Family philanthropy funding triples but social sector will still see a deficit

Funding from family philanthropy tripled its corpus to ₹12,000 crore in the last financial year but the social sector will continue to see an annual funding deficit because of a pandemic-induced setback, says a new report. India’s rich continue to contribute a lot less compared to their American counterparts.

A decline in revenue and profitability from the pandemic will impact Indian corporations’ ability to contribute to the social sector through their corporate social responsibility (CSR) initiatives, according to the India Philanthropy Report 2021 by consulting firm Bain & Company and Dasra, which tracks the space. The CSR corpus is expected to fall by 5% in 2021, after growing 17% between 2014 and 2019. The pandemic has also led to a diversion of social funds towards Covid-19 relief initiatives, away from traditional non-profits and sectors.

The sector has also suffered from a 30% decline in international non-profit contributions over the past five years mainly due to the changes in regulations under the Foreign Contribution (Regulation) Act, 2010 (FCRA), said the report. According to Bain and Dasra, India also spends a lot less on the social sector compared to other BRICS (Brazil, Russia, India, China, and South Africa) countries, with the government accounting for the majority of public funding for the social sector.

Meanwhile, the report says that family philanthropy accounted for two-thirds of the increase in funding since FY19, and contributed 20% of the total corpus.

“These donors have a greater ability to innovate, build institutional capacity, and experiment with new forms of giving—all of which augurs well for the future of family philanthropy in India,” says Arpan Sheth, partner, Bain & Company.

In FY20, total private sector funding, stemming from foreign, corporate, retail, and high-net-worth individuals (HNIs) or families, rose 23% to ₹64,000 crore. The report pointed out that foreign contributions made up a quarter of all funding, CSR accounted for 28%, while retail investors made up another 28%.

Playing favourites

HNIs or rich families who give, however, have their own biases; education and health-focussed funding are most favoured by family philanthropy. This means that other areas such as gender equality, where India lags behind massively, may not receive adequate attention and resources.

Secondly, India’s wealthiest people are concentrated in cities like Mumbai, Delhi, and Bengaluru, and their contribution to philanthropy is concentrated to these metros. These cities account for 77% of ultra-high-net-worth individual (UHNI) wealth and 85% of total actual donations.

“While there is immense room for growth with large untapped potential across other high-net-worth sectors, not all sectors benefit equally... technology accounts for about 9% of family net worth but is the focus of 26% of all family philanthropic giving,” the report highlights.

Compared to their peers in the U.S., who receive big tax benefits, Indian philanthropists donate a smaller portion of their wealth.

Big potential

The number of rich individuals and families in India is increasing. According to a report by Oxfam, 100 of India’s billionaires have seen their fortunes increase by ₹12,97,822 crore in a year since the pandemic. India also added 40 billionaires in 2020. Meanwhile a Knight Frank report says that India’s UHNI population will grow by 63% to 11,198 by 2025.

The report says if these families were to give as much as their global peers—2%-3% of their wealth—it could create an additional annual investible corpus of ₹60,000 crore-₹1 lakh crore for the non-profit sector. “Such giving would be transformational,” it says.

The report emphasises on collaboration between funders, government, and NGOs, to solve complex social issues. “The importance of unlocking groups outside of the existing cohorts of families to increase their giving could also bring significant impact,” it says.