“Jiska koi nahin, uska toh khuda hai yaaron,” (he who has no one, has God, my friends) was a hit song from the 1981 film, Laawaris. Its lyrics are as relevant for today’s budding entrepreneurs.
For most founders who have struggled through uncertainty, all that separates those who will succeed from the ones who won’t, is the power of self-belief and prayer. Sometimes this prayer is directed at investors who can be their saviours, while sometimes it’s a plea to the divine. Whichever god one believes in, or does not, the fact is that founders will try everything they can to make it work, and for them investors can be gods.
Religious trusts have been historically known to be repositories of wealth donated by disciples and followers. However, this opaque world has opened up in recent times with the income and profitability of some of the well-known trusts now available with credit rating agencies as well.
Globally, the Vatican is reported to be worth $10 billion or more, while the Mormon Church in the US is estimated to be worth four times more. In 2015, the Islamic Development Bank estimated that Muslims donated “Zakat” worth $262-560 billion, of which a sizeable share would have been to religious organisations. Various media reports indicate that the richest temple trust in the world — the Padmanabhaswamy Temple in Thiruvananthapuram — is, even by conservative estimates, valued at approximately $17 billion. Combine the value of antiques accumulated over centuries and this amount could be 10 times or $170 billion. That’s equivalent to the GDP of oil-rich Qatar. Many similar temple trusts like those of Tirupati Balaji, Shirdi Sai Baba, Vaishno Devi, Siddhi Vinayak and Golden Temple are known for holding onto their wealth or investing it in government securities alone. Almost all of them reportedly saw huge spikes in “donations” immediately after demonetisation in 2016.
This raises a question of national priorities and liquidity: A government that has aggressively championed and executed projects to reform and bolster almost all the sectors of the economy, must focus on this locked-in wealth. While prevailing rules prevent charitable institutions from deploying these contributions in anything that is not specifically mentioned, is it not the time to question this logic? Is it not the time to consider a change in policy that could potentially go a long way in bringing in wider funding options to India’s deserving entrepreneurs and startups who need continuity and stability, in planning as well as in execution at the policy level, along with the involvement of key stakeholders in the entire decision-making process?
In 2018, India turned out to be the world’s third-largest startup ecosystem, with $38 billion in foreign direct investment. Imagine the multiplier effect on employment generation if thousands of genuine startups start seeing capital inflows through these religious institutions. At present, the wealth in funds/trusts is mandated to be invested/deposited as per their respective guidelines and there is no provision for investments in alternate investment funds (AIFs). Even if these trusts/funds invest 5-10 per cent towards entrepreneurship or venture capital, it will facilitate the creation of the largest pool of capital for venture capitalists in the next decade.
Consider the cascading effect: This can trigger a fresh new wave of entrepreneurship and job creation, one that will make the world sit up and take notice of India in a new light. If the policies pertaining to investment/deposit of such trusts/funds are amended to include investment in AIFs Category-I, then, by further investment in startups, they can generate direct and indirect employment in huge numbers, giving a fillip to the economy.
The evidence of employment generation exists from our own experience wherein YourNest Venture Capital (AIF Category-I) has generated 820 direct and many more indirect jobs from just 14 startups, most of whom are enterprise-driven, B2B (business to business) firms. A B2C (business to consumer) startup such as PayTM is believed to employ over 13,000 people and has over three million merchants on its platform. Reportedly, Flipkart has over 30,000 employees, Zomato has around 4,300. In addition, these startups have also generated innumerable employment opportunities indirectly through their partners.
Such precedents exist in the global scenario: The institutions equivalent to charitable trusts are endowment funds, which are allowed to invest in Indian small and medium enterprises and startups, and are being rewarded for their proactive investments. Early-stage businesses offer attractive returns whereas India’s own long-term funds are not participating in this asset class.
If India’s aim is to be a more efficient economy, policy-makers must allow our charitable/religious trusts to invest/deposit part of their corpus into the startup eco-system. This can be achieved by amending Section 11(5) of the Income Tax Act, 1961 which pertains to modes of investments/deposits made by charitable/religious trust. This section can include “Investment by acquiring of units of SEBI registered AIF (Category I & II)”.
Ambitious, as it may be, there will certainly be many arguments opposing this move. But, if we remain focused on the fact that idle wealth should be unlocked for the benefit of the economy, then employment generation will get an actual boost leading towards a positive rush in the Indian economy.
This article first appeared in the print edition on October 8, 2019 under the title 'Charity for business'. The writer is managing director and fund manager, YourNest Venture Capital.