Riding on the back of tremendous economic growth in the past decade, India has now become the fifth-largest economy in the world. Not all this growth has been inclusive, however. The gap between the top 1st percentile and the bottom 50th percentile has continued to widen. In addition, the Covid-19 pandemic has pushed more than 200 million Indians into poverty. Although social sector funding in India, primarily driven by the government, has grown approximately 12% annually from approximately INR 10 lakh Cr. to about INR 17.5 lakh Cr. over the past five years, gaps remain.
The India Philanthropy Report 2022 calls out past trends for each of these funding sources indicating that overall private giving (domestic and foreign) has stayed relatively flat over the past few years.
According to NITI Aayog, India needs to funnel approximately 13% of its GDP into social causes—the current average is about 7%—to achieve its United Nations (UN) Sustainable Development Goals (SDG) commitments by 2030.
With state finances negatively affected because of the pandemic and government debt increasing, private philanthropy must realise its full potential and play a crucial role in bridging the gap. Overall private giving (domestic and foreign), however, has stayed relatively flat over the past few years, while private domestic giving has grown at a moderate pace (8% to 10% year over year [YOY]). Corporate social responsibility (CSR), family philanthropy (ultra–high-net-worth individuals [UHNIs] and HNIs), and retail giving cumulatively contribute about 84% of the total private philanthropic capital in India; they will act as three strong pillars as we move ahead.
CSR, driven by the 2% mandate, has grown at 15% annually in the past seven years, with its share in total private giving growing from approximately 12% in fiscal year (FY) 2015 to 23% in FY 2021. Riding on rapid economic growth, formalisation, and more companies coming under its umbrella, CSR contributions are expected to grow at 19% annually, with its share expected to reach about 32% of total private giving by FY 2026.
Family philanthropy, in contrast, has contracted overall. UHNI giving has decreased from the peak of 2016, while HNI giving has grown at a modest pace. Relative contributions (giving as a percentage of wealth) among Indian UHNIs range from 0.1% to 0.15% compared with 1.2% to 2.5% in the United States, 0.5% to 1.8% in the UK, and 0.5% to 1.4% in China.
Overall, however, family philanthropy is expected to grow at a robust 13% per year until FY 2026, driven by increasing wealth and a rise in the number of technology entrepreneurs and NowGen philanthropists. Retail giving in India is mostly unorganised and often an emotional and impulsive decision.
It has grown at a modest 5% annually from INR 21,000 Cr. in FY 2015 to INR 28,000 Cr. in FY 2021, but with the ballooning middle class and the sheer growth in the number of donors, retail giving is expected to grow at approximately 10% annually and contribute one-fourth of total private giving by FY 2026.
As we advance toward transforming India and propelling its growth story at the scale and pace needed, a real opportunity exists to invest in and support different funder groups across CSR, family philanthropy, and retail giving.
To continue the momentum and further accelerate giving in India, it will be imperative to build on the short-term transformational potential of CSR, greater investment
in building an enabling ecosystem for retail and high-potential HNI givers, and increased thoughtful social investments by NowGen philanthropists.
All funder segments must be more knowledge led and flexible in their giving; they must engage with their grantee partners as equal stakeholders. Building a robust philanthropy infrastructure for all segments is critical for the next decade of India’s growth, and the institutional funders must invest in it.
Social sector funding
In the past decade, India has witnessed tremendous economic growth and been one of the world’s fastest-growing major economies. It is now ranked as the fifth-largest economy in the world in absolute GDP and the third-largest economy in terms of purchasing power. In terms of per capita GDP, however, it ranked 153rd in 2010 and increased only marginally to 144th in 2021. The trend has been further accentuated by the pandemic, which pushed more than 200 million Indians into poverty, widened the inequality gap, and hit disproportionately disadvantaged communities hard.
These and other indicators establish that although the country’s economic trajectory has been strong, its development story can hardly be called inclusive. Progress and access to opportunities have missed the most vulnerable geographies and populations. It is imperative that the pace of action accelerate toward inclusive and sustainable development—now more than ever.
The total social sector expenditure in India has seen a robust 12% annual growth from approximately INR 10 lakh Cr. to about INR 17.5 lakh Cr. over the past five years. In fact, FY 2021 witnessed a sharp increase, with a 20% jump in total expenditure. Most of this rise, however, has been a result of increased government expenditure: public funds (central and state social expenditure) account for approximately 93% of the total, up from approximately 90% five years ago.
With the total supply of funds at an average 7% of GDP in recent years (8.3% in 2021, however), India is still short of NITI Aayog’s estimation of the total annual funds needed (approximately 13% of the GDP)iv to achieve its UN SDG commitments by 2030. The result is a deficit of INR 8 lakh Cr.
for FY 2021 and INR 10 lakh Cr. for FY 2026 if the same trajectory continues.
In fact, India’s social sector expenditure as a percentage of GDP is less than neighbouring countries and other countries, such as Brazil, Russia, India, and China, and some way behind Organisation for Economic Co-operation and Development countries. The glaring deficit of social sector funding in India must be plugged. As with any developing nation, the government has been taking most of this burden, but with increasing fiscal deficit and higher debt burden following the pandemic, government finances will be limited. It is here that private philanthropy comes into the picture, with its ability to bridge some of the gap if it realises its true potential.
