Where wealth goes...

Billionaires in the West are donating most of their wealth to charities, leaving very little inheritance to their children, scream media headlines, prompting the question, “Are Indians miserly when it comes to social causes because they hoard all their wealth for the next generation?”

“This is not true,” counters Essel Group and Zee Network Chairman Subhash Chandra. “In most cases where billionaires bequeath their wealth to charities, they themselves or their inheritors are the trustees.” On Indians being thrifty, he explains, “We generally do not prefer to shout from the rooftop because when it comes to charity, we believe the left hand should not know what the right is doing.”

Of late, there is a clamour among billionaires to don the philanthropic robe, particularly after the Oracle of Omaha, Warren Buffet, and Microsoft founder Bill Gates launched The Giving Pledge, which extols the affluent to make a commitment to donate a majority of their wealth towards “giving back to the society”. The pledges currently total over $365 billion.

Buffet has committed 99% of his wealth to charities. Bill Gates has announced that a majority of his fortune will go to the Bill and Melinda Gates Foundation, which aims at eradicating disease, poverty and hunger across the globe. Facebook CEO Mark Zuckerberg and wife Priscilla Chan plan to leave 99% of their billions to the Chan Zuckerberg Foundation to fund personalised learning and building strong communities. Former New York Mayor Michael Bloomberg, who has given away over $1 billion to his alma mater, Johns Hopkins University, has pledged to donate most of his wealth to health-related causes. The list goes on.

Indians may have to catch up with their Western counterparts, but they certainly do not lag behind. Wipro Chairman Azim Premji, the first Indian to sign The Giving Pledge, has already donated 50% of his wealth to philanthropy. Biocon founder Kiran Mazumdar Shaw has committed 75% to make healthcare affordable. Bharati Airtel has set up a family-funded corpus of over Rs 225 crore to provide education to the rural poor. Vedanta Chairman Anil Agarwal has promised to give away 75% of his wealth to the eradication of poverty and community development. Infosys founders have invested millions in charity, and so have the Tatas and other billionaires.

A short list

Yet, a common criticism is that the list of the super-rich in India donating to social causes is not as long as the one in the West. The comparison may be unfair as Western countries like the United States and United Kingdom have a long history of financial development, unlike India, which inherited an economy that was in doldrums from the British just about seven decades ago. Most billionaires are of recent origin, particularly of the post-liberalisation era.

Another pertinent point is the tax angle. Reliance Chairman Mukesh Ambani is on record that in the US, an individual who inherits property or wealth is liable to pay an Inheritance Tax of up to 40%. However, if the asset is given away to a federally-recognised charity or foundation, it attracts zero tax.

With billionaires deciding to donate a large part of their wealth, where does it leave their children? In his letter to The Giving Pledge, Bill Gates felt that leaving a huge inheritance to his children might prevent them from creating a path of their own. His thoughts were reflected by Buffet, who wrote, “I want to give my kids just enough so that they feel that they can do anything, but not so much that they feel like doing nothing.” Music Composer Andrew Lloyd Webber noted, “I am not in favour of children suddenly finding a lot of money coming their way because then they have no incentive to work. When Kung-Fu star Jackie Chan pledged to donate half his wealth to his charitable foundation, he remarked, “Let my son make his own money.”

Ujwala Balajee, a mother of two from Mysuru, agrees that children should be made self-reliant so that they can follow their passion, while critics like Vivek Prabhu, a Bengaluru-based software analyst, tears into claims that billionaires are leaving little or nothing to their wards, “The very little these business magnates are leaving for their offsprings are a couple of billions. A few generations can live like kings with that kind of inheritance. While most donations are in the form of shares, what about houses, estates and bank deposits? Billionaires not only live in another planet, they are from another dimension with a different set of ground rules.”

Cultural differences also play a role in our saving and giving habits. “In the West, kids are on their own after they attain 16 or 18 years of age. The philosophy is: spend on self and spouse and leave very little for the children,” says Girish Baliga, a professional in the high-tech semiconductor space.

On the contrary, in India, which believes in strong social values, it is considered the responsibility of the head of the family to provide for children. “Making children self-sufficient is extremely important, but that does not have to necessarily come at the cost of a secure background. The Western model of washing your hands off children at 16 is detrimental to growth, emotional security and societal values. This is one of the reasons why Western families are falling apart while those in India are bound together. The beauty of the Indian system is that parents make sacrifices for their children, and in turn get taken care of when they grow old,” argues a freelance writer from Bengaluru.

While parents spare no effort in ‘settling’ their wards, it does not mean children have access to a bottomless pit of fortunes because in most cases the savings of a typical Indian family are meagre. Vachana Shetty, a principal marketing consultant who takes pride in being a self-made woman, says, “We inherit a lot from our parents and it does not necessarily have to do with wealth. I never expected them to save up or insulate my future. I have not depended on them from the day I started working. When I quit my job to pursue an MBA, I took an education loan. I bought my car on my own. My husband and I decided to pay for our wedding ourselves. In fact, my brother and I try to take care of our parents in as many ways as possible.”

Corroborating Vachana Shetty’s words, Ramkumar Gopisetty and his banker wife Usha, parents of two daughters, add, “An average Indian’s life follows a set pattern. First, we sink all our savings and obtain a huge bank loan to buy a house. Our second priority is to upgrade from a two-wheeler to a car. Education and marriage of children also entail an enormous expense. Most families end up paying a better part of their salary as bank EMI until they retire. A middle class family can barely scrape through life, let alone amassing wealth for their children or making huge contributions to charity. Leaving large inheritances is the privilege of the rich and famous, who are a minority.”

According to the Wealth Pyramid prepared by Credit Suisse, the Zurich-headquartered global financial services firm, half of the world’s wealth belongs to the top one per cent. The top 10% of adults hold 85% while 90% own the remaining 15% of the world’s total wealth. In India, the top 10% corner three quarters of the total wealth, while 60% of the country’s fortune is held by the top one per cent. That perhaps explains why most Indians cannot save substantially or donate liberally.

Rooted in tradition

Securing the future of their progenies is not the only reason that motivates Indians to save. “India has traditionally been a feudal society with accumulation of money in a few hands, the rest being slaves to their masters. The trend continues to this day with politicians taking the place of masters. The tendency to save comes from historical facts. Being a largely agrarian country dependent on the vagaries of nature, we have developed a ‘thrift gene’ to insure ourselves against famine and floods. The saving might not be substantial though,” explains former chairman of Karnataka State Pollution Control Board H C Sharatchandra.

Another reason that prods Indians to save is the environment of uncertainty in the absence of adequate social security measures. Says well-known nephrologist Sankaran Sunder, “In most developed countries, post-retirement expenses are taken care of by the government. Imagine a private practitioner like me who has been paying taxes for three decades and still has no social security or pension. We live an unsure life which drives us to fund our own social security by saving for the future.”

Is the propensity to save making Indians tight-fisted to the point of ignoring other noble causes? “No,” says N S Ravi, a social worker from Cox Town, Bengaluru, “Our financial limitations may not enable us to contribute to organised charities in a big way, but that does not mean we do not loosen our purse strings. Indian families stand up for each other, often extending financial assistance during difficulties, besides generously contributing to the education and marriage of the children of their household helps. It is just that we do not make a song and dance out of it.”

True, Indians may not have deep pockets, but they surely have a large heart.