Channelising CSR funds to the growth of micro, small and medium scale enterprises I India CSR

Collaborating through Corporate Social Responsibility (CSR) initiatives presents a promising avenue for fostering sustainable growth, particularly in the MSME sector.

By Sharmistha Ghosh

Corporate Social Responsibility took centrestage with the New Companies Act 2013 that mandated CSR spending of 2% of three-year average annual net profits for select companies.

Amendment’s Impact on CSR Landscape

This amendment brought many new companies for the first time into the CSR fold besides creating prospects for building sustainable development solutions, which are also aligned with Sustainable Development Goals (SDG), in the areas that have been defined in Schedule VII of Section 135 – environment sustainability, skill development, education, art & culture, rural sports, healthcare and sanitation, among others.

Challenges and Opportunities in CSR Implementation

The first financial year 2014-15 since the introduction of the amendment has seen over 75 per cent amount under CSR being spent (as Finance Minister Arun Jaitley mentioned during the last Parliament session, March 2016). While some large corporates delivered stellar projects, many companies adopted easy solutions to meet the requirement, such as contributing to the Prime Minister’s National Relief Fund and Swachh Bharat Abhiyan.

Ensuring Sustainable Growth Through CSR

Thus, a key challenge that lies ahead is to identify projects having a programme-based approach that will not just have a positive social impact on the community, but also witness and encourage sustainable growth. The core principle of CSR implies that every rupee spent needs to be measureable and that the long-term goal of every CSR programme should aim to be self-sustainable within a given timeframe. In the light of this ideology, there is an opportunity to build synergies and making micro, small and medium scale enterprises a key recipient and partners for channelizing CSR funds.

Role of MSMEs in Indian Economy

MSMEs are critical growth drivers in the Indian economy and have displayed remarkable progress creating over 100 million jobs across the 49 million units in India, contributing 37% to country’s manufacturing unit (Annual Report 2014-15 of the Ministry of MSMEs, Government of India).

Government Initiatives to Support MSMEs

The Government in the past few years has undertaken several measures to bolster the MSMEs sector of the country, including extending the benefits of the existing schemes for MSMEs, launching new policy initiatives to overcome the structural problems of this sector and undertaking sector-specific policy measures, so as to provide focused efforts for the development of the key MSMEs sector of the country.

Addressing Challenges Faced by MSMEs

However, there exists further scope to address the multiple bottlenecks that the sector is facing. A recent survey conducted by Avian Media and PHD Chamber, Bolstering MSMEs for Make in India: With Special Emphasis on Corporate Social Responsibility, around the MSMEs based in Delhi-NCR has identified various challenges faced by the sector. These include effective management of resources, stringent conditions of raising finance, lack of skilled manpower, lack of technology upgradation, difficulty in procuring raw material from domestic as well as foreign markets, multiple taxes, lack of quality infrastructure, operational challenges and less focus on research and innovation among others.

Leveraging CSR for MSME Development

In the wake of the current issues, the report recommends Corporate Social Responsibility as a way to address problems of MSMEs. By contributing CSR monies to these core areas, small-scale enterprises will not only improve the overall business environment, but also ensure better job opportunities, better productivity besides high-quality and sustainable products and services for the end customer, thereby meeting the needs of local and global markets.

Collaboration for Mutual Benefit

Since companies may collaborate or pool resources with others to undertake CSR activities, SMEs can have a better exposure to new methods and processes followed by large corporates, enhance the quality of their processes and mechanisms in response to the benchmarks set by the collaborating agencies as a collective. It will also capacitate them and contribute to their skill enhancement.

Conclusion: Driving Success Through Collaboration

Overall, the process of enhancing associations between large enterprises and SMEs will generate the desired results in the direction of making the Make initiative in India a great success while addressing at least some of the concerns faced by MSMEs today. This will only be a win-win situation, anyways that we look at it.