Friday 4 March 2016

Corporate Social Responsibility in India: An Over View

This Paper was presented in the National Seminar (27th & 28th, 2016) at University of Lucknow, Lucknow and was Published in Journal of Asian Business Management (Jan - June, 2017) ISSN : 0974-8636.




-Dr. S. Vijay Kumar
                      
                        The Government of India in 1976 had inserted the term “socialist” in the preamble of country's constitution thereby committing itself to ensuring a development process which would be guided and spearheaded by the state. But the ground situation is now fast changing in India. Post 1991, there is increasingly a receding role of the state in the economic and social sphere. An increasing acceptance of CSR by large number of corporate, post liberalization can thus be seen in the context of the larger role being consciously carved for the private sector in an economy which was earlier largely controlled and managed by the State. The corporate world is keen to exploit the opportunities that are being provided by the new economic outlook of the State. Today, 93% of the world’s largest 250 companies now publish annual corporate responsibility reports, almost 60% of which are independently audited.

                     India's ancient wisdom, which is still relevant today, inspires people to work for the larger objective of the well-being of all stakeholders. For example, our Rushees, Munees and Saints preached us to serve the society. The idea of CSR first came up in 1953 when it became an academic topic in HR Bowen’s “Social Responsibilities of the Business”. Since then, there has been continuous debate on the concept and its implementation. Although the idea has been around for more than half a century, there is still no clear consensus over its definition.

                    World Business Council for Sustainable Development defined CSR as “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.”

Brief History and Evolution of CSR in India: India has the world’s richest tradition of corporate social responsibility. Though the term CSR is comparatively new, the concept itself dates back to over a hundred years. CSR in India has evolved through different phases, like community engagement, socially responsible production and socially responsible employee relations.

CSR & Hinduism: Social responsibility is a manifestation of dharma, the duty of human beings towards society. Atharvana Veda says that “one should procure wealth with one hundred hands and distribute it with one thousand hands”. The Yajurveda says that “enjoy riches with detachment, do not cling to them because the riches belong to the public, they are not yours alone”. In the Rig Veda, there is also a mention of the “need for the wealthy to plant trees and build tanks for the community as it would bring them glory in life and beyond. “Let us walk together, Let us talk together, Let our heart vibrate together” – Rig Veda. KautiIya also “emphasized ethical practices and principles while conducting business”.

CSR & Islam: Islam had a law called Zakaat which ruled that a portion of one’s earning must be shared with the poor in the form of donation.
CSR & Sikhism: Similar to Islam’s Zakaat, Sikhs followed what they called Daashaant.

Phases of CSR in India:

Phase 1 (1850 to 1914): The first phase of CSR is known for its charity and philanthropic nature. CSR was influenced by family values, traditions, culture and religion, as also industrialization. The wealth of businessmen was spent on the welfare of society, by setting up temples and religious institutions. In times of drought and famine these businessmen opened up their granaries for the poor and hungry. With the start of the colonial era, this approach to CSR underwent a significant change. In pre-Independence times, the pioneers of industrialization, names like Tata, Birla, Godrej, Bajaj, promoted the concept of CSR by setting up charitable foundations, educational and healthcare institutions, and trusts for community development. During this period social benefits were driven by political motives.

Phase 2 (1914 to 1960): The second phase was during the Independence movement. Mahatma Gandhi urged rich industrialists to share their wealth and benefit the poor and marginalized in society. His concept of trusteeship helped socio-economic growth. According to Gandhi, companies and industries were the ‘temples of modern India’. He influenced industrialists to set up trusts for colleges, and research and training institutions. These trusts were involved in social reform, like rural development, education and empowerment of women.

Phase 3 (1960 to 1990): This phase was characterized by the emergence of PSUs (Public Sector Undertakings) to ensure better distribution of wealth in society. The policy on industrial licensing and taxes, and restrictions on the private sector resulted in corporate malpractices which finally triggered suitable legislation on corporate governance, labour and environmental issues. Since the success rate of PSUs was not significant there was a natural shift in expectations from public to private sector, with the latter getting actively involved in socio-economic development. In 1965, academicians, politicians and businessmen conducted a nationwide workshop on CSR where major emphasis was given to social accountability and transparency.

