Scaling and Replication of Social Enterprises in India

In a nation with an estimated population of 1.37 billion people, an extensive range of social enterprises can make an impact. From public services to financial services, to technology, social enterprises can play a key role in a diverse economy like India. Ridley-Duff and Bull (2011) defined a social enterprise as an organization that applies commercial strategies to maximize improvements in human and environmental well-being, rather than maximizing shareholder profits.

The development of this study is for  entrepreneurs to evaluate scaling opportunities in social enterprises that want to expand. Indian social enterprises have large national and international markets where their services can be having moving impacts.

This framework is geared towards replication and scaling of programs commenced by Indian social enterprises in market expansions. It includes methods/strategies for scaling impact for a broad set of investors and entrepreneurs to build such projects.

A social enterprise is legally structured as a for-profit entity with a clear social impact goal defined. In India, there are five options to set up a for-profit social enterprise: Sole proprietorship, partnership, limited liability partnership, a private firm and as a co-operative. 80% of Indian social enterprises are structured as a for-profit private limited company (PLCs).

Support at various stages of incubation

Over the years, the main operational problems faced by social enterprises have been accessing resources and funds, management challenges, task and mission challenges, and social perception challenges.

  • Idea/ seed stage incubation: Presently, social incubator UnItdIndia provides support to idea-stage social entrepreneurs that are looking to develop and pilot their social impact ideas, by providing capacity support, mentorship and small capital.
  • Early-stage incubation: Villgro based in Chennai is a comprehensive social incubator providing seed fund, mentorship; working space and network to social enterprises. It is also working on building active ecosystems in metro and tier 2 and 3 cities by conducting workshops, offering fellowships and organizing mentorship/ networking events.
  • Accelerator: Villgro also has an accelerator program. There are mainstream accelerators and programs that support startups and a small percentage (2-5%) of social enterprises.

 Corporate Structure, Competitive Analysis, and Market Entry

To understand the viability of a business model, we must understand whether the corporate structure allows for growth, requisite of licenses, participation and compensation of the board of advisors. Every social enterprise must assess competitors, make a market differentiator, and understand the customer’s perspective on the service rendered. Once the market entry impediments to startup are understood, we start building the business model of the enterprise.

Millennium Alliance, which is a consortium of public-private partnerships, has supported the scaling of social innovations in 22 states of India including low-income states such as Bihar, Uttar Pradesh, Odisha, Chhattisgarh, Madhya Pradesh, and Rajasthan. It funded Waterlife, which provides sustainable, affordable, and safe drinking water through Community Water Systems. Billions of people globally do not have access to safe water, leading to waterborne diseases. It built a successful operation in India in partnership with the government, NGO, Panchayats, SHG, Commercial institutions as well as international agencies. At present, this social enterprise has found a large market in Rwanda, where more than 60% of people do not have access to safe water.

 Business Models of Social Enterprises

 The business model is based on the social impact it wants to make or the social problem it is trying to solve. Key features of social enterprise are: the benefactors of the impact and target customers paying for the product or service might or might not be the same; enterprises can be structured for impact investments with options of debt or equity; and enterprises internally functions like any other commercial business in terms of management, operations, people and resources. A few business models operating in the social enterprise section are:

3.1. Self-Sufficiency Social Enterprise: Most self-sufficient social enterprises are brand-new social enterprises or companies that lack management talent. Such enterprises can merely break even and lack the resources to realize their social mission or create profits.

3.2. Mission-Driven Social Enterprise: Mission-driven social enterprises closely resemble non-profit organizations, and always work on a specific social issue more deeply than profit creating social enterprises do. Such enterprises have ideal social missions, but lack appropriate business models to realize those missions. Social Blood is an organization that helped the needy connect with blood donors through Facebook. Social blood has partnered with several blood banks in the U.S. and has helped over 300,000 people.

