In 1888, a French newspaper published an obituary titled ‘The Merchant of Death is Dead’. It also stated, “Dr. Alfred Nobel, who became rich by finding ways to kill more people faster than ever before, died yesterday.” However, in reality, it was Ludvig, Alfred’s brother who had died. Nevertheless, this headline provided an opportunity for retrospection for Alfred Nobel who instructed to distribute his fortune annually in the form of prizes to those who make significant contributions in the progress of human civilisation. This was probably an early instance of Corporate Social Responsibility (CSR). Centuries later, to ensure social development, India became the first country in the world to make CSR mandatory with effect from April 1, 2014, through the Companies Act (2013).
CSR policies in India
The Companies Act (2013) states that the companies that either have a net worth of `500 crore or a turnover of `1,000 crore or net profit of `5 crore, need to spend at least 2% of their average net profit for the immediately preceding three financial years. This spending must be in projects related to activities mentioned in the Companies Act and projects related to activities taken by the company board as recommended by the CSR Committee, provided those activities cover items listed in the Companies Act.
These projects include poverty elevation, hunger eradication, providing educational and healthcare oppurtunities, promoting gender equality, animal welfare and environmental sustainability and upholding national heritage, art and culture. A contribution to Prime Minister's National Relief Fund also comes under the purview of this Act.
Praveen Khandelwal, General Secretary, Confederation of All India Traders (CAIT), told BE, “CSR utilisation in community building projects is a welcome step. Since they (corporates) are earning huge profits from the Indian market, they are under obligation to spend a small portion for community and social development in the country to uplift the downtrodden sections and use money for their welfare.”
Is CSR charity
CSR is not charity or philanthropy. Dr. Muhammad Yunus, social entrepreneur and a prominent economist from Bangladesh, said, “When we want to help the poor, we usually offer them charity. Most often, we use charity to avoid recognising the problem and finding the solution for it. Charity becomes a way to shrug off our responsibility.” He stated that charity perpetuates poverty by taking away the initiative from the poor and offers no solution. CSR refers to those initiatives and practices adopted by businesses for the welfare of the society.
Over the years, various companies have used the concept of CSR as a deviation from their shady operations. The scandal of Satyam Computer Services, once India’s third biggest IT company, is a case in point. Satyam was engaged in fudging account books and forging bank deposits certificates. On the other hand, the company took information technology to rural India.
A ‘stringent’ CSR policy
In 2019, certain amendments were made to the Companies Act (2013). According to certain scholars, these changes were done to restrict the companies from diverting their income to philanthropy which had little effect on the society as a
whole. Under the amendments, companies need to deposit the unspent CSR funds into a fund prescribed under Schedule VII of the Act within the end of the fiscal year. This amount
must be utilised within three years from the date of transfer, failing which the fund must be deposited in to one of the specified funds.
The new law further stated a monetary penalty as well as imprisonment in case of non-compliance. The penalty ranges from Rs 50,000 to Rs 25 lakh. The defaulting officer of the company may also be liable to imprisonment for up to three years, or a fine up to `5 lakh or both.
In an interaction with India CSR, Meenaksi Batra, CEO, Charities Aid Foundation (CAF), stated that the amendments have made the CSR policies more stringent. She also stated that the amendments alone cannot address all the challenges being faced in effectively carrying out the CSR mandate.
Seshagiri Rao, Joint MD, JSW Steel, recently said that there should have been some relaxation for MSMEs as they often lack an organised CSR unit to carry out the mandate and the third parties or NGOs hired for the purpose by smaller companies may not properly fulfill the CSR mandate.
Several industry insiders are of the opinion that at a time when the Indian economy is going through one of its worst slowdowns, if the allocated CSR funds are allowed to be reinvested back into the business, it could boost the economy. Reacting to this, Khandelwal stated, “Two percent is a very small amount. Even when they get a lot of packages from the government, favourable policies, taxes and other benefits as also several ways under Income Tax Act to adjust the profits and still there is an economic slowdown, it suggests that they have some sort of shortcomings in their business models which need to be rectified.” He also added that when small traders with limited resources across the country are engaged in large number of social projects without any support from the government, it is unbelievable that the corporate sector cannot spend 2% on CSR projects.
Necessity of CSR in India
American economist Milton Friedman argued that if in a free market economy, every individual pursues their own interest, it will ensure economic well-being for the maximum people. He thus said that CSR acts as a distraction of the fundamental role of business in a laissez-faire capitalist system. His opinion was criticised by several social scientists and according to scholars, his theory has little relevance in India. There is an urgent need to create livelihoods and replenish environmental resources in India. In such a scenario, there is a responsibility of the corporate sector to ensure an inclusive socio-economic growth.