Phase 4 (1990 onwards): In this last phase CSR became characterized as a sustainable business strategy. The wave of liberalization, privatization and globalization (LPG), together with a comparatively relaxed licensing system, led to a boom in the country’s economic growth. This further led to an increased momentum in industrial growth, making it possible for companies to contribute more towards social responsibility. What started as charity is now understood and accepted as responsibility.
Phases of CSR in India - Table: 1

        1st Phase
   (1850 – 1914)
         2ndPhase
      (1914– 1960)
          3rd Phase
      (1960 – 1990)
         4th Phase
     (1990 onwards)
Mainly
Philanthropy and
Charity during
Industrialization.


Organization solely responsible to Proprietor and
Manager.
During the
Independence
struggle CSR used
as a tool for Social
Development.

Organization is for
proprietor,
managers and
employees
CSR under the aegis
Of mixed economy.


Organizations
Responsibility
towards proprietor,
managers and other
Environmental
Factors.
CSR in a
globalized world in
a puzzled state.

Organizations
Responsibility
towards Proprietor,
Managers,
Environment and
Public in general.

Significance of CSR:  It has become an important topic because of the following factors:

·                    CSR helps in strengthening the relationship between companies and stakeholders.

·                    It enables continuous improvement and encourages innovations.

·                    Attracts the best industry talent as a socially responsible company.

·                    Provides additional motivation to employees.

·                    Mitigates risk as a result of its effective corporate governance framework.

·                    Enhances ability to manage stakeholder expectations.

           The four models of Corporate Responsibility (Arora & Puranik 2004) – Table: 2
                Model
                  Focus
            Champions
Ethical
Voluntary commitment by companies to public welfare
            M.K Gandhi
Statist

Statist State ownership and legal requirements determine
         Jawahar Lal Nehru
Liberal
Corporate responsibilities limited to private owners
(shareholders)
         Milton Friedman
Stakeholder
Companies respond to the needs of stakeholders, customers, employees, communities, etc.
         R. Edward Freeman


Drivers of CSR:
1. Care for all Stakeholders: The companies should respect the interests of, and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large etc. and create value for all of them. They should develop mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur.

2. Ethical functioning: Their governance systems should be underpinned by Ethics, Transparency and Accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive.

3. Respect for Workers' Rights and Welfare: Companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees. They should provide all employees with access to training and development of necessary skills for career advancement, on an equal and non-discriminatory basis. They should uphold the freedom of association and the effective recognition of the right to collective bargaining of labour, have an effective grievance redressal system, should not employ child or forced labour and provide and maintain equality of opportunities without any discrimination on any grounds in recruitment and during employment.

4. Respect for Human Rights: Companies should respect human rights for all and avoid complicity with human rights abuses by them or by third party.

5. Respect for Environment: Companies should take measures to check and prevent pollution; recycle, manage and reduce waste, should manage natural resources in a sustainable manner and ensure optimal use of resources like land and water, should proactively respond to the challenges of climate change by adopting cleaner production methods, promoting efficient use of energy and environment friendly technologies.

6. Activities for Social and Inclusive Development: Depending upon their core competency and business interest, companies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations.

Key Issues in CSR:
Labour RightsChild labour, Forced labour, Right to organize, Safety and health.
Environmental conditions: Water & Air emissions, Climate Change, Human Rights, Cooperation with Paramilitary Forces, Complicity in Extra-Judicial Killings.
Poverty Alleviation: Job Creation, Public Revenues, Skills and technology.
CSR Current Scenario in India: Although the roots of CSR lie in philanthropic activities (such as donations, charity, relief work, etc.) of corporations. The 21st century is characterized by unprecedented challenges and opportunities, arising from globalization, the desire for inclusive development and the imperatives of climate change. Indian business, which is today viewed globally as a responsible component of the ascendancy of India, is poised now to take on a leadership role in the challenges of our times. In India, CSR has evolved to encompass employees, customers, stakeholders and sustainable development or corporate citizenship. Numerous organizations grade companies on the performance of their corporate social responsibility. As a result CSR has emerged as an inevitable concern for business managers in every organization. A shift from ‘profit maximization’ to ‘profit optimization’ and from ‘shareholders’ to ‘stakeholders’.

CSR Activities in India: Education, gender equity and women’s empowerment, combating HIV/AIDS, malaria and other diseases, eradication of extreme poverty, contribution to the Prime Minister’s National Relief Fund and other central funds, social business projects, reduction in child mortality, improving maternal health, environmental sustainability and employment enhancing vocational skills among others. Investment in education, health, skill development and social infrastructure will enhance capabilities of the youth by improving their nutritional, skill and educational level, which in turn will better their employment prospects.