3.3. Profit Creating Social Enterprise: Profit creating social enterprises closely resembles for-profit organizations. The familiar problem faced by profit creating social enterprises is that they frequently can only help a small number of people, or only slightly mitigate a social problem. However, such enterprises create less social value than benchmark targeting social enterprises. Oorja Solutions is a relevant example of this business model. It is an energy services company in the business of replacing diesel engines with affordable, reliable solar energy systems for a productive power in rural markets. Their first service, Oonnati, provides irrigation water on a pay-per-use basis to smallholder farmers.

3.4. Benchmark Targeting Social Enterprise: Benchmark targeting social enterprise is the ideal form of social enterprise. Benchmark targeting social enterprises not only achieve profits from their products or services but also reinvest those profits into realizing their social mission. An example of such a social enterprise is Science for Society, another startup backed by Millenium Alliance. SCD is an electricity-free solar-powered food dehydrator that reduces moisture content in agro-produce so that it can be stored up to 1 year without any chemicals and earn additional income through the sale of such products. This leads to the creation of a scalable ecosystem of producers, local administration and monitoring partners and buyers of dehydrated products.

Case Studies on Expansion

1. Expansion Strategy of One Acre Fund in South Africa: More than 50 million smallholder farmers in Sub-Saharan Africa are locked in annual cycles of hunger because they’re unable to grow enough food to feed their families. Malnutrition can have serious, lifelong effects, especially for children, robbing them of their full potential as they grow up. One Acre Fund has catered to millions of such farmers to diminish such social issues. They appointed one manager who managed 5 staff recruited in South Africa who further managed 5 farmers. This model helped to scale One Acre Fund, at a very large and replicable model serving more than 800,000 farmers.

2.  Expansion Strategy of Robin Hood Army: India based Robin Hood Army is a zero-funded organization which helps to get surplus food from restaurants to serve less fortunate people. It has successfully served more than 20 Million people across 140 cities.

Untapped Potential Scope in Energy Market for Social Enterprises

According to the International Energy Agency, 77 million households in India still use kerosene for lighting. 280 million people in rural India and 24 million people in urban India are without access to electricity. Hence, more innovative social solutions need to come up with replicable and scalable models. Enterprises can provide electricity through micro/ mini-grids that use technologies such as biomass-gasifier, small hydro, solar photovoltaic and wind to supply power to unelectrified and under-electrified communities.

Many parts of India receive 300 days of annual sunshine which presents an opportunity for constant solar power generation. At present, solar only covers 3% of 100 GW potential capacity. Providing clean energy products (solar lanterns, solar home systems (SHS), solar pumps, solar photovoltaic water heating and energy-efficient cookstoves) for efficient lighting and heating/ cooking is one of the ways of using solar energy to generate power and heat.


At present, India has a large untapped potential in the social sector for an extensive range of services like Medtech, Agritech, EdTech, Skilling, Employability, Cleantech and Renewable Energy. In terms of scaling up impact,  the number of individuals and organisations benefiting from social enterprises can be substantial.

1. Finding Funds which support such social causes – Impact and Venture Capital funds are increasingly investing capital in such enterprises. In India, the social impact startups are growing at 20 per cent annual rate while there are more than 400 such startups The Indian government is planning to have its own stock exchange for social or impact startups, in the lines of Social Stock Exchange in the UK, SASIX in South Africa, Impact Investment Exchange in Singapore, SVX in Canada.

2. Understanding Economic Indicators – Social Enterprises may consider hiring a consulting firm to understand the international economic indicators impacting their market. Consultants may refer to Risk Mitigation Techniques which may help to improve trade in specific markets. Understanding the various political, economic, social, technological and legal factors impacting the market, is crucial for the success of a business.

3. Conduct Competition Analysis – Market share of each competitor, and the services rendered by them are one of the key elements in a market entry strategy. Enterprises stand a chance to have sustained success when bringing in innovation, which is scalable and impactful. Entrepreneurs must see if they can have intellectual property rights on such products and services innovated by them.

