Last month, Arpan Sheth, a Mumbai-based partner with the US consultancy Bain, spoke at the Indian Philanthropy Forum on the need to convince India's ranks of new rich to do more to lift the country's impoverished millions out of poverty.

More than 400 million people, about 40% of India's population, live below the poverty line, which is defined as living on less than US$1.25 a day. Meanwhile, the number of high net-worth individuals, those with more than US$1 million in assets, increases by an annual rate of 11% since 2000, and is now over 115,000. According to Bain, philanthropic donations in 2009 would amount to US$7.5 billion, or 0.6% of India's GDP. This level leads that of other developing nations but lags developed nations.



Individual and corporate donations make up only 10% of this total amount, with 65% from the government and the rest from foreign organisations. This profile is similar to China, where donations by government far exceed that of individuals. In contrast, individual donations in the US make up nearly 75% of all philanthropy.

Arpan gives a few reasons as to why the wealthy population in India is not keen on giving. This includes: (1) those with hard-earned new wealth are not eager to part with their money; (2) a belief by donors that support networks are not professionally managed, with the result that their contributions would not be put to good use; (3) the current tax deduction structure does not encourage donations.

Some of these problems are not unique to India. Back in January this year, a Chinese businessman, Zhang Lei, donated US$8,888,888 to Yale University, where he graduated from 2002 and is now managing partner of Beijing-based fund manager Hillhouse Capital Management. His huge donation sparked a nationalist backlash, with some calling him a 'traitor' for not donating the money to a school in China.

Zhang, who previously attended the Chinese Renmin University, said that he donated the money because Yale had changed his life.  However, this might also be a symptom of China's rampant corruption and poorly developed philanthropic networks. As one netizen commented, 'any money you donate in China eventually falls into the pockets of corrupt officials. Donating the money where it will help is wise.'

Arpan reckons that donation-support networks should be given help to increase their efficiency and activities so that donors are confident that their contributions will have significant impacts. He points to the role of private foundations in the US, which are professionally managed institutions with the aim to collaborate closely with grant recipients and charity operators. Famous examples include the Bill & Melinda Gates Foundation and the David & Lucile Packard Foundation. But Arpan adds that further downstream, there is an urgent need of legal and taxation reforms to provide a more supportive climate for grass-root, charitable organisations in India.

The good news is that a culture of philanthropy is taking root in India. For example, the Bajaj trusts have assets of US$150
million, while the Bharti Foundation has more than US$60 million. In China, corporations and tycoons are also setting up their own foundations, and shying away from government-operated charitable organisations, which are regarded as opaque and lumbering. At the end of 2008, there were about 650 private foundations in China, in contrast to more than 115,000 in the United States.

Both India and China are faced with relatively high levels of poverty and inequality. In 2009, 15.9% of the population in China lived in extreme poverty; the equivalent figure for India was 41.6%. The Gini coefficient for China and India was 46% and 37% respectively in 2009. Getting their wealthiest citizens to help their own countries can reduce inequality, while making precious foreign aids available to countries most in need.