Why social development need not be a risky business
Myanmar's development trajectory will be in sharp focus with its historic hosting of the World Economic Forum on East Asia in the month of June. Such meetings have become well known for generating ideas and actions for solving the seemingly toughest and
To gain a sense of how ineffective development funding currently is, one needs look no further than India. The country currently spends about 7 per cent of its GDP on its social sector, which may sound a lot but, given that India ranked 136 out of 187 countries on the United Nations Development Programme’s 2012 Human Development Index, is clearly far from sufficient. What is more, it’s fair to say that the country’s impressive GDP growth rate for most of the last decade has not trickled down to vast sections of the society, especially the poorest.
Tackling this lack of development and lack of access to basic necessities – including clean drinking water, sanitation, electricity and decent housing and roads – is key. And tackling it right means involving the private sector.
In India, the private sector already fulfills contracts from central and state governments on sectors including defence, telecommunications, transport and infrastructure to the tune of US$300 billion each year. Let us make embedding social investment in these contracts the first place to start addressing India’s chronic human development imbalance.
My proposal is simple: any company that wants to bid for a government contract worth over $20 million must first agree to spend 1 per cent of the value of that procurement on social development.
As well as being easy to roll out, the scheme could also be good for business, as companies would be able to invest cash directly or indirectly through the purchase of community development certificates (CDC) from others that have invested cash directly. These CDCs should be able to be traded on an exchange, as well as sold bilaterally, so long as they are earned through genuine investment in basic community requirements such as health, education, sanitation, or the provision of clean drinking water.
Such a scheme could only work, of course, with the support of all sections of society. This means the state government, local businesses and the public. It would also need oversight, in the form of a nodal agency to oversee the entire process, as well independent auditors to ensure that all targets are being met accurately and on time. But this doesn’t have to mean an extra layer of bureaucracy: the Ministry of Rural Development in the Central government would be well suited to the role of nodal agency.
The role of the state government is also crucial, as it must identify and prioritise projects for investment, as well as coordinate efforts from other local institutions where appropriate for delivering synergy. Once this data is assembled, it will be distributed to all parties – businesses so they can develop community development plans (CDP), the Ministry of Rural Affairs for oversight and auditing, and wider civil society in the interests of fairness and transparency.
In order to maintain scrutiny and transparency throughout the whole process, each CDP should list the geographical area it will cover, the issues it will address, the specific investmentsto be made and a time frame and definition of exactly how the outcome will be achieved. Each plan should also be submitted online to ensure there is no interaction between the company and auditors, and local institutions and NGOs should also be involved to ensure the highest levels of integrity during and at completion of the project.
At the risk of repetition, the beneficiaries of such a scheme are universal. The poorest, most rural or remotest communities will benefit as they will no longer wait on the sidelines and watch as other, more industrialised areas benefit from a virtuous circle of investment. Government wins as CDPs funnel new funds directly into the areas where they are needed most, easing the already considerable strain on its current account. Business gains because they are tradeable, can be executed in advance of any specific project – which is good for cash flow – and because it is less onerous than the new Companies Bill, which makes it mandatory for companies to allocate at least 2 per cent of their average annual profit to development initiatives.
Who knows? As well as delivering social value in the short term, CDPs could also have a much more lasting effect on Indian life, by imbuing a culture of openness, transparency and honesty in government-business relations. Now that is an ambition worth striving for.
Vineet Mittal is the co-founder and managing director of Welspun Energy, India, and a collaborator on the World Economic Forum’s Green Growth Action Alliance.