4. Investing in Potential Industries – As mentioned in this report earlier, solar power energy utilisation can lead to several impactful innovations. Moreover, with the graduation of thousands of engineers in India every year gives the nation the human capital we require to  meet this milestone. Further, the healthcare industry in India has grown to $81.3 billion (Rs 54,086 lakh crore) in 2013 and is now projected to grow to 17 percent by 2020, up from 11 percent in 1990. This industry promises huge potential to impact.

5. Build for A Cause – Entire ecosystems are collapsing. Animals are endangered because of climate change. Global warming is increasing precipitation, melting glaciers and expanding seas leading to an increase in floods, hurricanes, and storms. We should nurture a society of entrepreneurs, who will grow up to change thoughts to things because in a world where you can grow up to be a lot many things, grow up to be kind.

Author: Anisha Aditya

Corporate Performance Management – How Can it Benefit Your Company?

What is Corporate Performance Management (“CPM”)?

CPM is a broad term that encompasses the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise (Source: Gartner).

In simple terms, to demystify the concept, CPM is a health check-up. Based on the results you take steps to change your lifestyle and improve the metrics where you went below the benchmark.

CPM is no different, but this time it is for an enterprise and not for a human being or a machine. It is a lot more difficult and each year the benchmarks keep changing.

Why is CPM important?  A challenging external environment!

 Leading a company in the 21st century, especially when globalization and free trade is under threat, is no easy task.   Disruption is always around the corner. Be it from regulatory bodies, technology disruption, economic disruption, or innovative business models. It is inevitable that someone or something is disrupting your industry or market.

A very astute observation made by an investor at a conference recently comes to mind -“There was a time when a company could/would stay on the S&P 500 for 40-50 years. Now this has reduced to 20-30 years”.

Corporate Performance Measurement

Needless to say, these are challenging times. So how does one ensure steady and sustainable growth?

How does one deliver a stellar corporate performance when faced with these challenges?

What does a stellar corporate performance look like? 

High operating profits, steady double-digit growth, excellent customer satisfaction levels?

Corporate performance can be measured in a myriad of ways, but at the end of the day does the organisation deliver consistent returns to its shareholders, excite its customers, reinvent itself when the time is right, innovate and solve the problems customers didn’t even know they had?

Expectations from corporates have changed drastically and keeping up with shareholder and customer expectations isn’t enough.  Going beyond the call of duty and delivering beyond their expectations is what a stellar performance looks like.

Why do many fail to deliver a consistent performance / why don’t companies succeed in transforming themselves? 

As an HBR article titled “Managing the right tension” points out, 3 issues plague organisations – Profitability vs Growth, short term vs long term, and the whole organisation vs the parts. Organisations struggle to handle these 3 seemingly conflicting issues.

These objectives can seem like they are conflicting or competing with each other. Progress in one is usually at the expense of another. Going for high growth damages profitability and working towards profitability hampers growth. At the same time a leader’s focus or efforts to build a long-term sustainable growth strategy for the company often comes at the expense of present-day performance.

Inevitably, most companies end up undertaking a transformation program focusing on a single lever – cost reduction / downsizing. This is done to deliver better bottom line numbers. But corporate performance isn’t dependent only on a single lever and isn’t a one-dimensional activity.

Another common pitfall is a Business Unit (“BU”) based approach. Each BU has its own set of goals and interests. If left to their own, the transformation will only benefit the BU and not the strategic interest of the organisation. While each individual BU will have to pull up their socks and transform, this must be done with the goals of the corporate entity in mind. The need of the organisation as a whole is primary.

Another common pitfall is a tactical one. Since KPI’s vary by function and BU, there is a lack of unity or consistency in data description/categorization among them. Decision making hence becomes difficult and reporting of data is the main culprit behind this. Resolving these inconsistencies can be costly in terms of both time and money.

These are a few common issues that organisations face and one should attempt to avoid them during the CPM Program.

Why do you need a CPM program? 

The question is no longer “Should I change / adapt”. You should have transformed yesterday.  It is therefore not a question about should you, but how do you transform. And what should you transform into?

