India is a hub of social entrepreneurship activity and a testing ground for scalable, innovative and inclusive business models - first, due to the variety and extent of its problems, and secondly, because of its thriving entrepreneurial ecosystem. The combination of these two factors has opened up a massive market at the "bottom of the pyramid". A large number of entrepreneurs and social enterprises are riding this wave and an increasing number of impact investors are funding them.
Impact investing has been receiving policy attention at the highest levels of the G8 countries. It is time the same happens in India. For impact investing to continue scaling up here - which would bring to India significant private capital and professional expertise - it would need a more intentional and proactive relationship between the government and the range of actors involved in the impact investing sector, both for-profit investors and philanthropic funders. For its part, the private sector also needs to take the initative and showcase the scalable impact potential of social enterprises to the government, as well as advocate for a more conducive policy environment for impact investors.
Together, the government, companies, non-profits and impact investors make up a four-lane highway for social impact. Combined, they account for over $250 billion in annual social investments, out of which the vast majority is the government's budgetary allocation on social programmes. Compared with this massive outlay, the contribution from corporate and impact investors can almost be considered marginal. Yet the most vocal voices on impact investing and social outcomes are mostly in the private sector. This is where the discourse and the action in the space need correction. The government needs to be a critical stakeholder and speaker in the impact investing space and work in close tandem with the private sector to ensure delivery of inclusive growth for the marginal and the under-served segments of society.
For this to take place, the government should follow a three-step agenda:
Providing a better investment environment: First, while there has been traction in the overall venture capital sector, social enterprises have been overlooked. A better environment needs to be created for domestic and international impact investors to unlock increased amounts of capital focused on double bottom-line returns. Greater thrust on effective incubation services and building regional innovation hubs through partnerships with the private sector and academic institutions can support start-ups whose markets comprise underserved populations. The government has done this in the past by supporting the information technology (IT) industry and offering tax breaks for rapid capital deployment. A similar policy thrust can similarly help build up the impact investing space in India.
Support to scale up successful enterprise models: Second, the government should act as a catalyst for models that are showing results. Transformational change cannot be achieved by depending only on the capabilities of an enterprise or entrepreneur. For example, if there is a start-up offering high-quality and affordable healthcare services to rural areas, its impact should be amplified through a public-private-partnership-like programme structure with the public health centre (PHC) delivery system. The government should earmark a portion of the Rs 10,000-crore fund for start-ups to support the expansion of demonstrated enterprise models into under-served areas, and to provide funding for successful social enterprise to pilot their work in the low-income states of the country.
Dialogue with the impact-investing community: Finally, the government and the private sector need much closer collaboration and dialogue mechanisms. While there has been a great amount of progress from the government's side in relaxing regulations and announcing supportive schemes, it is also the private sector's responsibility to showcase opportunities for government funds to be deployed and structure appropriate interventions for private-public partnerships. This can start with making greater efforts to bring government representatives into conversations around impact investing and social entrepreneurship, and be followed by setting up self-regulatory and advocacy bodies that take the lead in proposing recommendations to relevant ministries.
The process of continuous engagement is perhaps the most critical, for without it the government and private sector will continue to work separately and miss out on the synergies of collaboration. The good news is that this has started to happen with initiatives like the recently formed Impact Investors' Council, an industry association of impact investors; the formation of new organisations like Asha Impact, a trust focused on public policy advocacy based on the lessons of impact investing in specific sectors; and the Global Sankalp Summit, Asia's largest convening platform on social enterprise, which has shifted its annual conference from Mumbai to New Delhi in order to faciliate greater engagement with the government on impact investing and social entrepreneurship. Indeed that is the core focus of Sankalp this year, to be held in Vigyan Bhavan in April 2015, with participation from senior ministers and policymakers.
Clearly, impact investing has come a long way in the last decade and become a global phenomenon. It should be a matter of pride for all of us that India has been at the forefront of this movement and is considered a global leader in social entrepreneurship. But for this to continue being the case, and the benefits to flow to the ultimate beneficiaries, the poor and underserved citizens who lack access to basic services and livelihood opportunties, it is now time to work hand in hand with the government.
Aparajita Agrawal is director of the Sankalp Forum and Vikram S Gandhi, the founder of Asha Impact