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Corporate social responsibility funding in India

Today, India holds the position of the very first country in the world to have made Corporate Social Responsibility (CSR) mandatory post the Amendment of the Companies Act, 2013 in early April 2014. By the virtue of this, businesses are allowed to invest all the profits earned by them in fields such as education, gender equality, poverty and hunger as a crucial part of any CSR compliance. Further, amidst the coronavirus outbreak, the Ministry of corporate affairs has recently notified that a company’s expenditure which is utilized to fight the pandemic shall also be considered valid under various CSR activities. Under this, funds may be spent on numerous activities which are in relation to the COVID-19 pandemic such as the promotion of healthcare including preventive sanitation and healthcare, disaster management etc.

Corporate Social Responsibility (CSR) can be simply defined as the grants and funding process under which various Non-profit Organizations (NGOs) can get financial and other assistance from the corporate sector. As per the Sub-section 1 of Section 135 of Companies Act, 2013[1] it is a mandatory provision to provide a contribution of 2% of the average net profits of companies. Under this act, the CSR provision is applicable for every company that has a net worth of rupees 500 crores or more, or a net profit of rupees 5 Crores or more during any financial year or subsequently a turnover of rupees 1000 crores or more. As per the new proposals, initiating from the beginning of 2013 to 2014, various top-earning Public Sector Units (PSUs)  such as BHEL[2], NTPC[3] and ONGC[4] may be asked to double their expenditure on CSR as per the provisions of the new draft guidelines which is being finalized by the Department of Public Enterprises (DPE). PSUs that have a net profit anywhere between rupees 100 to 500 crores have to earmark 2 to 3% of their total income. They need to ensure that they are spending the full amount earmarked for, as otherwise they will have to disclose as to why they haven’t spent these funds. Subsequently,   The public sector companies that earn a profit of or less than rupees 100 crore have to contribute 3% of their income for the undertaking of such activities.

The company usually has a Corporate Social Responsibility Committee of the board and all the funds that are provided under the Corporate Social Responsibility are primarily and solely for the purpose of tackling social development issues and making a positive impact on the living standards of hundreds and thousands of economically poor and disadvantaged people of our society so that they too can live a dignified and productive life. CSR is essentially viewed as a corporate initiative to take responsibility and assess the company’s impact on social welfare and its effects on the environment. It is highly related to the efforts of companies for promoting positive social and environmental change. Social welfare programmes are a part of the provisions of this Act and it includes activities such as social empowerment, employment generation, vocational skills for women and the youth of our country, child welfare and various livelihood enhancement projects for differently-abled people (divyang).

Effects of CSR

  1. The primary contribution of CSR is not just to contribute in a single sector of the society, rather it is to help businesses and also to nurture the society over a long period of time. Companies are free to contribute under CSR in any of the sectors such as education, environment, health, upliftment of the society etc depending on their keenness and from the point of view of what benefits their organisation.
  2. Corporations should be motivated enough to participate efficiently and effectively for the CSR contribution as a single corporation is involved with a number of stakeholders such as employees, customers, suppliers, financial institutions, government, creditor etc thus, they have a major responsibility to always take into consideration the interest of all the stakeholders for the sustainable growth of their organization.
  3. Every corporation is required to take initiatives for CSR practices in order to make this planet a better place to live and not just that but also to help the corporations to build their own goodwill.
  4. Corporations also have the power to differentiate themselves from their rivals by resorting to unique CSR initiatives.
  5. Companies can take CSR as a great opportunity and a platform for long term survival and growth.
  6. The CSR concept, if properly implemented, can bring about a variety of competitive advantages such as increased sales and profits, enhanced access to capital as well as markets, improved productivity and quality, operational cost savings, improved brand reputation and image, efficient human resource base, better decision-making as well as risk management processes and enhanced customer loyalty.
  7. Neither the central government nor the state government can command or direct the corporate companies on how to spend their money towards the welfare of society which is why the decision completely rests on the board as to how the money is to be spent in various CSR activities.

Recently the CSR has been amended in the Companies (Amendment) Act, 2019. Up until now, if a company was failing to fully spend its CSR funds in a particular year, it had the freedom of carrying the amount forward and spending it in the next fiscal which was in addition to the money that is allotted for that year. The latest CSR Amendment that has been introduced under this Act requires all the companies that fall under these criteria to deposit the upset CSR funds onto a fund that has been prescribed under Schedule VII of the Companies Act[5] within the end of a fiscal year. The amount is then to be utilized within three years from the date of transfer. However, if the amount is not utilized within three years from the date of transfer then refund will be deposited into one of the specified funds. In case of non-compliance, the new law prescribes monitory penalty as well as imprisonment. Wherein the penalty may range from INR 50,000 to INR 2.5 million and in addition to this defaulting officer of the company may also be liable to a fine up to INR 50,000 or imprisonment for up to 3 years or both. However, these rules are being reviewed by the government after numerous objections arose from the industry with respect to these strict provisions and especially with respect to the jail terms for CSR violations.