Specific Features of Companies Act – 2013:
·        These rules came in to force from 1st April, 2014.
·        The government of India made it mandatory for companies to undertake CSR activities under the Companies Act, 2013.
·        The CSR activities will have to be within India, and the new rules will also apply to foreign companies registered here.
·        Funds given to political parties and the money spent for the benefit of the company’s own employees (and their families) will not count as CSR.
·        The concept of CSR is defined in clause 135 of the Act, and it is applicable to companies which have:
·        An annual turnover of Rs 1,000 crore or more, or a
·        Net worth of Rs 500 crore or more, or a
·        Net profit of Rs 5 crore or more.
·        An average of the previous three financial years PAT will be considered for calculating the 2% for CSR.

·        CSR policy of a company should ensure that surplus arising out of a CSR activity will not become part of business profits.

·        CSR policy should specify that the CSR corpus will include the following: a) 2% of average net profit; b) any income arising thereof; c) Surplus arising out of CSR activities.
·        The companies can carry out these activities by collaborating either with a NGO, or through their own trusts and foundations or by pooling their resources with another company.
·         The law also entails setting up of a CSR committee which shall be responsible for decisions on CSR expenditure and type of activities to be undertaken. Prior to each annual meeting, the board must submit a report that includes details about the CSR initiatives undertaken during the previous financial year.
·        This committee shall consist of three or more directors, with at least one independent director whose presence will ensure a certain amount of democracy and diversity in the decision-making process.
·        All companies falling under the provision of Section 135 (1) of the Act should report, in the prescribed format, the details of their CSR initiatives in the director’s report and on the company’s website.

·         In case a company has failed to spend 2% of the average net profit, the reason for doing so should be mentioned in the annual board report. However, the act does not provide any guidance on what constitutes acceptable reasons for which a company may avoid spending 2 % on CSR.
CSR will increase availability of funds for welfare activities and may lead to delivery of goods and services to the people in a cost-effective manner. The clause on environmental sustainability will help in bringing down pollution and emission of greenhouse gases and will help in compliance with international norms and regulations. Therefore, this clause is a step towards achieving social and environmental sustainability, which will benefit society in future.
2013 Vs 2014 Rankings – Table: 3
Rank (2014)
Company
          Rank (2013)
Company
1
Mahindra & Mahindra Ltd.
1
Tata Steel Ltd
2
Tata Power Company Ltd.
2
Tata Chemicals Ltd.
3
Tata Steel Ltd.
3
Mahindra & Mahindra Ltd
4
Larsen & Toubro Ltd.
4
Maruti Suzuki India Ltd
5
Tata Chemicals Ltd.
5
Tata Motors Ltd
6
Tata Motors Ltd.
6
Siemens Ltd.
7
GAIL (India) Ltd.
7
Larsen & Toubro Ltd
8
Bharat Petroleum Corporation Ltd.
8
Coca-Cola India Pvt. Ltd
9
Infosys Ltd.
9
Steel Authority of India Ltd
10
Jubilant Life Sciences Ltd.
10
Infosys Lt

 

Source: Economic Times (13-10-2015)

Analysis: The CSR Study of finds that many companies have scaled up operations in CSR and are looking at it as a priority. Mahindra and Mahindra lead the pack. Compared to the previous study it has jumped two ranks. There are four Tata group companies in the top 10 list. GAIL replaces SAIL in the public sector honours; while Bharat Petroleum joins the top ten list. Interestingly no foreign players make it to the top 10 list. Interestingly, Jubilant Life sciences, a healthcare company has entered the top ten list.
A Study by NGOBOX: Selected 100 BSE-listed companies that have published their annual report and where information about the CSR spending was available as on July 16, 2015. These 100 companies are a good representation of large and medium companies and account for 33 sectors as per the BSE sector classifications. Public Sector Units and Public Sector Banks out of the purview of this analysis as the required information were not available.

Key Findings of the study (2015):

·        Nearly one-fourth (27%) of the companies spent more than the prescribed CSR spend and about two-third (64%) of the companies spent less than the prescribed CSR spend.
·        2% of the companies spent zero amount from their prescribed CSR spend and 9% the companies spent exactly same as the prescribed CSR amount. 39% of the companies spent more than 50% of the prescribed CSR spent but missed the target of the prescribed CSR spend.

