The basic tenet of economic theory rests on the assumption that humans are rational beings and they maximise their own self interest. Keeping with this assumption, it is safe to assume that an investor is someone who caters only to those opportunities which will ensure the highest return on investment. However, instances in India and world-over have shown that there are investors who are willing to invest in projects that generate positive social impact and result in profit maximisation simultaneously. It is at this juncture that the concept of impact investment and its role in shaping sustainability goals crops up.
The global pandemic that we all currently find ourselves in the midst of, has brought to the fore a multitude of issues that require immediate action.
One important issue is need for steady flow of capital in order to make some of these social impact projects a reality.
The establishment of Aavishkar in 2001 became the first example of early stage seed impact investing in India. Although this was India’s first formal tryst with impact investment, India’s history of creating successful business models that benefit the vulnerable is not a new phenomenon. A few examples of impact investment in the Indian context can be seen in the Amul Dairy Cooperative set up in Western India. The Cooperative was set up with the main objective of empowering the low income dairy farmers from the nearby regions. Famous Indian clothing brand Fabindia, was set up as an enterprise to connect the rural craftsmen with the urban market and became a model for sustainable rural employment.
Even though the Companies Act of 2013 mandates spending in philanthropic activities as part of their corporate Social Responsibility(CSR) , Corporate spend is still limited. There still exist a multitude of issues that remain untouched like healthcare and education amongst a host of others.These demand immediate action.
The major sectors of impact investment in India are education and agriculture followed by health care and financial services. Sector wise decomposition of impact investment is evident from Figure 1 below.
Source: The Promise of Impact Investment in India (2019)
The main source of funding in these sectors are the funds provided by the insurance companies followed closely by the endowment fund. Government and small contributors also chip in. More than half of the impact investors are guaranteed a return which is higher than the market returns. Therefore one can easily argue that there is huge potential for impact investment in India. Rising digitisation, cross border flow of labour and capital, new emerging markets need all the more focused capital deployment.
The outbreak of the Covid-19 pandemic has given an unprecedented shock to the Indian economy. With the prolonged country-wide lockdown, global economic downturn and associated disruption of demand and supply chains, Indian economy contracted by a staggering 23.9% in the April-June of 2020. One of the biggest effects of the pandemic is the abyss of uncertainty it created. Agricultural sector was always uncertain, highly dependent on weather and prices. The main challenges here are the lack of access to markets and hence proper pricing and sustainable farming. Technology-led investment, food processing, building capacities, giving support to the cash starved marginal and small sized farmers can be an emerging arena for impact investment.
The pandemic has also jeopardised our education system. Access to digital education remains a far cry. School infrastructure, innovation in teaching learning outcomes, bridging the digital divide needs hand holding support through impact investment.
The pitfalls of spending poorly in the health sector is evident post pandemic. The health sector is a huge capital intensive sector and has a long gestation period. So there is a need for impact investment which can provide specialised care facilities on one hand and also holistic basic health care facilities for vulnerable groups on the other hand.
Also Ed-tech, digital health, digital content and essential retail trade have seen a perceptible increase in demand since the lockdown. As impact investing space will become more tech-led post covid-19, the momentum that impact investing was gathering will accelerate, with far more attention now on building resilience and catering to the needs of lower-income populations and small businesses.
India is committed to the Sustainable Development Goals 2030 and to achieve them, deployment of capital in high-impact projects that address these critical societal challenges is needed. The GIIN Report 2018 has specified certain actions to achieve these goals. They are
India has a huge entrepreneurial class of people who run their business with no formal source of financing. There exists a great demand-supply gap which needs to be addressed. Government interventions are currently insufficient and the private capital market must step up to address these goals.
Over the last few years, tremendous progress has been made in the emerging impact investment sector. It has the potential to complement existing government programs and profoundly affect the lives of millions.
