hit the income and productivity with a negative cascading effect on the consumption and saving levels and on the other, it will cast shadows on the possibility of economic recovery in the near future. Since there is a direct connection between the income level and the charitable giving of people, there would definitely be an adverse effect on the future of charity market.

Future of Charitable Giving in India

Indian philanthropy market indeed is growing at a faster rate which simply means that more and more people are showing interest in charitable contributions. Some of them are obviously getting into volunteering services whereas others are making monetary donations or rendering services in kind. Similarly, corporate houses and private organisations also get into such initiatives through corporate social responsibility (CSR) activities.  Religion, too plays an important role in encouraging the followers in actively taking part in charity works. There are many organisations under government ownership and management actively involved in such works. But the prevalence of poverty, hunger, illiteracy and generally a poor quality of life shows that the supply is well short of what is  demanded. In order to meet the demand for the public good (charity), it is indispensable to raise the pace of production along with the increase in productivity. Another important aspect is the need to evolve or upgrade the system to ensure transparency in the distribution of services which in turn will help to gain trust among the potential donors.

The charity market, in all probabilities would show a declining trend due to the relation between economic prosperity and charitable giving. Thus, the future, looks bleak in terms the possible income flow into the charity market, at least for the short and medium term. It calls for immediate attention on the part of the Government agencies through the increase in charity activities to deal with the rising unrest among the needy sections of the society. The time taken to establish normalcy would be at the cost of the wellbeing of the poor, marginalised and migrant workers. Thus, special schemes and policies can be framed to address the basic needs of the target groups through aggressive direct spending rather than any other method which involves a time lag. In short, the need of the hour is the presence of more and more individuals and organisations in the charity market which would eventually help in reducing the gap between different strata of the society.

-Contributed by:

Manoj Morais – Adjunct faculty and PhD scholar, Department of Economics, CHRIST (Deemed to be University), Bangalore.

Dr. Joshy K J — Associate Professor and Head, Department of Economics, CHRIST (Deemed to be University), Bangalore.

Source for Figures 1 & 2: Indian Philanthropy Report 2019, Bain & Company

Picture Credits: udayfoundation.org



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