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Devesh Kapur: Decoding India's nonprofits

We need better data about the sector

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In the last few years, there has been at least some degree of improvement in the transparency of the Indian state, driven considerably by increased . While this is to be welcomed, there has been less movement on the transparency of civil society itself. Given its growing role, whether as activists, in service delivery, through collective action by membership-based organisations, or even in money laundering, the lack of systematic up-to-date empirical information is unhelpful for the sector’s long-term health.

A new report by the implementation sheds some light on this black box by focusing on an important component of civil society: non-profit institutions (), in particular those registered under the Societies Act, which constitute the bulk of such organisations.*

The report draws on an ambitious survey implemented in two phases. In the first phase, a comprehensive list of societies was prepared from the Registrar of Societies in each state; the second phase involved physical verification of these societies, and collection of financial and employment data. The report took six years.

The first phase of the survey identified about 3.17 million NPIs registered under the Societies Registration Act, 1860, and the , 1950. As many as 58.7 per cent of these were located in rural areas. The majority of NPIs were engaged in community, social and personal services, cultural services, education and health services. Subsequently, in the second phase, these listed societies were physically surveyed. Nearly 2.2 million societies – 71 per cent of the registered societies – were visited, but final survey results were obtained for just 694,000, or 22 per cent. In Andhra Pradesh, barely 15 per cent of the 434,000 NPIs identified in the Phase-I survey could be traced, while in Tamil Nadu about 70 per cent of the NPIs were not traceable. While some had shifted their address, others existed as “paper organisations”, possibly registered for extracting funds from government agencies. Thus, for nearly four-fifths of all societies, we don’t even know whether they actually exist (there is no provision for deregistering defunct societies), whether they do anything — and, if not, why they exist.

In most of the states, the provision of submitting financial statements is not enforced. Many of the NPIs traced had poor employment and financial records and, even if they did, often refused to furnish their audited accounts, especially if they did not receive funds from statutory bodies. Even if the societies file their financial statements with the Registrar’s office, there is no mechanism to maintain this database, a sad commentary on the quality of statistics at the state level.

Despite these limitations, the report sheds much-needed light on this sector. Three activities – social services (37 per cent), education and research (24 per cent), and culture and recreation (15 per cent) – account for 76 per cent of the traced societies. The number of NPIs reporting religion as their primary activity is surprisingly low — less than five per cent (down from 18.4 per cent in 1970). Nearly 80 per cent of the traced societies were formed after 1990, and just three per cent before 1970. The total workforce – 18.2 million workers – exceeds the entire public sector workforce. However, only 2.7 million are paid workers (the rest are volunteers). Surprisingly, female workers in these societies make up just 28 per cent, not much higher than in the non-agriculture workforce in general.

With regard to finances, 54 per cent of the funding of these societies comes from grants, while 16 per cent comes from donations and offerings, and 16 per cent from income from operations. Nearly half the funds are deployed for education, followed by social services (20 per cent) and health (11 per cent). While half the expenditure is incurred on the purchase of goods and services, wages and salary account for 28 per cent.

The survey divides these NPIs into three groups: those whose activities are largely financed through government aid/grants (“societies serving government”); professional associations, chambers of commerce and so on, which serve the common interests of their members (“societies serving industries”); and societies that provide goods or services to households and are not mainly financed by the government (“societies serving households”). The last category includes religious societies, clubs, trade and labour unions, resident welfare associations and so on. Societies serving households make up 89 per cent; eight per cent and three per cent serve the government and industries, respectively. Nearly two-thirds of the total funds (Rs 72,792 crore) are used by societies serving households; 32 per cent by societies serving government. About half of these funds go towards education and research, and just under three per cent for religion.

An interesting puzzle is the variance across states — whether in the distribution of who the NPIs serve (households or the government sector), or by purpose. Thus,while 46 per cent of NPIs in Goa serve the government, the figure is just 0.8 per cent for West Bengal. While more than 43 per cent of NPIs in West Bengal focus on culture and recreation, just 10 per cent do so in Uttar Pradesh (UP). On the other hand, while around 11 per cent of organisations in West Bengal focus on education, 38 per cent do so in UP. Is this because Bengalis have a high preference for recreation? Or the limited space for non-state education under the three decades of CPM rule? Or there is simply more need for education in UP? Have politicians in UP figured out better that money laundering is easier through education-focused NPIs (the surveyors found that in UP, obtaining information from education-focused NPIs was especially difficult)?

While the survey is a commendable effort, the growing importance of this sector demands a more systematic informational strategy than the depressing record-keeping of the Registrar of Societies. Currently, registration of NPIs is a one-time affair with no provisions for renewal of registration or de-registering. Consequently, the authorities do not have any information other than what is available in the records submitted at the time of registration.

A uniform country-wide approach is essential. Since NPIs need to apply to the income tax authorities for exemption of income (12-A) and 80-G (for donors to get exemption), this could be made conditional on filing returns, somewhat on the lines required for for-profit companies — perhaps leveraging the electronic platform used by the ministry of corporate affairs.

Transparency, however, should not mean high transaction costs. This is especially important for the vast majority of small NPIs. NPIs below a certain income or expenditure threshold should be required to update their records only once every few years; and, as with income tax filers, smaller NPIs should be required to file minimal information while those above certain thresholds should file more information.

Critically, all this information should be freely and easily accessible to the public. The sad reality is that the Indian state demands information but then simply sits on it with virtually no capacity to organise the information, let alone analyse it. Defaulters are rarely taken to task, unless for rent-seeking. A healthy and vibrant civil society is best self-governed as much as possible, but the state can facilitate this by creating its informational underpinnings.


*The report is available at: http://mospi.nic.in/Mospi_New/upload/Final_Report_Non-Profit_Instiututions_30may12.pdf 
The writer is director of the Centre for the Advanced Study of India at the University of Pennsylvania

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