Corporate Social Responsibility
India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to The Companies Act, 2013 in April 2014. Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger.
The amendment notified in the Schedule VII of the Companies Act advocates that those companies with a net worth of US$73 million (Rs 4.96 billion) or more, or an annual turnover of US$146 million (Rs 9.92 billion) or more, or a net profit of US$732,654 (Rs 50 million) or more during a financial year, shall earmark 2 percent of average net profits of three years towards CSR.
In the draft Companies Bill, 2009, the CSR clause was voluntary, though it was mandatory for companies to disclose their CSR spending to shareholders. It is also mandatory that company boards should have at least one female member.
CSR has been defined under the CSR rules, which includes but is not limited to:
- Projects related to activities specified in the Schedule; or
- Projects related to activities taken by the company board as recommended by the CSR Committee, provided those activities cover items listed in the Schedule.
Methodology of corporate social responsibility
CSR is the procedure of assessing an organization’s impact on society and evaluating their responsibilities. It begins with an assessment of the following aspects of each business:
- Communities; and,
The most effective CSR plans ensure that while organizations comply with legislation, their investments also respect the growth and development of marginalized communities and the environment. CSR should also be sustainable – involving activities that an organization can uphold without negatively affecting their business goals.
Organizations in India have been quite sensible in taking up CSR initiatives and integrating them into their business processes.
It has become progressively projected in the Indian corporate setting because organizations have recognized that besides growing their businesses, it is also important to shape responsible and supportable relationships with the community at large.
Companies now have specific departments and teams that develop specific policies, strategies, and goals for their CSR programs and set separate budgets to support them.
Most of the time, these programs are based on well-defined social beliefs or are carefully aligned with the companies’ business domain.
CSR trends in India
FY 2015-16 witnessed a 28 percent growth in CSR spending in comparison to the previous year.
Listed companies in India spent US$1.23 billion (Rs 83.45 billion) in various programs ranging from educational programs, skill development, social welfare, healthcare, and environment conservation. The Prime Minister’s Relief Fund saw an increase of 418 percent to US$103 million (Rs 7.01 billion) in comparison to US$24.5 million (Rs 1.68 billion) in 2014-15. The education sector received the maximum funding of US$300 million (Rs 20.42 billion) followed by healthcare at US$240.88 million (Rs 16.38 billion), while programs such as child mortality, maternal health, gender equality, and social projects saw negligible spend.
In terms of absolute spending, Reliance Industries spent the most followed by the government-owned National Thermal Power Corporation (NTPC) and Oil & Natural Gas (ONGC). Projects implemented through foundations have gone up from 99 in FY 2015 to 153 in FY 2016, with an increasing number of companies setting up their own foundations rather than working with existing non-profits to have more control over their CSR spending.
2017 CSR spends further rose with corporate firms aligning their initiatives with new government programs such as Swachh Bharat (Clean India) and Digital India, in addition to education and and Digital India, in addition to education and healthcare, to foster inclusive growth.