This is entirely dependent on your external environment, stakeholders, and customers. It can be overwhelming at times, but a structured approach can be a north star and guide the organization along this process.

This approach ought to answer important strategic questions such as –

  • What do I need to excel at? Drivers of Excellence / Competitive Advantages
  • How do I know if I am in fact excelling at this?KPI’s
  • How much should I achieve now? Targets 
  • What do I need to do to excel at this?Initiatives
  • What will this require in terms of investments?Budgeting

What are the enablers of CPM?

The key enabler for CPM is access to quality information that is actionable. This is done through technology interventions.

  • Tracking the KPIs that are relevant
  • Data sets with appropriate and universal taxonomy across the organisation
  • Dashboards that are easy to read and act upon
  • Real time business analytics

enablers of CPM

Having an ERP system is a no brainer but how to effectively use an ERP is still an area on which most organisations still spend sleepless nights on. Analytic tools / BI tools play an important role in data analysis and representation, and ERP/CRM systems are important when it comes to data collection


Building long-term growth strategies must be based on credible and comprehensive market, customer, and competitor insights. These insights must then be translated into specific growth opportunities, and a strategy is then designed to capitalize on those opportunities.  This foundation helps ensure that the resulting strategic plan is connected to meaningful targets for the company as a whole.

A 3 phased approach such as the one shown below which has been adapted from those of leading institutions such as MIT Sloan and of CPM practitioners, can be used by organisations to give their CPM programs a structured approach. Beginning with a Strategic Alignment exercise, followed by measuring existing and to be states, and creating a sustainability framework to ensure continuous transformation is ingrained into the culture of the organisation, the CPM program can deliver sustained benefits and transform the organisation to deliver stellar performance in the long run.


Strategize – This phase focuses on aligning the organisations interests with functional and individual interests. Identifying the KPIs relevant for the pressures faced by the organisation both externally and internally.


Measure – In this phase the focus is on collecting relevant quantitative and qualitative data which will be analysed, and the insights presented to the leadership in a well structured and articulated format, ripe for decision making.


Sustain – Performance is also enabled by the organisations culture, systems, and processes. This phase will see the organisation taking pragmatic steps towards institutionalizing the changes into the DNA of the organisation.


Key Takeaways

  1. CPM involves conducting a health check for the organisation with real actionable data and insights and taking decisive strategic actions basis the insights.
  2. Sustained stellar corporate performance can be achieved through a structured program
  3. Align strategy at the corporate, functional/department, and individual level
  4. Measure the KPI’s and enable this through technological interventions
  5. Sustain the change through a cultural shift by institutionalizing systems and processes

A Comparative Study of China and India’s AI Policy

The output of human civilization has so far been primarily driven by human intelligence and when machine intelligence combines with human intelligence, the sky is the limit. Artificial Intelligence has gained significant disruptive power over the last two decades. The 4th Industrial Revolution (Industry 4.0) pioneered by AI implementation shall be the differentiating factor for economies to establish prowess in today’s connected world. Established enterprises, start-ups, and even non-profit organizations continue to develop solutions with the help of government initiatives, fostering growth in AI implementation in diverse fields.

Countries across the world are becoming increasingly aware of the potential economic and social benefits of AI development and the AI+X mechanism – the concept of choosing a process and its synchronization with AI.

The two biggest countries of Asia – China and India, boast of a strong AI talent pool and enterprises and institutions that continue to strive for advanced research and innovation. The increased leverage of AI in both these economies will see major disruptions not only in defense and manufacturing but also in social welfare and communication. Comprehending AI’s transformative potential, the bureaucracy has stepped up and formulated policies to govern and to incentivize AI-based implementation for a competitive global advantage in the crucial sectors. A comparative study shall help us evaluate our strategic positioning and understand where organizations can make further impact in an AI-driven economy. Here, we highlight the key aspects of the official AI policy reports of these two countries.

