A Business Model for NGOs

My family had a visit from an unusual broker yesterday. An NGO broker.

My mother has been running two charitable ventures for a couple of decades now, and as she is inceasingly conscious of her mortality, is trying to shore them up with more funds, to see them through a leadership transition. For a couple of months now, she has been in telephonic conversation with the lady who came to see her yesterday.

This lady has a neat little business model going:
- she will procure a 35 C exemption certification for your charity. This entitles donors to a 100% tax exemption on donations to the NGO, as against the more common 80 C, which only provids a 50% exemption.
- she will 'arrange' funds - large chunks of it - from corporations with hefty CSR commitments, and no real way to spend it. She named names, but this could be a sales pitch, so I won't document them.
- she will channel 'buybacks' to the company executives who sign off on the donations. What she really meant, I guess, was 'kickbacks'.

My sister, who has also worked in the world of NGOs for 3 decades, asked how the NGOs account for the funds being kicked back. "Uska to raasta sab nikaal letey hain. Badey paise chahiyen, to thodi mahnat karni hi padegi."

When my sister told her that members of our family have run NGOs for decades without any such 'business practices', she said, "Small work you can do. But if you want big money, then you have to do all this". My sister persisted, "Not so small - projects worth 1 or 2 crores."

"May be, but only 1 or 2% are like that." Her business model, she believes, is the norm.

I don't know that is, and I certainly hope it isn't, but it boasts cheerful practitioners like her, who see enough of it around them to believe that it defines the world of NGOS. Scary.

Anchoring Inflationary Expectations

Anchoring inflationary expectations


Anchoring them high that is.

In the preamble to his budget speech, our ineffably cheerful Finance Minister repeatedly referred to both inflation and fiscal consolidation - as well he should, given conditions in our economy. However, aside from wishful thinking, the measures he proposed did nothing to remedy either.

The make-work wages under the NREGA have been linked to the Consumer Price Index; wages for the women who (supposedly) staff 'anganwadis', or child-health centers, have been doubled; the hike in wages of government employees, effective from Jan 1st 2011, will be announced in the next fortnight, and is worked out by a formula linked to the cost of living. All excellent ways to bake inflation into the system.

As regards fiscal consolidation, or reducing the government's excess of expenditure over revenue, the FM heroically announced that this would drop from 4.6%. Doesn't quite add up: the growth in government expenditure, projected at 3.4%, doesn't fit with inflation, rising interest costs, and rising wages. Nor does it take account of inflated oil prices, and the consequent ballooning in subsidies required for our Oil Marketing Companies (OMCs). Staying with subsidies, in the tug of war between Sonia Gandhi's National Advisory Committee (NAC) and her PM's bureacucrats, the latter seemed to have been dragged over the line. Which means that the food subsidy would go up too.

Unless, of course, the Prime Minister throws a few senior managers from the Food Corporation of India into jail. In which case, our bill for rampant leakage of publicly funded grain to the trade will actually subside.

Our markets were relieved that the Finance Minister didn't raise excise duties. The relief lasted less than half the session, and in the end, our stocks were back to roughly where they began. As indeed we are - without a plan to deal with inflation, burgeoning subsidies and ineffective public servants with spiralling cost-to-taxpayer.

What a colossal waste of an opportunity.

Private infrastructure in India doomed by politics

The fast road that connects south Delhi with the sprawling new urb of NOIDA is an excellent example of what the infrastructure of brave new India should be - designed with plenty of headroom for growth, well-maintained, and above all, funded by capital that is serviced by user fees. Sort of.

Last week, NOIDA Toll Bridge Company, a listed company that operates the road, set out a new tariff, that raised the one-way fee for cars from Rs. 20 to Rs. 25. There was a storm of protests, the toll road was blocked by agitators, who threatened to close it down for an indefinite period, and management relented.

Returns on the toll road were below projections in its early years, and the UP state government responded by awarding some real estate concessions to the operator. Now that traffic on the facility is healthy, the capital should be serviced by user fees that keep pace with inflation. Compared to average driving speeds in Delhi, the seamless 7 km. transit to NOIDA saves at least 15 minutes of driving time. In my reckoning, any one who owns a car should be more than happy to pay Rs. 25 for this time-saving alone - that's Rs. 100 per hour.

In India, however, politics, especially the politics of appeasement, always trumps economics, and the tariff for cars is back down to Rs. 20. There goes the Internal Rate of Return (IRR) of the project. This is a horrible signal for those seeking to invest in infrastructure in India, especially at a time when our government is clearly signalling that it has neither the capital, nor the management ability to create modern facilities for a rapidly growing nation.

