INSUBCONTINENT EXCLUSIVE:
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)