China’s Artificial Intelligence Development Plan, 2017

Chinese enterprises and institutions have made substantial progress in highly recognized AI research, and the government, recognizing its potential to propel China’s global dominance, has realized the urgency for legislative simplifications, infrastructure support, and grooming and retaining top AI talent. Thus, in July 2017, the State Council of China released a comprehensive AI policy report: ‘Artificial Intelligence Development Plan’ to develop the roadmap for AI leadership under an ethical and supportive regulatory system and open source collaboration.

The report covers strategic goals divided into three steps. The first step is the setting up of an AI infrastructure at an advanced level as compared to the world by 2020. The second step, which is to be completed in 2025, aims to establish China in the ‘world-leading level’ in AI breakthrough and to establish AI as the primary driving force behind China’s industrial transformation with the help of a ‘breakthrough’ in artificial intelligence basic theory. The industry scale of core artificial intelligence is estimated to be worth 400 billion yuan and that of the related industries to be higher than 5 trillion yuan. The third step is to achieve global supremacy in AI impact and be the ‘innovation center of the world’.

China plans to adhere to the ‘Three in One’ approach of promotion of R&D in the field of artificial intelligence, product and application development, and industry development and training to maximize productivity as well as enhance societal welfare. Artificial intelligence shall be used as the key driver to protect and safeguard national security.

The country is also focussing on interdisciplinary exploratory research to promote integration with diverse fields such as neuroscience, quantum science, psychology, mathematics, and sociology. To enhance China’s competitiveness, ‘open, stable and mature’ technology systems shall be developed in the form of algorithms, hardware, and the data. The system development shall have the potential to address multiple issues and yet be reconfigurable, energy-efficient and also possess a high learning ability. Extensive research and China’s AI ambitious goals shall be established through the construction of innovation platforms to invite and to expedite top research projects that will focus primarily on smart robots, intelligent vehicles, virtual reality, smart terminals and a new generation of Internet of Things (IoT). Cultivation of a high level of talent to build robust infrastructure shall be achieved via specialized channels such as revision of enterprise human cost accounting policies, cross-integration of AI training with professional education and incentivizing top-notch research work to encourage productive output.

National Strategy for AI discussion, NITI Aayog, 2018

India showcases a promising scenario, thanks to its strong talent pool, a notable list of world-class educational institutions and companies that are dominating the global IT landscape. However, India couldn’t achieve global recognition primarily due to the lack of top-notch research in AI at a significant scale. So, NITI Aayog has stepped up for the formulation of a comprehensive AI strategy with a core focus on infrastructure development and holistic collaboration. It aims for an #AIforAll campaign where AI shall also be used for social inclusion and not just for defense, military, and advanced computing applications. In an ‘AI+X mechanism’, where AI is an enabler for increased productivity and efficiency rather than a complete overhaul, the key focus areas for AI intervention shall be healthcare, agriculture, education, smart cities and infrastructure, smart mobility and transportation. The key challenges identified in these sectors include among others a low intensity of AI research, insufficient talent to research and to implement AI at scale, high resource cost, ambiguous privacy issues, and unattractive intellectual property regime to incentivize adoption.

The report provides more than 30 policy recommendations to develop a two-tiered strategy, which is aimed at improving the research ecosystem as well as developing skilling initiatives to feed the ecosystem. Initially, the ‘Centres of Research Excellence’ (CORE) shall enhance quality research and publications focussing on AI. Investment, both domestic and foreign, shall be made to develop a state of the art infrastructure in liaison with the concept of an ‘AI garage’. Just like the strategy of the Centre for Data Ethics and Innovation in the UK for implementing ethical research, the COREs shall be monitored by a consortium of Ethical Councils that shall define the standard practices, based on OpenAI charter, for the development of AI-based research and products.

