The world seems to be in a neverending crisis. Climate change, poverty, educational disparities and widening ideological divides are problems that seem too big for any of us to make an impact on. We feel helpless. But maybe there is something we can do. These days, the chatter is all about impact investing — doing good while making money. Impact investors seek to target opportunities in a way that produces not only revenue for themselves but also produces meaningful benefits for the populations of the places where they invest.

India is currently experiencing a significant increase in Foreign Direct Investments (FDIs), which are funds invested by entities from various parts of the world into a wide array of sectors such as Health-Tech, Education, Fintech, and Renewables. This influx of FDI indicates a growing interest from international investors in India’s economic opportunities.

At the same time, India’s economic potential is only getting bigger. A recent article in The New York Times underlines the shifting demographic tides across the globe. with India poised to become the foremost contributor to the global workforce by 2050. Kearney ranked India second — only after China — among emerging markets on its FDI Confidence Index this year.  With the upsurge of funding and opportunity, it is time for us to take a step back and evaluate how these investments can be handled to do the most good.

To make an impact in India, you need to look at employment

So, India is not merely an investment prospect; it is an impact destination. How can we change the lens through which we look at investing in India to make the most of this fact? The first step is to recognize that impact investing is not just about trendy initiatives such as green bonds and ESG-centric investing. At its base, doing good is about employability.

India’s growth is marred by persistent unemployment. In 2022, unemployment was 7.3%. With a labor force of 524 million, this translates to a whopping 38 million jobless individuals — more than the entire population of Poland. The Indian state is under considerable strain providing livelihood, basic education, healthcare and shelter to this substantial demographic. The solution to the problem cannot lie solely with the government. Private capital must mobilize to ensure higher employment. 

All these unemployed people are a cost for India, but they are also a huge potential opportunity. Entrepreneurs must only do what they do best — connect people to resources and make them productive, for themselves as much as for investors and for society at large. Ramraj Pai, CEO of the Impact Investors Council in India, suggests that the Indian market offers ample latitude for social entrepreneurs to engineer impact at scale while turning a profit. Existing impact investments in India have made a compelling case, Pai says.

Equity impact investments in India, with a typical holding period of around 5.2 years, have generated an overall internal rate of return of around 30% over the past decade while impacting more than 500 million lives across the country.

Numerous success stories like LEO1, BluSmart and Svasti have shown how entrepreneurship in India can make real progress in employment, with a transformative impact.

Impact investing can work for India, but we need to act fast

The solution is so simple that it may sound like a no-brainer, but it works. Do you want to make people’s lives better? Do you want to make investments that will do real good? Instead of pouring money into greenwashed, feel-good investments or shallow political ploys designed to make some salesman a quick buck, give people jobs.

World Bank President Ajay Banga has recently said that India’s path to growth lies in creating more jobs. India is a great place to do this. Banga highlighted the potential for capitalizing on the “China Plus One” strategy, an increasingly popular approach in which companies are diversifying their manufacturing capacities beyond China.

India can imitate much of China’s success, but it has to act fast. According to Banga, the window of opportunity will not be open 10 years from now. India has a three- to five-year opportunity to attract the money that private investors can bring before circumstances change and investors move on to other pastures.

The future, as things stand, looks bright. Impact investors and India are becoming aware of the opportunities that each affords the other. If we can take advantage of the moment, we can make it a reality out of the slogan, “doing good while making money.”

[Anton Schauble edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.