Funding India’s Development sector: Rethinking the Architecture of Support

India’s development sector, a dynamic ecosystem of civil society organizations, philanthropic actors, social enterprises, and public agencies, stands at a critical juncture. While the past two decades have witnessed a proliferation of innovations in service delivery, from health to education, livelihoods to climate resilience, concerns around the long-term sustainability of funding mechanisms persist. As international aid shrinks and corporate social responsibility (CSR) matures, there is a growing urgency to reimagine how India finances its development priorities.

Historically, India’s development sector relied heavily on foreign aid from international donors, bilateral agencies, and multilateral institutions. This external dependence began to shift markedly over the past decade, driven by both global and domestic policy developments. The most significant inflection point was the steady decline in foreign aid flows to India. As the country’s economy grew and its geopolitical stature rose, many traditional donor countries reclassified India as a middle-income economy and recalibrated their assistance strategies. Consequently, country-specific aid programmes were scaled back or phased out altogether, with donor focus shifting towards regional or thematic interventions instead.

In parallel, domestic philanthropy and corporate social responsibility began to assume a more central role in development financing. The introduction of the 2% CSR mandate under the Companies Act, 2013, was transformative. For the first time, Indian companies above a certain threshold of net worth, turnover, or profit were legally obligated to spend a portion of their earnings on social development. Since the enactment of the CSR mandate in 2014, the private sector in India has collectively invested nearly Rs 2 lakh crore in Corporate Social Responsibility initiatives across sectors such as education, health, and, increasingly, water and sanitation. During roughly the same period (2014 to 2022), the Government of India allocated close to Rs 100 lakh crore towards development expenditure. While government spending remains the dominant source of development finance, the scale of CSR contributions is nonetheless significant and should be strategically factored into the planning and implementation of India’s development programmes. Moreover, the trend has consistently shown positive growth, and as India advances toward becoming an economic superpower, already holding the position of the world’s third-largest GDP with projections reaching $7.3 trillion by 2030, CSR investments are expected to rise even further. With such a robust contribution to national development, CSR funding has evolved from token charity to a more structured, strategic tool aligned with national missions and Sustainable Development Goals. 

However, this transition has also been accompanied by major regulatory shifts. A notable example is the 2020 amendment to the Foreign Contribution (Regulation) Act (FCRA), which introduced new provisions intended to enhance financial transparency and strengthen oversight. These included revised norms governing the receipt and utilisation of foreign contributions by non-profits, limits on administrative expenditure, and restrictions on sub-granting. While these changes have contributed to greater accountability, they have also influenced how foreign-funded organisations structure their operations and partnerships within the development ecosystem. By capping administrative expenditures, prohibiting sub-granting, and narrowing the eligibility criteria for registration, the law inadvertently affected the operations of many small and medium-sized civil society organizations. The result has been a consolidation of funding among a handful of large NGOs that possess the institutional capacity to navigate the new compliance environment. Based on sectoral feedback, we can say that while the amendments have contributed to improved financial oversight, they have also led to a degree of centralisation in the sector. Many smaller, community-based organisations, often critical to last-mile delivery have faced challenges in sustaining their operations under the revised norms. This has, in some instances, affected the reach and responsiveness of development interventions, particularly in rural and hard-to-reach areas, where local NGOs have traditionally played a catalytic role.

