Businesses cannot be successful when the society around them fails. This adage puts responsibilities on the business community to look after the well-being of the people around it. JRD Tata, the doyen of the Tata group, was more succinct when he said, "If you make lots of money, you must give it back to society as you have received so much love from it." That is, companies which are prospering and earning profits by doing business in a society should spend a part of their profits for its development.
Defining Corporate Social Responsibility
Corporate social responsibility (CSR) is a self-regulating business model that helps a company to become socially accountable — to itself, its stakeholders, and to the public. By practising CSR, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental.
To engage in CSR means that in the ordinary course of business, a company is operating in ways that enhance society and the environment. CSR is as important for the community as it is for the company because CSR activities help to forge a stronger bond between employees and corporations, boost morale, and help employees and employers feel more connected with the world around them. Companies that adopt CSR programmes have often grown their business to the point where they can give back to society. Thus, CSR is primarily a strategy of large corporations.
Evolution of CSR activities in India
JRD Tata was probably among the first Indian businessmen who recognised developmental process as an integral part of business growth. To quote his own words, “No success in material terms is worthwhile unless it serves the needs or interests of the country and its people.”
He believed in his words and thus, while expanding his business empire, JRD always advocated a holistic approach encompassing social changes. He fought for issues critical in a young India – women's education and spread of literacy. He was among the first to realise the negative impact of unchecked population growth on the country's developmental efforts. In 1970, he started the Family Planning Foundation jointly with the Ford Foundation. Further, he was instrumental in establishing Asia's first cancer hospital in Mumbai. The group had given the country its first science centre and atomic research centre. In all, JRD Tata was an inspirational business leader who looked beyond narrow short-term benefits. He inspired the Tata group to become one of the most respectable and successful business houses in the country. In the words of Mahatma Gandhi, "Men of character will easily inspire confidence." Indeed, JRD symbolised this.
With time, the need and demands of the society has changed and so have the Tata group’s CSR initiatives and objectives. The group has streamlined its CSR activities into four major areas of healthcare, employability, education and environment.
The country’s largest company, Reliance Industries, has taken time to exhibit its concern for the society or to articulate its vision and plan of action with the setting up of the Reliance Foundation in 2010 with Nita Ambani as the chairperson. According to the Foundation’s preamble, the organisation ‘is the manifestation of an audacious dream to inspire and facilitate change and build an inclusive India – an India that will empower the youth to unleash their potential; build bridges between its rural hinterland and urban economy … leverage the power of education; pay utmost attention to the health of its citizens; celebrate its values …’
To turn these dreams into reality, especially, for the vulnerable sections of the society, Reliance Foundation has taken the path of inclusive development to address their basic needs. The Foundation now works with some of the most vulnerable and marginalised communities across India with the objective of integrating them into the mainstream developmental process of the country. The Foundation focuses its efforts on five core pillars of rural transformation, education, health, urban renewal and arts, culture and heritage. It has cumulatively touched the lives of over four million people in more than 5,500 villages and urban locations across the country till date.
Reliance’s initiatives in the areas of rural development are designed in keeping with the Sustainable Development Goals (SDGs) outlined in the United Nations 2030 Agenda for Sustainable Development. During FY 2018-19, Reliance spent Rs 849 crore on CSR initiatives on these focus areas.
Tatas, Birlas, Ambanis, Infosys, or ITC - the big players of Corporate India - may be leading India’s CSR movement but there are hundreds of corporate houses who too are actively involved in helping the society. CSR in India has gone beyond charity and donations and corporate houses now look at their CSR activities and goals in a more structured and organised way. They have their dedicated CSR teams to develop specific policies, strategies and targets for their programmes with pre-defined budgets.
CSR activities today are based on clearly defined social philosophy, which are often linked to the companies’ business lines. A number of organisations such as Bharat Petroleum, Maruti Suzuki, ITC, and Hindustan Unilever have gone steps ahead to adopt villages where they focus on holistic development. They provide these villages with better medical and sanitation facilities, build schools and houses and help the villagers to become self-reliant by giving them vocational training.
CSR Act 2013
But then as in most cases in India, here too corporates although agreed in theory to the need for CSR activities but many of them often shied away from it giving excuses. This necessitated the government to enact an act and made it mandatory for companies to invest in CSR 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 as part of their CSR compliance.
The amendment notified in the Companies Act, 2013 requires companies with a net worth of Rs 500 crore or more, or an annual turnover of Rs 1000 crore or more, or net profit of
Rs 5 crore or more, to spend 2% of their average net profits of three years on CSR. Prior to that, the CSR clause was voluntary for companies, though it was mandatory to disclose their CSR spending to shareholders.
When CSR regulations were introduced in 2013, India became the first country to mandate specific spends on CSR for all corporate entities based on income, or profit, or net worth criteria.
This was unique when compared to the practices followed in the US, Britain or Europe, where CSR regulations follow a more ‘philosophical’ approach of ‘doing well by doing good’, and is driven through an overall corporate governance framework in which corporates are required to report on specific projects undertaken by them.
Trend in CSR spending
With a cumulative amount of approximately `47,000 crore of CSR spending during the four years since the CSR laws came into force in India (FY 2014-15 to 2017-18), Indian companies have made clear their intention and seriousness on CSR activities. An average CSR spending of Rs 12,000 crore a year on diverse social projects across the country had its impact on the society too. To provide a context, the cumulative CSR spend is about 125% of the central government’s budget for 2019-20 on higher education. Spending on CSR or welfare schemes like health and education by India’s largest firms was estimated at Rs 8,691 crore in 2018-19 according to a survey by KPMG. The survey analysed the CSR spending of India’s top 100 listed companies. The amount was 70% more than what it was back in 2014 when India first made it mandatory for large private and public sector firms to spend 2% of the average net profit on special development projects. In fact, these companies have spent more than the prescribed amount during the last two years.
According to this survey, 76% of the sample companies have spent 2% or more of their net profit in 2018-19 compared to 38% in 2014-15. As expected, the overhead expenditure continues to be highest for education but has declined by five percentage points in last two years from 37% in 2016-17 to 32% in 2018-19. Expenditure on health and sanitation, the second biggest item, has increased by three percentage points from 21% to 24% during this period.
Interestingly, what began as a legally-binding mandate now seems to have become a mainstream phenomenon. The average spend per company on CSR activities has seen a steady rise. According to a KMPG report, “This year, the two outcomes which are showing progress due to the CSR regulation are – governance around CSR and contribution of the private sector in the development.” It added, “The functioning of the CSR committee has shown significant development as an increasing number of top executives are involved and CSR is also a boardroom discussion.”
For small companies, the setting up of a CSR panel was causing financial hardship. To ease this problem the Indian government has recently exempted about 15,000 companies, which have CSR obligation of Rs 50 lakh or less, from setting up CSR panels. As such of the 20,000 companies having CSR obligations in India, the top 5,000 account for 80% of the total CSR spent.