The fundamental research activities shall be the feeder for the ‘International Centres for Transformational Artificial Intelligence’ or ICTAIs. They shall focus on investing, developing and accelerating AI-based applications, majorly in the domain of societal importance. It shall be a public-private partnership with a seed funding in the range of INR 200 – 500 Crore per ICTAI, to cover the operational expenses and infrastructure CapEx for the first 5 years. These institutions shall comprise of a strong governance board, comprising of leadership from both industry and academia and may allow a reasonable say in the board for an industry partner with a significant contribution. The ICTAIs shall be strategically located and preferably close to academic institutes to hire top-notch talent. National AI fellowships can be availed if finances are a constraint for talent attraction.

The policy also speaks about developing AI talent at the grassroot levels by introducing AI modules in the mainstream curriculum and incentivizing the development of MOOCs and open-sourced learning forums. Besides this, the development of a National AI Marketplace (NAIM) has been proposed in three different modules to minimize resource allocation for model development.

Overall, the strategy has been to develop India as a ‘playground’ for global AI development so that global enterprises or institutions can develop breakthrough and scalable solutions here. These solutions are expected to be capable of solving problems for both developed and emerging economies. It indicates that ‘Solve for India’ is claimed to be solved for 40% or more for the world.


The above discussion clearly reflects how the two countries have formulated their AI strategy with two different perspectives. China is clearly gearing up for a global supremacy with a totalitarian regime and wants to develop a state-of-the-art AI infrastructure in isolation.

On the other hand, India aspires to be the global AI lab for emerging economies. China plans to invest billions of dollars not only in AI but also in related industries to build up a robust infrastructure for AI proliferation. The ability to develop and maintain database for training models and ease of its accessibility hold tremendous competitive advantage for China, an area India must look upon. Planned investment by the Indian government is proportionately smaller but inviting FDI, highlighting low operational costs and collaborative research, can open doors to significant fund flow. ‘AI+X’startups and enterprises must have access to global VC funds and regulatory simplifications should be deployed for companies going beyond borders to solve problems. The new investment on COREs shall benefit India’s highly cited research output and improve its H-index, but similar to China’s strategy, incentivization of top talent to reduce brain drain needs a long-term plan. In short, there is little doubt that by leveraging globalization and unparalleled infrastructure, these two nations – India and China –  will emerge as the future AI labs of the globe.

–              Rajarshi Chowdhury

Cautious over Financial Instability, The RBI approves Surplus Transfer of Funds to the Government

The Central Board of the Reserve Bank of India (RBI) on August 27th 2019 decided to transfer a sum of Rs 1.76 Lakh crore to the Government of India (Government) comprising of Rs 1.23 Lakh crore of surplus for the year 2018-19 and Rs. 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted at the meeting.

The Expert Committee led by Dr Bimal Jalan, reviewed the Extant Economic Capital Framework of the RBI including surplus distribution policy of RBI in the light of cross country practices, statutory mandate under section 47 of the RBI act and impact of RBI public policy mandate and financial stability considering on its balance sheet and risks.

In the RBI, there are three different funds that together comprise its reserves. These are the Currency and Gold Revaluation Account (CGRA), the Contingency Fund (CF) and the Asset Development Fund (ADF). Of these, the CGRA is by far the largest and makes up the significant bulk of the RBI’s reserves. The fund, which in essence is made up of the gains on the revaluation of foreign exchange and gold, stood at Rs 6.91 lakh crore as of financial year 2017-18. The CGRA has grown quite significantly since 2010, at a compounded annual growth rate of 25%.The CF is the second biggest fund, amounting to Rs 2.32 lakh crore in 2017-18. It is designed to meet contingencies from exchange rate operations and monetary policy decisions and is funded in large part from the RBI’s profits. The Investment Reserve Account (IRA) and ADF constitute a small portion of the RBI’s reserves.

A peek into RBI’s key reserves

The Math Behind the Transfer

The Jalan committee recommended that the RBI should maintain a Contingent Risk Buffer — which mostly comes from the CF within a range of  6.5-5.5% of the central bank’s balance sheet. Since the latest CF amount was about 6.8% of the RBI’s balance sheet, the excess amount was to be transferred to the government. The committee also decided, for the year under consideration, to use the lower limit of 5.5% of the range it recommended. So, basically, whatever was excess of 5.5% of the RBI’s assets in the CF was to be transferred. That amount was Rs 52,637 crore.

