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By Ashvin ParekhOur economic growth has been facing headwinds which is primarily cyclical in nature.
The policy makers, the regulators and the system are making an honest effort to restore it.
Many fiscal and monitory policies have been announced and implemented sincerely.
These measures, it is expected, will bring the desired outcome.
Two major dilemmas are confronting the economy.
To improve consumption and encourage more private and public investment through better liquidity.
There is at the same time, recognition that both the government and the industry have limited resources to trigger the drivers of growth.
In such a backdrop, the system should explore possible options to generate more resource for the stakeholders.
Domestic capital pools have to be identified which can help solve the liquidity crisis and create productive assets for the economy.
The resource may be available with very large, old and established institutions like charitable trusts.
These trusts own physical assets including land and gold throughout the country.
There is no reliable data on the size of the assets owned by these institutions.
However, there are surrogates available to indicate its potential to provide funds to critical sectors in the economy including mid-sized corporate entities and small and medium enterprises.
This sector requires substantial amount of credit flow in the backdrop of both the banking system as well as the NBFC sector facing substantial challenges.
On examining the Ministry of Finance data on finance receipts budget, one finds that the amount applied by charitable entities for the purposes for which these have been set up during the financial year 2017-18 was in excess of Rs 5 lakh crore.
A further examination of the income earned by such trusts suggests that these organisations invest in prescribed investments and avail of the tax benefits applicable.
The asset classes permissible under the provisions of the Income Tax Act suggest that such eligible investments include investments in savings certificates, account with post office savings bank, investment in the units of Unit Trust of India, investment in government securities, deposits with public sector companies.
The Act also empowers the tax department to make addition to the list of eligible investments.
Under rule 17C of the Income Tax Act, additional investment is set out and inter-alia allows a charitable institution to invest in units of mutual funds registered with Sebi.
An evaluation of these asset classes suggests that these are low-yielding assets.
On one side, they channelise the investments into the most soughtafter risk-free investments yielding negative inflation adjusted returns, thereby reduce the ability on part of the charitable institutions to allot more funds for education and health care purposes.
Current permitted instruments provide returns below inflation (of ~6 per cent pa on a tax adjusted basis) and create illiquid assets, thereby reducing finances for scholarships, improving educational quality and research.
Charitable trusts and universities in India have historically invested a significant portion of their available resources in real estate or in basic financial instruments.
These institutions have been unable to support the need for capital in growth sectors due to constraints.
A sizeable amount of funds is locked up which can be invested in productive assets for the economy.
Charitable institutions are generating an estimated nearly Rs 90,000 crore of surplus investible capital per annum.
This amount, if freed, can be utilised for promoting consumption as well as for capital expenditure.
Both in India and globally, insurance companies and pension funds have seen good success by investing in alternative asset classes.
Indian charitable institutions should be allowed in diverse asset classes to be able to generate better yields, thereby have more resources to support the cause for which they are set up.
There is a critical need to enable charitable institutions to invest in a wide variety of asset classes such as private equity, infrastructure and other instruments, which can provide higher inflation-adjusted returns.
Charitable institutions should be allowed to invest in Sebi-regulated entities such as AIF, REIT and InvIT, in addition to the currently allowed list of eligible investments.
In addition, channelising domestic capital from our institutions into productive sectors of the economy in growth sectors, industries and infrastructure not only delivers the inflation-adjusted needs of such institutions to support their social mandate but also supports the national mission to create a high growth economy with strong capital markets.
(The author is managing director of Ashvin Parekh Advisory Services)
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