 Top 10 Companies (Percentage-wise) in Spending More than the Prescribed CSR (2015) – Table: 4


Sl. No.
Companies


Actual CSR spend to the % of the Prescribed CSR

Prescribed CSR Spent (INR Cr.)
Actual CSR Spent (INR Cr.)
1



VIP Industries Ltd
210.1%
1.19
2.5

  2
Tech Mahindra Ltd

172.3%

30.88

53.21

  3
UPL Ltd

153.2%

6.93

10.62

  4
Reliance Industries
Ltd.
142.7%

533
 
760.58

  5
Godrej Consumer Products Ltd

129.6%

12.41

16.08

  6
Marico Ltd
117.8%

9.50

11.19

  7
Torrent Pharmaceuticals Ltd
109.6%

13.69

15.01

  8
Bharat Forge Ltd

106.3%

10.56

11.23

  9
Tata Power Co Ltd

104.4%

29.80

31.1

 10
Wipro Ltd

103.7%

128.00

132.7



Analysis: VIP Industries emerges as the best performer by spending more than the double of prescribed CSR spend, followed by Tech Mahindra Ltd and UPL Ltd.




Bottom 10 Companies (Percentage-wise) in spending prescribed CSR spends (2015) – Table: 5


Sl. No.
Bottom 10 Performers

Prescribed CSR
Actual CSR



 
Actual CSR                   Spend as %  of the prescribed CSR  
1
Monsanto India Ltd
1.8
0
 0.0%
2
Nilkamal Ltd
                       1.15
0                              
0.0%
3
Motherson Sumi Systems Ltd
11.7
0.15                                                      




1.3%                   
4
Oberoi Realty Ltd
6.96
0.16
2.3%
5
Finolex Cables Ltd
3.03
0.11
3.6%
6
Dewan Housing Finance Corp Ltd
11.58
0.45
3.9%
7
Sonata Software Ltd
0.68
0.034
5.0%
8
IFB Industries Ltd
0.724
0.046
6.4%
9
Bajaj Electricals Ltd
2.076
0.1628
7.8%
10
Shriram Transport Finance Co Ltd
38.15
6.924
18.1%

          CSR Spending in Pharmaceutical Sector Companies (2015) – Table: 6

Sl. No.
Company
Prescribed CSR Spend (INR Cr.)
Actual CSR Spend (INR Cr.)
1
Torrent Pharmaceuticals Ltd
13.69
15.01
2
Novartis India Ltd
3.24
3.33
3
Abbott India Ltd
4.52
4.63
4
Ajanta Pharma Ltd
3.74
3.82
5
Biocon Ltd
7.10
7.13
6
Dr Reddy's Laboratories Ltd
36.6
29.17
7
Unichem Laboratories Ltd
3.08
2.41
8
Ipca Laboratories Ltd
9.68
7.09
9
Alembic Pharmaceuticals Ltd
4.72
3.1
10
Lupin Ltd
39.6
12.6
11
Pfizer Ltd (India)
6.02
1.29

Analysis: Out of 11 pharmaceuticals sector companies only 5 companies could spend the prescribed CSR amount.

          CSR Spending in Banking & Finance Sector Companies (2015) – Table: 7

Sl. No.
Company
Prescribed CSR Spend
Actual CSR Spend
Percentage of the Prescribed
1
Mahindra & Mahindra Financial Services Ltd

