Becoming Capital from Corporate

By Dr. Rahul Singh

India is undergoing a great national, social and economic transition. Post independence, the academic and intellectual approach of India for a long time has been to follow the western scholarship and thought leadership. The supremacy of their work led to change in the nation-social intrinsic and the methods of the development in many countries including India. Some of these changes are irreversible. I am debating the indigenous method of development over foreign.

The new Indian corporate, since 2000, missed a very fundamental question, Has India developed right industrialization ecosystem to address the need of the nation? In a short period of 20 years of new-generation industrialization, Indian policy makers face split character of the antion in ultra-modern society and poor class as byproduct of industrialization. Commodification has changed the cultural character in absence of an indigenous socio-economic framework and thinking.

Traditional Indian companies, such as TATA and Birla, grew with the value systems. Western industrialization was creating money for its society and missed on the integration with the social values, Indian companies following this model were trapped in same sentiments and outcomes. Corporate social responsibility (CSR) is not new phenomena in India but imported concepts and models are new, including  methods of propaganda by majority.

CSR has moved from a sleeping term to dynamic responsibility in past few years. India has become the first country in the world to enforce corporate social responsibility through law. It is an observatory for the world today to understand how would new system perform in the development of the society and the nation? And, how will companies perceive this enforcement in short term and long term?

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Global Big Picture of Corporations and Growth 

International agencies like World Bank, International Monetary Fund, Oxfam, World Business Council on Sustainable Development, Global Reporting Initiatives and others are developing their models and frameworks to make the companies more responsible, conscious towards their methods of doing business and participate in social and national development. Although market  forces  (consumers,  producers, policy makers, non-government actors  and  other  stakeholders)  are  increasingly pressing companies to act responsibly, markets have not succeeded in prodding all corporations to  fulfill  moral  obligations. Winnie Byanyima, Executive Director of Oxfam International observes, the combined wealth of the richest 1 percent to overtake that of the other 99 percent of people by 2016 unless the current trend of rising inequality is checked. “Do we really want to live in a world where the one percent own more than the rest of us combined? 

Indian Scenario 

In Indian context, a 50 years estimation of inequality indicates that India could never plan a right model of national development since independence which has helped the nation to increase holistic development. While inequality was close to 46.00 in Ginni Index (a measure of inequality) in times of depressions or slow economic development under the socialistic approach of Jawaharlal Nehru, it never improved when India was opening up its economy and reaching to an economic (gross domestic product) growth rate of 7 percent as inequality increased to level close to 52.00. It clearly means that the political vision and the policy seemed not working in favour of the real people of India. What went wrong in the policy making? Who was the central beneficiary of the policy making?

Market Fundamentalism and the Agency Power by economic elites can modify the economic development process. Policy paralysis in the government system becomes cause to market fundamentalism. For example, policies formed by Indian policy makers (during 2004 – 2012) for allocation of mining blocks or allocation of telecom spectrum which led to corruption of an unimaginable amount. Economic elites buy political clout, which in turn purchases tax exemptions, land concessions, cheap credit, and subsidies on electricity and water. In this environment, the concept of CSR is beaten to its core. The business growth and gaps between business and society is calling for more serious attention to review present practices and future possibilities. Coporations need to address local challenges with local methods, although bringing knoweldge from the world community is always helpful.

National voluntary guidelines 2011 and Section 135 of Companies Act 2013 engage the corporate enterprises to become more active and meaningful in their social contribution and address the national issues.

An approximation shows that listed public enterprises and private companies, unlisted private and government entities and unlisted foreign companies will contribute meaningful to start CSR activities. The analysis in based on the qualifying criteria of the companies Act. As shown in the Table below, there are 30 sectors from more than 110 sectors in the economic system which lead the economic activities in terms of offering of products and services and accumulating profits.

Table 1: Net profit and CSR contribution in different sectors in economy

Source: Data collected from moneycontrol.com for 2014 and 2015.

Note: Funds of top 30 sector with profit more than 2000 crores in the sector. This estimation includes contribution by only listed companies and does not count unlisted private and public enterprises, and foreign companies.

