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Slowdown takes a toll on corporate donations to IIMs

IIM-Ahmedabad revises its fund-raising target downward

Vinay Umarji & Kalpana Pathak  |  Ahmedabad/ Mumbai 

The economic slowdown has not only taken a toll on India Inc’s bottomline but also on the hopes of Indian Institutes of (IIMs) which planned to seek financial contribution from the corporate world to build their corpus.

(IIM-A) which, this March, for the first time decided to knock on the doors of business houses to raise direct contributions, is now pinning hope on its alumni association.

The institute, which had set itself a target to raise $50 million, (around Rs 250 crore) has scaled it down to $10 million (Rs 50 crore approx.)

“Corporates have not been making profits. In such a meltdown scenario, it is a pipe dream to aim for attracting financial contributions worth $50 million from corporates and alumni. We don’t see any financial contributions coming from corporates. Hence, we have reduced the target to $10 million,” said Samir Barua, director of IIM-A, on the sidelines of a press conference in Ahmedabad.

However, having hosted several alumni meets as part of its 50 years’ celebrations, IIM-A has received close to Rs 40 crore of fund commitments from previous batches.

IIM-A had also initiated a process of raising funds through alumni contribution as part of its celebrations. For instance, Rasesh Shah's 1989 batch made arguably the largest contribution commitment of Rs 2.3 crore to IIM-A’s efforts of raising a corpus through alumni contributions. Individually, an alumna of the 1975 batch had committed funds worth Rs 5 crore as against an entire batch of 1989 pledging Rs 2.3 crore, Rs 1.75 crore has been remitted.

IIM-Bangalore director said though the institute has not experienced any signs of slowdown so far, it fears the situation might change.

IIM-Bangalore accepts donations in cash, transfer of appreciated stock or equities, tangible assets and endowments in cash or in kind (property).

IIM-Calcutta, on the other hand, does not have a fund-raising programme from companies. Ajit Balakrishnan, chairperson said, “In this kind of a tax regime, the institute does not have a fund-raising programme at all.”

have for long been considering the idea of raising funds from business houses. For this purpose, in 2010, the Ministry of Human Resource Development (MHRD) had asked Balakrish-nan to study the system, especially in the context of the education sector and make suggestions, with reference to tax breaks and tax provisions.

In fact, MHRD has been evaluating options for the to build a corpus. Suggestions on allowing the donor to avail of tax exemption on their donations to institutes; option of non-cash endowments and allowing grant of stock or equities and not incur tax on long term capital gains are being considered.

“The entire value of the gift could be exempted from IT as a charitable gift, making it of double benefit to the donor. For endowments in cash or in kind (property), the principal amount remains intact and expenditure would be from the interest accrued,” a senior MHRD official told Business Standard. Securities donated could have the dual advantages of no capital gains tax and tax exemption as charitable donation.

In the year 2010, Hari S Bhartia, chairperson of IIM-Raipur and head of an HRD ministry committee on raising funds for the IIMs, had presented the recommendations of the committee on fund raising by His recommendations included setting up of a development office and campaign committees in each IIM. He enumerated possible ways of fund raising like solicitation of mass alumni, campaign committees, academic seminars, lunches and dinners, formation of board of counsellors, board of visitors, etc.

The Bhartia committee used case studies from the fund-raising campaigns undertaken by Yale University in its $3.5 billion campaign.

Indian companies have been seeking tax breaks from the government to increase donations in terms of endowments to higher education institutions.

“Corporations have to give endowments and we support a tax break of over 100 per cent towards the same. If you want more research to take place, more donations are required and the government needs to encourage this through tax breaks,” Rajan Mittal, vice chairman and MD of Bharati Enterprises had earlier told Business Standard.

At present, donations by companies to higher education institutions overseas is tax exempted as these institutions are run by trusts.

However, many of the trusts running education institutions in India are exempt from tax only if they are registered under the charities commissioner or as a Section 25 company under the Income Tax Act.

Also, many companies donate to international institutions abroad as mostly the Indian Income Tax Department does not recognise these donations as legitimate ones but as a tax evading exercise.

Also, these business houses say they prefer transparency with regard to the use of funds donated by them.

In October 2010, Harvard Business School received a $50 million donation from the Tata Group. Prior to this, Anand Mahindra, head of Mahindra Group, gave $10 million to Harvard, where he earned his undergraduate and master’s degrees.

First Published: Fri, July 27 2012. 00:57 IST