24.87
24.87
100.0%
2
IDFC Limited
47
46.5
98.9%

3
Axis Bank Ltd
133.77
123.22
92.1%

4
ICICI Bank Ltd
172
156
90.7%

5
Bajaj Holdings and Investment Ltd
5.47
4
73.1%

6
Bajaj Finserv Ltd
1.48
1
67.6%

7
Cholamandalam Investment & Finance Co. Ltd.
8.6
5.73
66.6%
8
SREI Infrastructure Finance Ltd
2.26
1.38
61.1%

9
HDFC Bank Ltd
197.13
118.55
60.1%

10
Housing Development Finance Corp
9.93
4.49
45.2%


11
Manappuram Finance Ltd
10.173
4.46
43.8%
12
Yes Bank Ltd
38.02
15.71
41.3%

13
Capital First Ltd.
1.93
0.75
38.9%

14
Magma Fincorp Ltd.
3.78
1.26
33.3%

15
Kotak Mahindra Bank Ltd
39.2
11.97
30.5%


16
Shriram Transport Finance Co Ltd
38.15
6.924
18.1%


17
Dewan Housing Finance Corp Ltd
11.58
0.45
3.9%

Analysis: Only one company managed to spend the prescribed CSR spend among 17 Banking and Finance sector companies. Almost 50% of the companies could not spend even half of the prescribed CSR spend. While Mahindra & Mahindra Financial Services managed to spend all of the prescribed CSR spend while DHFL could spend only 3.9% of the prescribed CSR making it to the last spot in the list.
CSR Spending in Public Sector Enterprises – Table: 8
As per central government guidelines all Central Public Sector enterprises would need to allocate a percentage of profit for CSR and sustainable activities. The range of these financial allocations is as follows:
PAT of Central Public Sector Enterprises in the Previous year
Range of the Budgetary allocation for CSR and Sustainability activities
(as % of PAT in previous year)

