Overcoming Regulatory Hurdles for Social Impact in India - FPSEs Charting a New Course

| 22 April, 2024
Published: 22 April, 2024

One of the primary challenges faced by FPSEs in India lies in the realm of taxation. The imposition of an 18% Goods and Services Tax (GST) on their revenue acts as a significant barrier.

Here's a deeper dive into the specific issues:

Reduced Resources for Social Initiatives: The 18% GST directly impacts the available pool of funds for social initiatives undertaken by FPSEs. This reduces their ability to invest in scaling social programmes, hiring talent for social impact projects, and making crucial investments in communities they serve.

Investor Perception and Funding Hurdles: The high GST rate also creates a perception among potential investors that a substantial portion of their investment will be directed towards tax payments, rather than the core social mission. This can deter investors who may be more inclined to support social causes through traditional non-profit channels where tax exemptions exist.

Striking a Delicate Balance

FPSEs face a delicate balancing act. They strive to fulfill their social mission while grappling with the financial burden of GST. This not only impacts their bottom line but also creates an obstacle in attracting resources for social impact initiatives.

Examples in Action:

Akshaya Patra: This renowned FPSE provides mid-day meals to millions of underprivileged school children. The GST levied on the ingredients and logistics can significantly impact their ability to expand the programme and reach more children.

Selco India: This FPSE offers clean energy solutions in rural areas. While providing affordable solar power systems generates social impact, the GST on equipment and installation services can reduce their profit margins and limit their ability to subsidise costs for low-income communities.

These are just a few examples highlighting the financial constraints that GST can impose on FPSEs aiming to create social change.

Finding Opportunities Amidst Restrictions

While CSR laws in India aim to promote corporate responsibility and social good, they can inadvertently create obstacles for FPSEs seeking funding.

Here's a breakdown of the specific challenge:

CSR Funding Restrictions: The current CSR laws in India traditionally direct CSR contributions towards non-profit entities. This leaves for-profit social enterprises, who operate with a dual profit and social impact mission, in a precarious position when it comes to attracting CSR funding.

Finding Opportunities Through Collaboration:

However, FPSEs can overcome these challenges through strategic partnerships and collaborations. Here are some ways they can leverage CSR regulations for their benefit:

Collaboration with NGOs: FPSEs can partner with established non-profit organisations (NGOs) that comply with CSR regulations. By channeling funding towards their social initiatives through these partnerships, FPSEs can leverage the resources and expertise of NGOs while staying compliant with the legal framework.

Joint Projects with Responsible Businesses: Collaborating with established businesses that have robust CSR initiatives can unlock funding opportunities for FPSEs. Partnering on projects that align with both their social missions can create a win-win situation for all stakeholders.

Examples in Action:

Aravind Eye Care System: This FPSE partnered with a leading pharmaceutical company to conduct free eye health awareness camps in rural communities. The CSR funding from the pharmaceutical company helped Aravind reach a wider audience and provide free eye screenings to underprivileged populations.

Million Meals: This FPSE partnered with an NGO that works towards alleviating hunger in urban slums. By collaborating on meal distribution programmes, Million Meals leveraged the NGO's CSR funding network while utilising their own expertise in delivering affordable nutritious meals.

These examples showcase how FPSEs in India can navigate the limitations of CSR laws through strategic collaborations with NGOs and responsible businesses.

Fostering an Enabling Environment

Recognising the immense potential of FPSEs in achieving the Sustainable Development Goals (SDGs), the Indian government has launched several initiatives to support them:

Startup India: This flagship initiative aims to create a vibrant ecosystem for startups, including FPSEs, by providing them with easier access to funding, streamlined regulations, and incubation

The National Mission on Sustainable Agriculture (NMSA): This mission aims to promote sustainable agricultural practises through various initiatives, creating opportunities for FPSEs working in this domain. These initiatives include promoting organic farming, providing subsidies for water-efficient technologies, and encouraging the adoption of renewable energy in agriculture.

Social Venture Funds: The government, in collaboration with private players, has established several social venture funds specifically dedicated to investing in FPSEs. These funds provide crucial saeed funding and mentorship to help FPSEs scale their operations and achieve their social impact goals.

Brand Involvement: A Catalyst for Change

Beyond government initiatives, leading brands are increasingly recognising the potential of collaborating with FPSEs to achieve their social responsibility goals and enhance their brand image. This collaboration can take various forms:

Impact Investments: Brands can invest in FPSEs that align with their social responsibility initiatives. This not only generates financial returns but also allows them to contribute to positive social change.

Cause-Related Marketing: Brands can partner with FPSEs for cause-related marketing campaigns, where a portion of the proceeds from the sale of specific products or services is directed towards the FPSE's social initiatives. This can raise awareness about the FPSE's work and generate additional funding.

Mentorship and Resource Sharing: Established brands can provide valuable mentorship and resource sharing to FPSEs. This can include sharing expertise in marketing, branding, and operational efficiency, which can help FPSEs scale their businesses and reach a wider audience.

Examples in Action:

Hindustan Unilever (HUL): HUL partnered with the FPSE "Project Shakti" to empower rural women entrepreneurs as micro-distributors for their products. This collaboration not only generated income for rural women but also improved access to essential household products in remote communities.

The Body Shop: The Body Shop partnered with the FPSE "The Akshaya Patra Foundation" to support their mid-day meal programme for underprivileged children. This partnership helped raise awareness about the FPSE's work and generate additional funding for their crucial social initiative.

These examples showcase the growing trend of brand involvement with FPSEs, highlighting the potential for mutually beneficial partnerships that drive both social impact and brand growth.

A Collective Effort for a Sustainable Future

While navigating the complex landscape of tax regulations and CSR laws presents challenges, FPSEs in India are demonstrating remarkable resilience and innovation. By leveraging government initiatives, fostering strategic collaborations with NGOs and responsible businesses, and attracting brand involvement, FPSEs can overcome these hurdles and unlock their full potential for creating a more sustainable and equitable future.

Remember, every individual, organisation, and investment decision can contribute to this positive change. By supporting FPSEs, we can collectively bridge the gap between financial resources and social impact, paving the way for a brighter future for all.

You May Also Read

Unlocking Social Impact Funding: Strategies for For-Profit Enterprises
Unlocking Social Impact Funding: Strategies for For-Profit Enterprises
Demystifying Social Impact Funding: A Landscape of Diverse Players and Objectives
Demystifying Social Impact Funding: A Landscape of Diverse Players and Objectives
Admission open for PGP-DM