Corporate Social Responsibility (CSR) refers to the engagement of the corporations in India, along with the Government, in bringing about an overall positive impact on the community and thus helping in a sustainable, overall advancement of the country.
India has one of the oldest traditions of CSR. However, in the past, it had not been regulated and as such it was more inclined towards charity, family traditions, values and philanthropy, which were not sustainable without proper rules and regulations.
Over many years, India has indeed been a myriad of contradictions, where on one hand it has emerged as one of the largest economies in the world, but on the other hand also has the largest number of population living below poverty line. With an awareness of this gap between the haves and have-nots, the New Companies Act, 2013 has introduced the Corporate Social Responsibility Law. The new CSR guidelines were introduced to this law on April 1, 2014.
The two per cent stipulation
As per the Act, mid and large companies have to spend two per cent of their three-year annual average net profit on CSR activities. The law applies to the following companies registered in India:
- Those with net worth of INR 500 crore or more
- Those with a turnover of INR 1,000 crore or more
- Those with a net profit that exceeds INR 5 crore
The new rules are made applicable from the fiscal year 2014-2015. The Government has identified many sectors where India Inc can spend to claim credit for the mandatory two per cent CSR expenditure. Some of them are:
- Promoting Education
- Promoting gender equality and women empowerment
- Ensuring environmental sustainability
- Protection of national heritage
- Contribution towards the Prime Minister’s Relief Fund
- Eradicating hunger, poverty, malnutrition
- Promoting preventive healthcare, sanitation and availability of safe drinking water
- Rural development projects
The intent of this Act is to have a significant impact at the grass-roots level, for an integrated, sustainable and overall advancement of India. Coupled with a new Prime Minister at the helm asking for more innovative social action, the time is indeed ripe for this Act to do what it is supposed to, i.e. remove that large gap between the rich and the poor.
The debatable issues of CSR
The corporations should keep in mind that CSR requires them to do good, and not just throw money at various charities. In 2008, Bill Gates spoke at the World Economic Forum about “creative capitalism.” He encouraged companies to identify their expertise, be it technology, agriculture, healthcare, and develop products that could “stretch the market forces.” He urged the companies to take a more nuanced attitude towards “doing good” by honing in on their business speciality. It is not merely the giving that matters, but the kind of giving. In fact, many feel that this Act will result in forced philanthropy, tickbox behaviour and also in many cases corruption.
There is also a requirement of integration of the projects that the corporations are contributing towards, without which, while there is a concentrated effort on improvement of certain sectors, many others remain neglected.
How to involve recipients
For sustainability of the contribution towards welfare of the society, it is mandatory that the recipients of the welfare be also involved in it. This can be done by the incentive approach, wherein the beneficiary is also expected to contribute according to his status.
For example, in rural areas, the beneficiaries should desist from child marriages, educate the girl child, etc in return for the good that is being done to them. A committee would be required to monitor the same.
Disbursement of the amount of contribution to the grass-roots level is also another major issue. Without proper monitoring of the same, the corruption levels will rise. As per the Act, a company can implement CSR activities on its own, through its non-profit foundation or through independently registered non-profit organisations that have a record of at least three years in similar activities.
The NGO boom and what Ratan Tata said
This provision has led to a boom in the number of NGOs. Choosing the right NGO from so many is surely not going to be an easy task. While the larger companies typically have CSR teams to carry out evaluations and monitor the spends, the SMEs ( Small and Medium Enterprises) without a specialist team assigned for this activity might find it difficult to plan and monitor the spends.
Ratan Tata, the former chairman of Tata Sons, has said, “We have a phenomenon which is meant to be good but is going to be somewhat chaotic … we don’t as yet know what kind of monitoring there’ll be in terms of how well this money is used.” Thus questions will continue to be asked about the Government’s role in mandating such investments.
Azim Premji, the philanthropist and head of Wipro, has also voiced his concerns over the implementation of the mandate. He says, ” My worry is the stipulation should not become a tax at a later stage … Spending two per cent on CSR is a lot, especially for companies that are trying to scale up in these difficult times. It must not be imposed.”
The Prime Minister, Narendra Modi, in his Independence Day speech exhorted his country men to “walk together, we move together, we think together, we resolve together and together we take this country forward.”
The question is, can the Government-mandated CSR be a social development path in a country where over 900 million have a mobile connection but only 600 million have access to a clean toilet? The weaker sections will surely benefit from this Act, but there have to be certain measures like incentivisation, participation and inclusion for sustainability of this benefit. With more stringent rules with participative inclusion of the beneficiaries, CSR will surely help in the progress of India.
It’s time for a better tomorrow.