(i) Less than Rs. 100 crore
3%-5%

(ii) Rs. 100 crore to Rs. 500 crore

2%-3%

(iii) Rs. 500 crore and above

1%-2%

Future CSR in India: Companies’ journey towards business transformation via sustainability and CSR initiatives with some of the following key trends would be emerging:
1. Make in India but with Responsibility: The new thrust towards “Make in India” shifts focus from services to manufacturing. It includes both Indian as well as foreign companies catering to both domestic as well as international demand. This has a number of implications:
(a). Manufacturing companies require larger investments and are more likely to fall in the mandatory CSR bracket.
(b). The CSR lifecycle for manufacturing typically starts with local community driven inventions. This is likely to see a surge as Make in India picks up steam.
(c). International markets demand greater focus on social interventions. This is manifested in no child labour, humane working conditions, environmental safeguards etc. This will force companies to spend more on CSR in India.
(d). The demand for trained CSR managers will increase multifold.
(e). Make in India will lead to a thrust towards efficient supply chains. Sustainable supply chains will demand attention.
(f). Support system for improved disclosure and CSR governance will be in demand.
2. Global Indian Corporations need to manage International Risk and Reputation: Indian companies are going global. They are addressing not just customers of developed countries but under explored markets in Africa and Latin America. Mining rights in Australia, factories in South Africa and telecom networks in Kenya are the growth engines of the future. Globalization and this expansion in scale for Indian companies offers unique opportunities, though at the same time it brings tremendous risks. Scale is many times difficult to manage when companies use strict command and control structures that can’t really adapt to changes in local environments. Technology and the fast moving flow of information are great disruptors that have brought many a global corporation to its knees. Customers, Suppliers and Governments have been joined by NGOs, Communities, Employees and Media over information networks to create Social Risk. Global Indian companies now need to factor in the new reality where Reputation, Responsibility and Risk are increasingly interconnected.
3. CSR and Reputation will be part of Strategic Intelligence: Going forward companies will connect not just as producers but as people. The personal digital brand is now the most powerful entity in the world. It can influence consumers to promote or turn away from corporations. It can influence trends and shake up the established norms. Information is today freely and readily available, what one does with the flow of information and how quickly the corporation responds is really what will matter in the digital world of tomorrow. CSR will be more about genuine impact that simple philanthropy. It will be about connecting causes to brands and people. Genuine inside out responsibility for the world we live in built into product lifecycle, communication and on ground engagement.
4. CSR management will need insight and adaptation not just knowledge and skill: Linkages of CSR to core business and strategic intelligence management will help companies navigate the quickly changing landscape and even manage unexpected twists. Though this can only happen if the CSR manager of tomorrow has not just knowledge and skill but insight. Insight into stakeholder groups, customers, suppliers and communities. These insights will help companies find breakthroughs that can help solve everyday problems, connect through conversations and help people. The connected world no longer forgives centralized model of one way corporate communication that was the norm in the last century. The insight is necessary to tune CSR activities to local needs and aspirations rather than a common approach across the global footprint. Adaptation to changing needs, regulations and societal changes will be imperative.
5. Innovate, Transform and Engage: Most corporates think inside out – “I spend so much money therefore I am a socially responsible company”. Others focus on the no of activities or Spread. They key question though is, Are my activities impactful? Are they genuinely changing the ground reality? Companies need to build, innovate and transform on a regular basis. India’s top companies are investing in products and services that will build sustainability at the core. New Technologies, Dematerialization, Reuse and Recycling will drive business innovation. Companies need to earn trust and so do the causes they support. Providing a service without looking at customer safety, selling products which do more harm than good won’t help in getting customers to believe in your brand no matter how charitable you are.                            Responsibility is about the values that integrate with the 4 Ps of marketing – product, price, place and promotion. Just as FMCG (Fast Moving Consumer Goods) companies need to think about better packaging, Banks need to think about whether services at concessional rates or loan waivers to the poor really qualify as CSR.
Public Sector fails to utilize 50% of their funds under CSR:
Though, the Companies Act, 2013 mandates two percent compulsory corporate social responsibility spending by the companies has been in force for over a year, yet the central public sector companies have not utilized over 50 percent of their funds under CSR. BJP’s Rajya Sabha MP Shanta Kumar-led committee on public undertakings presented its report on Friday (4-12-2015). The panel pointed out an anomaly in the act saying that under the Act a company can only be penalized for not filing of details regarding CSR, but no penal action for no-performance. The committee recommended redefining the term "CSR". "CSR should be clearly defined in the Act itself after incorporating the broader principles of CSR i.e. serving the interest of the most marginalized sections of the society in line with great words of the father of the nation Mahatma Gandhi, who believed that development is 'Sarvodaya' through 'Antyodaya' implying the welfare of all by serving the last man in the queue, the poorest of the poor," the recommendation said.
Challenges of CSR:
Lack of Awareness of General Public in CSR Activities:  There is a lack of interest of the general public in participating and contributing to CSR activities of companies. This is because of the fact that there exists little or no knowledge about CSR. The situation is further aggravated by a lack of communication between the companies involved in CSR and the general public at the grassroots.
Need to Build Local Capacities: There is a need for capacity building of the local non-governmental organizations as there is serious dearth of trained and efficient organizations that can effectively contribute to the ongoing CSR activities initiated by companies. This seriously compromises scaling up of CSR initiatives and subsequently limits the scope of such activities.
Issues of Transparency: Lack of transparency is one of the key challenges for the corporate as there exists lack of transparency on the part of the small companies as they do not make adequate efforts to disclose information on their programmes, audit issues, impact assessment and utilization of funds. This negatively impacts the process of trust building among the companies which is a key to the success of any CSR initiative.
Non-Availability Of Well Organized Non-Governmental Organizations: There is non - availability of well organized nongovernmental organizations in remote and rural areas that can assess and identify real needs of the community and work along with companies to ensure successful implementation of CSR activities.
Visibility Factor: The role of media in highlighting good cases of successful CSR initiatives is welcomed as it spreads good stories and sensitizes the population about various ongoing CSR initiatives of companies. This apparent influence of gaining visibility and branding exercise often leads many non-governmental organizations to involve themselves in event based programmes; in the process, they often miss out on meaningful grassroots interventions.
Narrow Perception towards CSR Initiatives: Non-governmental organizations and Government agencies usually possess a narrow outlook towards the CSR initiatives of companies, often defining CSR initiatives more as donor-driven. As a result, corporates find it hard to decide whether they should participate in such activities at all in medium and long run.
Non-Availability of Clear CSR Guidelines: There are no clear cut statutory guidelines or policy directives to give a definitive direction to CSR initiatives of companies. The scale of CSR initiatives of companies should depend upon their business size and profile. In other words, the bigger the company, the larger its CSR programme.
Lack of Consensus: On Implementing CSR Issues There is a lack of consensus amongst implementing agencies regarding CSR projects. This lack of consensus often results in duplication of activities by corporate houses in areas of their intervention. This results in a competitive spirit between implementing agencies rather than building collaborative approaches on issues. This factor limits company’s abilities to undertake impact assessment of their initiatives from time to time.

Key Concerns of the Companies Act, 2013:

·        The Act does not prescribe any penal provision if a company fails to spend the stated amount on CSR activities. The Board will need to explain reasons for non-compliance in its report.

·        The threshold limit of Rs.5 crores net profit for applicability of CSR requirements seems, in comparative terms, to be on the lower side vis-à-vis net worth and turnover thresholds of Rs.500 crores and Rs.1,000crores respectively. This may result in companies getting covered under CSR even when they do not meet net worth/turnover criteria.

·        It is not absolutely clear whether a company will need to create a provision in its financial statements for the unspent amount if it fails to spend 2% on CSR activities in a particular year.

·        After some initial confusion over the tax applicable, it is now clear that CSR expenditure will be taxable, although for a few activities tax exemption will be allowed from the financial year 2014-15. However, there is no clarity yet on these activities.

