Importing A Failed Experiment

The Indian Express     24th September 2020     Save    

CONTEXT: Securities and Exchange Board of India (SEBI)’s working group on Social Stock Exchange(SSE) has submitted its report, which is marred with various issues.

Background on Voluntary Sector:

  • Stringent compliance measures: In the budget 2020-21, not for profit organisation have to apply every five years for charitable status and renew 80(G) which provide tax deductions to donors.
  • SSE performance in the world: SSE is instrumental for a social enterprise, but apart from the UK, South Africa, Singapore, Canada and Brazil, SSE has been a failed experiment due to
    • High inequality, poverty and unincorporated regional variation.

Issues with the proposed SSE:

  • Lopsided composition: Working group constituted included business leaders, government and SEBI officials with a small representation from civil society.
  • It tends to create a bias for a large corporation and Capital markets to enter into the social sector.
  • In the last decade, many consulting firms and private organisation haven entered into the social sector, opening new avenues for profit-making without having any ground connect.
  • Narrow view of SSE: SSE is said to help create standards, performance matrix, benchmarking social sector entities, data management, impact assessment and capacity building. 
      • Side-effects of focussing on developing standards and performance matrix 
        • For a diverse sector, it poses a risk of privileging one approach at the cost of others and addressing the symptoms of the issue rather than the root cause.
        • Poverty and injustice require systemic and political multi-pronged dynamic approach.
  • Operational challenges: The proposed structure tends to create more intermediaries and asymmetrically benefit large corporations due to professional expertise and access to market research.
      • More than 99% of the 3 million NGOs in the country are in a small category and will be untouched by SSE.
  • SEBI as the anchor: SEBI regulates profit-making entities and SSE being primarily for the social sector; therefore, the idea of SSE being under SEBI regulation is contradictory.

Conclusion: The proposed Social Stock Exchange could have been an interesting, innovative approach for the social sector if it was first. But to replicate a failed experiment from elsewhere does not seem a reasoned decision.