For the India that is not shining                  

With Barack Obama in Delhi, the Indo-US bilateral agenda has been squarely focused on economic policy. It is by addressing the issues of trade, investment and climate change, both through collaboration between the governments and in partnering with the private sector, that the two leaders can create a successful economic partnership.

The convergence between India’s objective of inclusive growth and the US’ strategic interest in seeing India succeed in its development path is the foundation upon which a lot of progress has already been made. However, there remains one area where much more can be done: jointly leveraging the set of institutional developments around what is characterised as ‘social impact investing’, or using market-based approaches to tackle the toughest social issues and achieve meaningful poverty alleviation.

Impact investing is a global phenomenon and has recently received policy attention at the highest level in G8 countries with the formation of the Social Impact Taskforce and setting up of national advisory boards. Its work has focused attention on key issues like metrics for impact measurement, asset allocation by institutional investors, corporate governance structures and ultimately on the application of social impact investment for international development.

India happens to be a global leader in this space. Social impact investments have been picking up pace in India, expanding from the microfinance and financial inclusion space to other sectors such as access to renewable energy, affordable healthcare and education, water and sanitation, lowcost housing, agriculture and non-agri livelihoods, and vocational training.

Several US-based philanthropists, notably Bill Gates, Pierre Omidyar and Michael Dell, have set up foundations that are active in making social investments in India, in addition to the substantial capital that has come in from development finance institutions like the IFC. More recently, several successful business and entrepreneurial leaders in India have started to make a contribution to the fieldOverall, India is at the forefront of the impact investing revolution.

How, then, to leverage the power of social impact investing to harness entrepreneurship, innovation and capital to solve the toughest problems facing our society? The first step is to acknowledge the phenomenon and establish it as a priority area for Indo-US collaboration by creating a dedicated mechanism for policy coordination and engagement with market stakeholders. Articulating social investing as a priority area also allows the government to then develop capacity for action and mobilise resources as required by either consolidating existing activities or developing new departments.

Perhaps the biggest contribution governments can make is to provide funding or catalyse private capital towards social investing. This can be done by creating new channels for social investment, providing subsidies for targeted capital flows or removing regulatory barriers to expanding access to capital for social enterprises. There are a range of potential opportunities that the two governments can consider, from a joint Indo-US Inclusion Fund to learning from the experience of the US and the UK with social impact bonds.

Tweaking existing regulations in India can also help unlock significant private capital — from SEBI’s definition of social investment funds to changing priority sector lending guidelines or making it easier for social businesses to access lowcost debt, there are a host of tools at the government’s disposal. There are also various market intermediaries providing critical linkages to the sector including industry associations like NASE (National Association of Social Enterprises) and IIC (Impact Investors Council) with whom the government can engage to coordinate policy reforms. In addition to supporting such intermediaries, the government can further develop market infrastructure such as incubation for social enterprises and create a positive climate for social entrepreneurship.

In any discussion of Indo-US relations, it is useful to recall the importance of the Indian American diaspora. The US government has already launched an Indian diaspora investment initiative under USAID, itself led by an Indian American, which aims to mobilise social investment and offer loan guarantees to specialised financial institutions in India that provide loans to social enterprises.

Just like India and America are ‘natural allies’ based on our democratic and open societies, and robust economic links, so too there is a natural synergy between the work of impact investors in the US and social enterprises in India. By exploiting this synergy, President Obama and Prime Minister Modi can help achieve their common vision of Indo-US collaboration to achieve inclusive growth and social progress.

The writer is the founder of Asha Impact and CEO of VSG Capital Advisors