Another notable development has been the increasing reliance on public finance and co-funding models. Government-led programmes such as the Jal Jeevan Mission (JJM), the National Health Mission (NHM), and the Swachh Bharat Mission (SBM) have encouraged convergence across different government schemes, Finance Commission grants, and non-governmental contributions. This has opened up new avenues for collaboration between public agencies and non-profit actors. For example, the Jal Jeevan Mission’s push for piped water supply to rural households has seen civil society actors supporting implementation through capacity building, community mobilisation, and technical assistance. Likewise, the SBM’s second phase, which focuses on sustainable sanitation systems beyond toilet construction, offers opportunities for the private sector, non-profits and social enterprises to engage in solid and liquid waste management. Case in point is the Light House Initiative (LHI) that was initiated in 2022 as a public private partnership between Department of Drinking Water and Sanitation, Ministry of Jal Shakti, India Sanitation Coalition, and several leading corporate houses like ITC Limited, HCL Foundation, JSW Foundation, Nayara Energy, Ambuja Cement, Hindalco, Ultratech, JSPL, and TATA Trusts LHI was designed to support gram panchayats in becoming ODF+ Model: defined by universal access to household toilets, the presence of solid and liquid waste management systems, visible cleanliness, and sustained safe sanitation and waste disposal practices. Built on the principles of participatory collaboration, the PPP facilitated on-ground implementation, large-scale behaviour change campaigns, community awareness drives, and capacity-building efforts, particularly among Self-Help Groups (SHGs), to champion sustainable sanitation at the village level. Corporate involvement brought in much-needed techno-managerial expertise, while also driving innovation and forward thinking. However, integrating such partnerships within government frameworks is not without challenges. Complex approval processes, long fund disbursement cycles, and mismatched timelines often hinder timely and effective participation, especially in resource-constrained areas.

Further, modifications to income tax provisions governing charitable organisations, such as the reclassification of corpus donations or revised rules under Section 80G, have introduced new complexities. Funders are increasingly demanding greater transparency, outcome-linked metrics, and value-for-money assurances, prompting many civil society organizations to explore alternative financial models. This has led to a growing interest in blended finance approaches that combine grants, equity, and debt. Blended finance is an approach that strategically combines public, private, and philanthropic capital to fund development initiatives. By using concessional finance to reduce risk and attract commercial investment, blended finance helps unlock greater resources for projects that might otherwise struggle to secure funding. This model not only enhances the scale and sustainability of development efforts but also ensures that social impact is achieved alongside financial returns. In the Indian context, where public budgets are stretched and private capital remains cautious, blended finance offers a viable pathway to bridge the funding gap and accelerate progress toward long-term development goals. Again, I would commend India Sanitation Coalition for spearheading the blended finance approach in the WASH space. ISC has been actively doing policy advocacy and training workshops for all stakeholders such as the Government  bodies, Financial Institutions, Grass root level organisations, start-ups and MSMEs in WASH space.  

Over the last decade, the water, sanitation, and hygiene (WASH) sector has benefitted from a rare alignment of political will, public finance, and private capital. The Swachh Bharat Mission, launched in 2014, became a national rallying point, significantly increasing household toilet coverage and generating momentum for behavioural change across rural and urban India. Subsequently, the Jal Jeevan Mission, with its vision of “Har Ghar Jal” by 2024, built on this foundation, aiming to provide functional household tap connections to over 190 million rural homes. These flagship initiatives catalysed CSR spending into the WASH space, creating a ripple effect in community-led sanitation, faecal sludge management, menstrual hygiene, and greywater recycling. While policy-driven funding has delivered impressive gains in infrastructure coverage, sustaining and scaling these interventions remains a work in progress. In rural areas, challenges persist around operations and maintenance, access to skilled human resources, supply chain constraints, and ongoing monitoring. At the same time, urban sanitation presents a distinct set of hurdles. Despite a growing recognition of the role that public-private partnerships (PPPs) can play in service delivery, the urban PPP model remains nascent, at least in the WASH space. 

As the sector looks ahead, SBM Phase III must take a more integrated and solutions-oriented approach, especially to address the financial and operational challenges of urban WASH. A sharper focus on enabling institutional mechanisms, risk mitigation for private partners, and sustainable financing models will be essential to close the gap between infrastructure provision and service delivery in India’s rapidly growing urban centres. A more resilient financing ecosystem must prioritise decentralisation, enabling smaller organisations and community-based groups to access funding without prohibitive compliance burdens. Innovative financing instruments that share risk, reward outcomes, and attract diverse capital will be key to unlocking scale. Regulatory frameworks must balance the need for accountability with the space for innovation. Excessive controls, while well-intentioned, can inadvertently deter experimentation and edge out smaller players who often bring the deepest contextual insights. India’s aspiration to meet its Sustainable Development Goals by 2030, particularly universal access to safe water and sanitation, hinges on a financing ecosystem that is as inclusive and dynamic as the challenges it seeks to address.

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