The main methodology of CSR lies behind assessing an organizations impact on our society and further evaluating their responsibilities. The most effective CSR plans ensures that while the organizations are complying with legislation their investments should also respect the growth as well as development of various marginalized communities and the environment as a whole. CSR must be sustainable which can only be achieved by involving activities that an organization is capable of upholding without having any negative effect on their very own business goals. Till date, organizations in India have been decently sensible in taking up CSR initiatives and also integrating them into their own business processes.

Since 2014 from when the applicability of CSR provision was made mandatory, the CSR spending by corporate India has increased drastically. In 2018, companies overall spent 47% higher as compared to what they had spent in 2014-15 with a contribution close to US$ 1 Billion to the CSR initiatives. Listed companies spent approximately INR 100 billion in numerous programmes ranging from skill development, educational programs, environment conservation, healthcare, social welfare etc. While an increase of 139% on CSR contribution was seen by the Prime Minister’s relief fund. The maximum funding – 38% was received by the education sector followed by hunger, poverty and healthcare – 25%, environmental sustainability – 12%, rural development – 11%. However, programmes such as sports, technology incubators, reducing inequalities, Armed Forces saw quite negligible spends.

Existing CSR Activities of some companies

  1. TATA Group – Various CSR projects is carried out by the Tata group conglomerate in India most of which are poverty alleviation and community improvement Programs. By the means of self-help groups, it has also engaged in women empowerment activities, rural community development, income generation along with other social welfare programs. In the Education sector, the Tata group provides endowments and scholarships for various institutions. The group further engages in healthcare projects such as the creation of awareness of AIDS and facilitation of child education and immunization. It also contributes in providing economic empowerment through environment protection programs, agricultural programs, providing sports scholarships, infrastructure development such as research centers, hospitals, educational institutions, cultural centers and sports academy.
  2. Ultratech Cement – Being the biggest cement company it is involved in social work across 407 villages in India that aims to create self-reliance and sustainability. Its CSR activities mainly focus on family welfare programs, healthcare, infrastructure, environment, education, social welfare and sustainable livelihood. Over the years it has organized various medical camps, sanitization programs, plantation drives, school enrolment, immunization programs, industrial training, water conservation programmes as well as organic farming programmes.
  3. Mahindra & Mahindra – This particular Indian automobile manufacturer established the K. C. Mahindra Education Trust in 1954 which was followed by the Mahindra Foundation in 1969 the purpose of which was promoting education. The primary field that the company focuses on is the education sector by assisting the socially and economically disadvantaged communities. It also runs programs such as Nanhi Kali which focuses on education for girls, Mahindra Private Schools which incorporates industrial training, Mahindra Hariyali under which over 1 million trees have been planted across our country eventually increasing the country’s green cover and Lifeline Express for healthcare services in remote areas. The company has also launched a unique kind of ESOPs – Employs Social Option that enables Mahindra employees to involve themselves in various socially responsible activities depending on their choice.
  4. ITC Group – The ITC group having business interest across FMCG, hotels, agriculture, packaging sectors and IT has largely been focusing on creating environment and livelihood protection programmes. By the virtue of this, the company has successfully generated sustainable livelihood opportunities for nearly 6 Million people through its CSR activities. Their e-Choupal programme, that aims at connecting rural farmers through the intranet for procuring agricultural products covers over 4 million farmers and 40,000 villages. It’s farm and social forestry programme assists farmers across our country in converting wasteland to pulpwood plantations. Various social empowerment programs by the means of micro-enterprises or loans have given rise to sustainable livelihoods for more than 40,000 rural women.
  5. Reliance Industries Initiated “Project Drishti” that aimed at bringing back the eyesight of visually challenged Indians who belong to the economically weaker sections of the society. So far this project has brightened up the lives of over 5000 people and has also created awareness about the compelling need for eye donation.
  6. Infosys – As a leading software company it aims at providing language and computer education. The company has developed special programmes primarily for the underprivileged children by the means of which the company teaches them various skills and aims at changing their outlook too. Company also donates chess boards, chocolates, carom boards etc to the needy ones. Various CSR activities that the company indulges in include blood donation camps, environment preservation, social rehabilitation and the Infosys Foundation has also been working in the sectors of education and healthcare.
  7. Gail Ltd. is one of the largest state-owned natural gas distribution and processing company. It strongly contributes towards the corpus of GAIL charitable and education trust, SC/ST minority’s population and natural disaster or calamities.

The government has introduced the concept of CSR because it wants corporations of our country to become more responsible towards the society and towards its stakeholders simultaneously. The article talked about how CSR offers real opportunities for corporations to actively contribute in various activities which indirectly or directly help the welfare of our society. Companies and corporations are social entities so they must take care of all stakeholders as it is vital for them to take charge of such responsibility that lies on their shoulders in an efficient manner such that all the participants of the company feel satisfied. Today, many large corporations are taking steps towards improving their environmental and social performance by the means of using voluntary initiatives such as environmental certification and reporting, fair trading schemes, social audits, code of conduct and various social investment programmes. Only if the corporations and the government work together can they bring about dramatic changes in the welfare schemes of India.