Regardingthe RBI’s economic capital levels — which is essentially the CGRA — the committee recommended keeping them in the range of 24.5-20% of the balance sheet. Since it stood at 23.3% as of June 2019, the committee felt that there was no need to add more to it, and so the full net income of the RBI — a whopping Rs 1,23,414 crore — should be transferred to the Centre.

As on June 30, 2019, the RBI stands as a central bank with one of the highest levels of financial resilience globally.

That Rs 1.23 lakh crore plus the Rs 52,637 crore is what comprises the Rs 1.76 lakh crore that the RBI has decided to transfer to the government. It must be noted that this Rs 1.76 lakh crore includes the Rs 28,000 crore interim dividends earlier transferred to the Centre and does not come over and above it. Given that the RBI has already paid an interim dividend of Rs 28,000 crore to the government, net amount transferrable will be around Rs 1,48,000 crore. For 2019-20, the government had already budgeted dividend of Rs 90,000 crore from the central bank.  This implies a clear windfall gain of Rs 58,000 crore ($8 bn) or about 0.3 percent of GDP in FY20.

How Is the Transfer Going to Impact the Economy?

Undoubtedly, the fiscal position improves materially to a large extent post RBI announcement on August 27. The 52,000-crore pay-out will help bridge the revenue shortfall and allow the government the space to still keep the fiscal deficit to the budgeted 3.3 per cent of GDP.

There is a distinct slowdown in the economy which can be attributed to tighter funding conditions, a sharp decline in consumer confidence, a negative central government fiscal impulse as well as global headwinds. The policy response so far is to mitigate the current slowdown has been mainly in the form of monetary action wherein policy rates have been reduced four times by 110 bps from August last year till date. The government has exercised restraint in easing fiscal policies. Despite the slowing economy, the FY20 Budget did not envisage any additional stimulus through the reported fiscal deficit figures, with the FY20 targeted fiscal deficit almost flat at 3.3 percent of GDP, compared to 3.4 percent for FY19.

The current slowdown seems more extended compared to previous episodes of growth deceleration seen during demonetisation or in 2013 following the taper tantrum. Hence, the government could utilise this amount for specific expenditure outlays. If the government chooses to do so, it will have a direct positive impact on growth and also create some inflationary pressures. It is worth noting that if the government decides to spend the amount to support growth, it will be first big push through fiscal stimulus during the last decade. In 2009 after the global financial crisis, the government had spent $6.5 billion, which was equivalent to 0.5 percent of the 2008 GDP, according to IMF.

In an alternative scenario, the government might not spend the windfall gain to propel growth. It could do so because given the slowdown, there is significant downside risk to tax collections. In such a scenario, the surplus from the RBI should help offset the expected shortfalls in various tax revenues in 2019-20 and aid the government in meeting its fiscal deficit target. While a lot depends on the manner of utilisation of excess proceeds, the surplus gain from the RBI is still positive news for equity markets. The surplus of Rs 58,000 crore can help the government tide over any future revenue shortfall implying that risk of fiscal slippage has reduced considerably.In all likelihood, surplus from the RBI will act as cushion against a possible shortfall in revenue collection in FY20 and not as a growth booster.

Furthermore, the RBI is expected to maintain surplus liquidity of around 1 per cent of NDTL (Net Demand and Time Liabilities) for some more months to come to allow the transmission of their rate cuts to flow through the banking system onto the economy. Also, continued lending rate cuts by the banks is expected in the months to come, implying lower returns from liquid and money marketfunds for investors.

Therefore, productive utilization of funds is critical as in the last few years share of capital expenditure as percent of GDP has been falling. In India, majority government spending is to boost consumption than investments, and thus, the RBI’s surplus funds is needed to be used appropriately to have a sustainable multiplier effect on overall development of the economy.