Introduction
India's amendment to the Companies Act, 2013 to introduce mandatory Corporate Social Responsibility(CSR), it was marked as a historic step. India is the first country to make CSR a legal obligation as no other country had legally required it's corporations to donate to social welfare. Through section 135 of the Companies Act, 2013, Companies meeting the required thresholds were obligated to spend 2% of their average net profits on social welfare activities ranging from education and sanitation to environmental protection and heritage conservation. This move was labelled as a bold act for a progressive government, a move that would make profit making entities to agents of public good. But over the years, mandatory CSR has positioned some serious questions : Has mandatory CSR genuine social impact or has it simply labelled philanthropy as a legal compliance?
The Legal framework for CSR in India
The Legal framework of CSR in India is primarily governed under section 135 of the Companies Act, 2013. Once considered only a government responsibility, CSR is now an obligation of the corporate world.
Companies are required to spend at least 2% of their average net worth in the 3 preceding financial year for "Corporate Social Responsibility" Initiatives. These initiatives are mentioned in the Schedule VII of the Companies Act, 2013 Or, such initiatives can also be brought by the Board of Directors of the company for ensuring the recommendation of CSR committee as per the CSR policy, with the condition that such policy will cover the subjects specified in the Schedule VII.
It applies to the corporations that come under any of the following criteria :
- Net worth of more than Rs. 500 crore.
- Turnover of more than Rs. 1000 crore.
- Net profit of more than Rs. 5 crore.
Thus, in India, The Ministry of Corporate Affairs, has introduced CSR 9(Corporate Social Responsibility) as a mandatory compliance under the Companies Act, 2013. This provides the companies as an obligation to indulge in projects and goals that helps a company achieve it's development goals.
Rationale behind mandatory CSR.
On April 1st 2014 , India became the first country to legally mandate CSR in Indian corporations under the Companies Act, 2013. The government rationale's is that companies benefit from society and should therefore give it back. And in a developing country like India, where public resources are often stretched thin corporate efforts might fill the welfare gaps.
Prior to this Companies were not legally obligated to engage in CSR activities, although many had their own social responsibility initiatives. Before formal legislation, Indian business followed the Gandhian Principles of Trusteeship, emphasising social welfare through voluntary participation. It was more of a philanthropic exercise than an obligation to engage in social welfare.
Companies voluntarily participated in social welfare, sometimes through donations and sometimes through projects and activities aiming at sustainable development of the society.
In today's scenario, Corporate Social Responsibility is a legal obligation for the corporations. The attempt is made to make corporations understand that CSR is an integral part of their businesses for sustainable development.
But, the critics argue that legally mandating CSR is forced philanthropy. And forced philanthropy undermines the true nature and spirit of CSR. Critics argue that CSR should stem from moral values and not from mandates from government.
Compliance vs. Conscience: The Ground Reality
While CSR initiatives look promising in theory as tools for inclusive development, their practical implementation has yielded mixed results.
POSITIVES
Increase
in spending from Corporations
As CSR has been made a mandatory compliance under Section 135 of the Companies Act, 2013. It's no longer on the companies to voluntarily participate , but now the companies are under an obligation to engage in CSR activities. Thus, it has created an increase in the total spending from the corporation for CSR activities or sustainable development programs.
Large scale initiatives in Education, Health care and Rural Development
Major players like Tata, Infosys and Reliance have launched large scale initiatives in education, Health care and rural development.
Aid during Covid-19
CSR helped mobilize corporate aid during Covid - 19 through donations in PM Care Fund, PPE distribution and oxygen infrastructure. The companies also have made efforts in training health care providers using technologies across hospitals. Under the leadership of Ratan Tata, Tata has contributed INR 1500 Crore as a group to Covid-19 relief. Additionally, Tata employees have contributed 10 Crore for various response projects.
A strategic business tool
CSR in India is just not a legal obligation but a strategic business tool. CSR not only aids in developing brand image but foster goodwill and attract socially aware customers and investors. Thus, mandatory compliance with CSR has been a huge initiative from Indian Government.
CHALLENGES
Greenwashing
Not all firms treat CSR as a strategic opportunity, but treat CSR as a regulatory burden on the company. Companies mislead stakeholders and communities by portraying a company or it's product as environment friendly or socially responsible without making any sustainable contributions.
Lack of transparency and Information
Transparency of information is necessary in success of a CSR initiative. Many corporates do not make enough efforts to meet the disclosure of information. This becomes a hurdle in the trust building process amongst the stakeholders and the corporates.
Regional Inconsistency
Most of the CSR spending is concentrated in areas of Maharashtra, Tamil Nadu , Gujarat, Karnataka. These states comparatively receive higher share of CSR funds compared to less developed regions, particularly those in Jammu and Kashmir and Northeast.
Conclusion
India was the first country to mandate CSR in India, which was a bold experiment indeed. And to much extent this experiment has paid off for the sustainable development in India. Corporations are forced to engage with India's development needs. It has created jobs in the social sector and brought light to the neglected causes of the society. However, compelling companies to spend in sustainable development under a risk of penalties, risks the intent and impact of CSR. The goal of CSR is not only about spending and writing cheques, the primary objective of CSR should be that businesses operate ethically and sustainably while contributing to the societal and environmental well being. And this involves more than just profit, involving practices like ethical business practices, community engagement and environmental protection. CSR program should aim to give structure to company's efforts to give back to the society, participate in voluntary social welfare and provide positive social values.