Critiques:

·        A disturbing aspect of Section 135 relates to the linking of a company’s profit-making with the development of local areas. Companies are required to spend 2% of their average net profits from the preceding three years and focus on local areas around which they operate. This is an absurd proposition as it will increase inter-state disparities in social indicators. For instance, states like Gujarat, Maharashtra and Andhra Pradesh (as also Odessa in 2013), with their large number of industrial units, are likely to see greater social development on account of higher CSR spend by the private sector.

·        What happens to development projects when companies make losses? According to one estimate, of the 5,138 firms listed on the BSE, the total number of companies qualifying under Section 135 has come down from 1,500 in FY 2010 to 1,372 in FY 2012. So has the number of total qualifying companies with profit after tax greater than zero: from 1,457 to 1,265.

·        It is during recessionary times, when the need for CSR expenditure may be highest among vulnerable groups, that such spending may actually become unavailable.

·        The rules in the Companies Act-2013 would make it difficult for companies to pursue strategic CSR - aligned to business strategy - since any expense that can be traced back to financial profits may have to be set aside from CSR, as indicated by the law.

·        It is possible that companies would prefer to spend on activities specified in the Act, (such as protection of national art, heritage and culture, promotion of sports, contribution to the Prime Minister’s National Relief Fund), which have a lower long-run social impact, ignoring real problems like inter-regional inequality or particular social stigmas.

Suggestions:
·        Under the Companies Act – 2013, a company can only be penalized for not filing of details regarding CSR, but no penal action for no-performance.  Hence, there should be a clarification for penal action.

·        Creating awareness among the general public in CSR activities and improving communication between the companies involved in CSR and the general public at the grassroots.

·        There is a need for capacity building of the local non-governmental organizations as there is serious dearth of trained and efficient organizations that can effectively contribute to the ongoing CSR activities initiated by companies.

·        There is a need for improving transparency on the part of the small companies as they do not make adequate efforts to disclose information on their programmes, audit issues, impact assessment and utilization of funds, which is a key to the success of any CSR initiative.

·        There is a need for well organized non-governmental organizations to ensure successful implementation of CSR activities.

·        The role of media in highlighting good cases of successful CSR initiatives is welcomed as it spreads good stories and sensitizes the population about various ongoing CSR.

·        Broad perception towards CSR initiatives is essential, as non-governmental organizations and Government agencies usually possess a narrow outlook towards the CSR initiatives of companies, often defining CSR initiatives more as donor-driven.

·        Clear cut statutory guidelines or policy directives are required to give a definitive direction to CSR initiatives of the companies.

·        Consensus amongst implementing agencies regarding CSR projects is the need of the hour, because lack of consensus often results in duplication of activities by corporate houses in areas of their intervention.

·        As the act does not provide any guidance on what constitutes acceptable reasons for which a company may avoid spending 2 % on CSR, hence it should be clarified.

·        The companies in their CSR activities should give more preference for education, poverty elevation programmes, employment generation, roads and power etc.

Conclusion: It is too early to say what the real impact of this act will be, especially given that passing it and enforcing it are too different things. Moreover, today the concept of corporate social responsibility is firmly rooted on the global business agenda. But in order to move from theory to concrete action, many obstacles need to be overcome. A key challenge facing business is the need for more reliable indicators of progress in the field of CSR, along with the dissemination of CSR strategies. No clear cut regulatory framework regarding also acts as a hindrance in implementing CSR. It is found that the degree of CSR activities of companies should depend upon their business size and profile. In other words, the bigger the company, the bigger is its CSR program. Non-governmental organizations and Government agencies generally possess a constricted viewpoint towards the CSR activities of companies. As a result, they find it hard to decide whether they should contribute in such activities at all in medium and long range. Lack of transparency is another issue which needs focus. This is mainly due to the fact that there is little or no knowledge about CSR within the local communities since no sincere efforts have been made to create awareness about CSR and win the confidence of local communities. There is a need to increase the understanding and active participation of business in equitable social development as an integral part of good business practice.


References:
Annual Reports of the Companies
Ministry of Corporate Affairs, Government of India
Arora, B. and Puranik, R. (2004), “A review of corporate social responsibility in India”.
Economic Times: 13 – 10 – 2015

www.k4d.org/Health/sustainable-development-challenges-and-csr-activities- in- india.

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