CSR law in India & its implications

CSR activities carried out by companies often clash with their commercial and other vested interest which are prioritized over serving society

By Dr. Sharath R

There is always space for improvement with respect to government in making the CSR Act more inclusive but there are no complaints. It is a good beginning and a good beginning is half done.

India Govt. made CSR compulsory for companies:

The net worth of the company should be Rupees 500 crores or more
The annual turnover of the company should be Rupees 1000 crores or more
Annual net profits of the company should be at least Rupees 5 crores.

If the company meets any one of the three fiscal conditions as stated above, they are required to create a committee to enforce its CSR mandate, with at least 3 directors, one of whom should be an independent director.

The responsibilities of the above-mentioned committee will be:

Creation of an elaborate policy to implement its legally mandated CSR activities. CSR acts should conform to Schedule VII of the Companies Act, 2013.
The committee will allocate and audit the money for different CSR purposes.
It will be responsible for overseeing the execution of different CSR activities.
The committee will issue an annual report on the various CSR activities undertaken.
CSR policies should be placed on the company’s official website, in the form and format approved by the committee.
The board of directors is bound to accept and follow any CSR related suggestion put up by the committee.
The committee must regularly assess the net profits earned by the company and ensure that at least 2 percent of the same is spent on CSR related activities.
The committee must ensure that local issues and regions are looked into first as part of CSR activities.

Need of CSR Laws

CSR laws are meant to help in transferring excess capital from the haves to the have-nots via acts of charity. According to available data, CSR laws will help in increasing amount of monetary contribution from $600 million to $2 billion annually. This will help corporate undertakings to take up a lot more social, economic and environmental activities in order to help the general populace. This will also help corporates to have a direct stake in improving society and drastically change their role from perceived exploiters of commerce to facilitators of development. They will be forced to contribute beyond the surface level and help in changing society in a much deeper way.

The various advantages granted to various stakeholders are explained below:

The Standard of living gets better with the introduction of more amenities.
Companies engage in large-scale capacity building due to which society becomes more prosperous and wealthy.
Creates a more balanced world and healthier environmental systems.
Ecosystems become healthier due to balancing efforts of the corporates.
Management of waste is improved.
Cleaner and greener environment is created.
Advantages to corporates.
Creates greater societal acceptance and respect.
Helps the company to grow fiscally and makes it more competitive.
Helps the company to interact with various stakeholders and helps them understand their needs.
Employees and their family feel proud to be associated with a balanced corporate organization.

Why CSR in India is not working

Eminent scholars have claimed that companies while having enormous fiscal resources lack adequate knowledge of existing public problems and policy measures. As a result, their CSR efforts are misguided and do not help the public in the long run with sustaining benefits. For example- companies blinded with carrying out their mandated CSR activities might employ contractual workers with extremely low pay packages and virtually no other benefits.

CSR activities carried out by companies often clash with their commercial and other vested interest which are prioritized over serving society.

Furthermore, it is also claimed by scholars that social issues often cannot be solved by money alone and most corporates do not want to look beyond fiscal measures to help society. They also do not realize that money can often worsen existing problems.

Not very transparent in declaring CSR income

As per section 135 of the Companies Act, 2013, CSR efforts will be equated with the money spent- which should be at least 2 percent of the net profit. However, companies are not very transparent in declaring their CSR income. Companies in the past have fudged figures to meet the mandatory CSR spending. Furthermore, companies that were spending more than 2 percent before the said law came into place, have started spending much less these days.

Genuinely help society at large

According to available data, companies have engaged in selective CSR tasks that ultimately benefit their brand value and help them prosper rather than activities that genuinely help society at large. According to some corporates, the mandated 2 percent CSR on net profit is also a way of extracting higher profits illegitimately via a back-door and force them to fill in areas where the government has not acted enough. Furthermore, the government’s action was unilateral, and the corporates were not consulted before the government decided to implement this rule.

How to make CSR Laws effective and efficient?

CSR in India suffers from some serious infirmities- policy and procedure-wise. As a result, it can be argued that some more measures are needed to help implement CSR activities better like:

Specialization of companies should be utilized better. CSR should not be simply seen as the spending of fiscal resources, but the smart spending of CSR resources. For example- a multi-national company engaged in the production of packaged food should provide those below the poverty line with similar assets, telephone companies should set up telecom services in remote areas lacking such services. Section 135 of the Companies Act should be amended to include measures to allow companies to do CSR activities as per their strengths and specialties.
CSR activities should be based on expert data. Companies should not blindly spend fiscal resources but rely on data and suggestions of research institutes so that their efforts result in actual eradication of pre-existing social problems. Therefore, companies should collaborate with social enterprises and research institutes.
Companies should collaborate with the people on the ground- those who are supposed to receive their CSR aid. This will help them realize what people actually need, what their actual problems are and accordingly they can humanize their CSR aid to help a number of people with greater efficiency.
Companies must also compulsorily collaborate with specialist non-government institutions, who have acted in a particular field with specialist experience for at least three years, this will help them utilize their fiscal resources better as dedicated NGOs will guide them in effectively implementing their aid programmes.

Conclusion

CSR in India was done mandatory with a hope to bring about changes from the ground level with the help of the corporate world in association with the local administration. Unfortunately, it hasn’t turned out to be as expected due to procedural and policy inadequacies which have failed to set up a fool proof method of imparting CSR, which is being exploited by the companies. The CSR law needs to be amended to make it simple, monitorable and sustainable for the long term.

About the Author

Dr. Sharath R, Indian Institute of Management, Raipur.

Disclaimer: The views expressed in this feature are entirely their own and does not necessarily reflect the views of India CSR Network and its Editor.

The content is updated on August 14, 2022

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