GENERAL INDUSTRY BACKGROUND

Social sector is an important sector for India’s economy and includes several important component such as education, health and medical care, water supply and sanitation, poverty alleviation, housing conditions etc. that play a vital contribution in human development. Social sector may also refer to the value system of an economy which fosters values such as philanthropy, social business, social entrepreneurship etc. The elements of liberalization and economic reforms have played a key role in the areas of social infrastructure and development. Important aspects of human development are now governed within economic sphere where market and private philanthropy play a vital role. Due to the rapidly globalizing competitive marketplace coupled with the increasing need to expand quality of life at the grassroots level and to spur innovative thought, policy makers in India are slowly but surely setting the social sector on the reform track. The private sector too is not left behind either. Several well-known impact funds and venture philanthropy funds have also shown interest in this unique and emerging business opportunity, which balances investor returns with social responsibilities and aims to uplift communities.

With the new CSR regime firmly in place, India’s social sector space is likely to witness newer forms of corporate philanthropy, and a governance template for institutional philanthropy would be urgently required in order to enable structural and process-related outcomes grounded in legal determinants. The recent passage of the Companies (Corporate Social Responsibility) Rules, 2014 (“CSR Rules”) has brought a sharp focus on the social participation and accountability of corporates. The CSR Rules articulate the policy and regulations to provide legal and organizational governance to CSR regime. With this, there is a need to develop a mechanism to measure philanthropic impact, and improve the transparency and governance of non-government organizations (“NGOs”) receiving contributions and CSR funds.

In the broader context of impact investing, Program-related Investments (PRIs) have also begun to be utilized as a means to achieve development outcomes in India. There is a growing consensus among domestic not-for-profit and social enterprises that PRIs hold great potential to significantly augment and impact the social sector landscape in India. Recognizing this, many domestic entities in India have started to raise funds through the PRI route.

India’s GDP is estimated to be USD 2.1 trillion in 2014-151 with close to 1.68% of GDP2 this year. Taking a conservative estimate considering 1.68% of GDP, market for the social sector in India could be no less than 35-40 billion USD.

LEGISLATIONS THAT REGULATE SOCIAL SECTOR

The Companies Act vide Section 135 has, for the first time, introduced the concept of ‘corporate social responsibility’ into the legal lexicon. The existing legislations governing the not-for-profit/social sector mainly relies on six important statutes. They are:

  • The Registration of Societies Act of 1860 and state-specific societies’ laws enacted by different states
  • A variation of the Indian Trusts Act of 1882 is in operation in different states. Maharashtra and Gujarat have offices of the Charities Commissioner to oversee charitable activities in these two states through the Bombay Public Trust Act, 1950; Tamil Nadu has a department of Religious and Charitable Endowments, and other states have something similar for charitable trusts
  • The Companies Act, in particular Section 8, Section 134, 135 and Section 149, CSR Rules and Schedule VII of the Companies Act
  • The Income Tax Act, 1961 with respect to providing fiscal benefits to non-profit entities, administered through the Directorates of Income Tax Exemption, in particular Section 11 and 12 about 12 A]
  • SEBI (Alternative Investment Funds) Regulations, 2012
  • Foreign Exchange Management Act, 1999 with respect to program-related investments (PRIs) and External Commercial Borrowings (ECBs) to domestic recipients
  • The Foreign Contribution Regulation Act, 2010 enacted to meet the special condition of inflow of foreign funds to charitable organizations

MAJOR TRENDS IN THE INDUSTRY

  • Based on a research conducted by Rockefeller Foundation, Social Impact investing which generated around $100 million (INR 6.12 billion) of capital in India last year and is set to grow at an annual pace of 30%.3
  • CSR funds to the tune of at least 1 billion USD (INR 61.2 billion) to be spend to build physical and social infrastructure
  • India’s rich increased their contributions from 2.3% of household income in 2010 to 3.1% in 2011.4
  • emergence of development sector practices, social auditing and consultancy work and new verticals
  • Institutional linkages between NGOs, private sector and/or PPP models set to increase

MAJOR INDUSTRIES/SECTORS

The major industries/sectors include education, healthcare, financial inclusion, agricultural, sanitation and rural development.

MAJOR PLAYERS

Bill & Melinda Gates Foundation, David and Lucile Packard Foundation, Acumen Venture Fund, Aavishkar Fund, Aga Khan Foundation, Incube Ventures, Unilazer Venture Funds, Sir Dorabji Tata Trust, OXFAM India, Ford Foundation, The Rockefeller Foundation, PRATHAM, PRADAN, PRAXIS India, S M Sehgal Foundation, Ashoka Foundation, Village Capital, ACCION Venture Lab, First Light Accelerator, Grassroots Business Fund, Omidyar Network, Michael & Susan Dell Foundation, Shell Foundation etc.


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