The study of the listed public enterprises and private companies and the non listed private companies and government organisations on their contribution to corporate social responsibility are as follows;

• Top 100 listed comopanies contribute close to 82 percent of the business net profit in all the products and services industry under the listed category.
• These top 100 companies are consolidating to 88 percent of the net profit in the top performing 30 sectors which are having net profit of more than 2000 crores.
• Top 30 sectors of listed companies contribute close to 92 percent (398955 crores) of the net profit of all the listed companies.
• The highest net profit sectors in the listed category are Computers – Hardware, Banks – Private Sector, Refineries, Banks – Public Sector, Power – Generation & Distribution, Oil Drilling And Exploration, Mining & Minerals, Pharmaceuticals, Finance – General, Telecommunications – Equipment, Infrastructure – General, Engines, Cigarettes, Metals – Non Ferrous, and Personal Care.
• Top 10 sectors of 117 categorized sectors in industry are contributing a net profit of close to 64 percent i.e. an approximate amount of 285807 crores. This is an impressive increase of more than 17 percent net profit gain of companies from the 2014 figures at 243459 crores.
• Total net profit (430974.55 crores) of the listed companies in India is less than the total subsidy and support provided by government i.e. approximately 500,000 crores (The Hindu).
• The total amount of CSR contribution from all the listed organisations is close to 9000 crores in which 81 percent is contributed by top 100 listed companies. A rough estimate observes that the same amount may be contributed by other companies which are not listed private and government and foregin entities.
• According to Indian Institute of Corporate Affairs, around 16,352 companies (out of total 6,40,000 companies registered with 16% in manufacturing sector and remaining 84% in non manufacturing sectors) fall within the purview of Section 135 of the Companies Act. Around 20,000 crore in total will be spent by Corporates each year on CSR.
• As per the norms of the Act, around 30,000 Directors in the Boards of companies on CSR issues will be directly involved.
• Government ventures (unlisted) like Airport Authority, Hindistan Aeronautics, Security Printing and Minting, THDC India are some of governmetn enterprises which contribute a huge net profit to the economy.
• Private companies like Genpact, Rungta Mines, International Tractors, Bennet & Collman, Cognizant technologies, Mondelez India Foods, Rekitt Beckinser, Syntel, Wipro Enterprises, Alkem Laboratories, Serum Institute of India, USV, DLF Cybercity Developers are some of high net profit private companies amongst large section of the non-listed Indian and foreign companies.
• The net profit composition presented in calculation has not included all these government enterprises, private Indian companies and foreign companies which are not listed in the market as public firms.

CSR Indegenous System 

An active integration of CSR Ecosystem with the government agencies, specially with the NITI Aayog, is necessary for productive and long lasting implementation. This will ensure national interest and meeting indigenous challenges.

The national priorities should not be made complex with the comparative importance given by sustainable development goals, however they are very sound methods and measures of the engagement. Along the government development agenda as vision of the social engagement, companies should learn from national and international agencies for best and next practices to ensure effectiveness and efficiency. Figure 3 presents an integrated model of CSR ecosystem engagement by multi-stakeholders for highly effective and efficient delivery.

There are few major industrial regions of India, including Mumbai-Pune Industrial Region, Hugli Industrial Region, Bangalore-Tamil Nadu Industrial Region, Gujarat Industrial Region, Chotanagpur Industrial Region, Vishakhapatnam-Guntur Industrial Region, Gurgaon-Delhi-Meerut Industrial Region, and Kolfam-Thiruvananthapuram Industrial Region which produce maximum net profit generation. While these regions already produce many social and economic benefits to the region, other regions which suffer from different socio-economic challenges may become centers of investment of the CSR funds.

Companies may develop 4-6 areas of engagement such as health, education, environment, sanitation etc to make their 5 year plan. The selection of areas and the final delivery plan should be developed in guidance of NITI Aayog planning, state government priorities, local population need, intermediate partner capabilities and alignment of organizations activity.

It is expected that the purpose, principles, methods, intermediaries, and delivery goals will help the organizations achieve their economic pursuits better if they are socially conscious and more responsible in social development aligned with national interest. This debate may help policy makers, corporations and other stakeholders to serve for better tomorrow for people they are serving to and society they are living in.

About the Author:

Dr Rahul Singh, Associate Professor at Birla Institute of Management Technology, Greater Noida and Trustee of World Responsible Development Foundation, New Delhi

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