US House pulls IPCC funding

Republican Rep. Blaine Luetkemeyer was hot about global warming funding. And we quote Luetkemeyer:


“Scientists manipulated climate data, suppressed legitimate arguments in peer-reviewed journals, and researchers were asked to destroy emails, so that a small number of climate alarmists could continue to advance their environmental agenda.

“Since then, more than 700 acclaimed international scientists have challenged the claims made by the IPCC, in this comprehensive 740-page report. These 700 scientists represent some of the most respected institutions at home and around the world, including the U.S. Departments of Energy and Defense, U.S. Air Force and Navy, and even the Environmental Protection Agency.

“For example, famed Princeton University physicist Dr. Robert Austin, who has published 170 scientific papers and was elected a member of the U.S. National Academy of Sciences. Dr. Austin told a congressional committee that, unfortunately, climate has become a political science. It is tragic the some perhaps well-meaning but politically motivated scientists who should know better have whipped up a global frenzy about a phenomenon which is statistically questionable at best.

“Mr. Chairman, if the families in my district have been able to tighten their belts, surely the federal government can do the same and stop funding an organization that is fraught with waste and abuse. My amendment simply says that no funds in this bill can go to the IPCC. This would save taxpayers millions of dollars this year and millions of dollars in years to come. In fact, the President has requested an additional $13 million in his fiscal 2012 budget request.

“My constituents should not have to continue to foot the bill for an organization to keep producing corrupt findings that can be used as justification to impose a massive new energy tax on every American.”

Four words for the House of Representatives:

It. Is. About. Time.

Further (not second) thoughts on the budget

Expect some measures on the revenue side. To my mind, the most likely candidates are excise hikes. Excise duties were cut in the wake of the global recession; by most measures, India has weathered the recession well, and some sectors, like automobiles, have been more than buoyant. It would be politically palatable to reverse - fully or partially -  the drop in excise duties in those sectors where Pranab can politically peddle them as being elitist.

 

Cars, I suspect, would be the first target. In fact, if I wanted to schemingly specific about this, I would hike excise on all cars by x amount, say 4%; but, to compensate for the 'subsidy' on diesel, which is 'needed' for freight, tractors and pumpsets, I would raise the excise on diesel cars by a larger amount, say 6, or 8%.

Budget measures - first thoughts

A week to go for the budget, and Pranab da is talking about fiscal consolidation. Consolidation would be the sensible thing to do, as the GFC is far from done and dusted, and vulnerable countries could yet be shaken down. For a national budget so reliant on borrowings as ours, punishment by bond, or currency, vigilantes could be brutal.

Cuts in spending are highly unlikely; subsidy cuts even more so - whether on food, fuel or fertilisers; worse, the fuel subsidy is an unknown, as crude oil prices remain volatile. Budget balancing would have to be achieved by raising revenue, and to be truly responsible this would have to be sustainable, not one-off gains from auctioning spectrum or stake sals in PSUs.

Direct tax rates are unlikely to go up; in fact, personal income tax threshold levels would have to be raised to compensate for inflation. What would seem to be easiest to do is to raise MAT; lobbies that would normally protest against this are now silenced in the wake of Radiagate. The Congress party, in fact, would gain brownie points by showing how tough it is in terms of shrugging off corporate concerns.

This would not, however, raise much by way of revenue. For this, I would look at an increase in excise duties; this would, in any case, be a reversal of cuts made in late 2008, to fight recession. Now, we have the opposite phenomenon - a recovery which is over-heating the economy. It would make sense to raise excise, especially in industries where the common man is not seen to be impacted. The one I can think of, off the top of my head, is cars. Will try to come up with more.

Learning about dance from my son

Paul Taylor's choreography has a truly American energy and freshness, despite the fact that the man is 80, now.

Dancing for a packed audience at Delhi's Siri Fort on February 18th, his company, Paul Taylor 2, slipped and slid, ran in circles of joy, and in one exquisite, transcendent pas de deux, explored small and large, flitting and fixed, fast and slow, with the diminutive Madelyn Ho an angelic, joyful butterfly to the largest male dancer in the corps.

If the tiny Wu epitomised the cliche of Oriental grace, her Latina colleague, Alana Allende, had a boundless, sometimes explosive energy that seemed to come from the Andean jungles to the Delhi stage, with only the briefest stopover in New York city. In contrast, the male dancers, superbly strong and talented, lacked orchestral colour. A renewed vote for the melting pot.

As a sidelight, I asked my 12-year old son what he made of the show, he said, "It was quite boring, but at least I learned that you can tell a story through dance." Considering that this was expressionist dance, not narrative, I think that was an evening well-spent in his cultural education!