CSR In India: An Overview with Challenges And Opportunities

Article by Dr. Dilip Kumar, Associate Professor and Course Coordinator English Journalism, Indian Institute of Mass Communication, Northern Regional Campus, Jammu.

Personal and corporate philanthropy has a long history in India and the concept of social responsibility has been an integral part of the Indian culture and value system since ancient times. India's leading industrialist and founder of Tata Group JRD Tata was the world's largest philanthropist in the last century who donated $ 102.4 billion.

• • The concept of Corporate Social Responsibility- CSR with the Companies Act, 2013's enactment and successful amendments has entered a new phase of development in India, where it has transformed into statutory responsibility from voluntary work.
  • While almost all major companies in India follow their own CSR exercises and policies, the absence of rigorous regulations and methods in relation to CSR makes it inconsistent and disabled.
• In addition, the provisions of Section 135 of the Companies Act exist some suspects or unclear areas where clarification is required to ensure more efficient implementation of CSR.

What is corporate social responsibility?

In the concept of corporate social responsibility, the approach lies that companies should assess their influences on environment and social welfare and take responsibility, as well as promote positive social and environmental change.

The four main types of corporate social responsibility are:

• Environmental responsibility
• Moral Responsibility
• Philanthropic responsibility
• Economic responsibility

The corporate social responsibility provisions under the Companies Act apply to companies whose annual turnover is Rs 1,000 crore and above, or whose total assets are Rs 500 crore and more, or their net profit is Rs 5 crore and more.

In the Act, it is made necessary to set up a CSR committee by companies which will recommend a corporate social responsibility policy to the board of directors and will also monitor it from time to time.

'Corporate Social Responsibility' can generally be referred to as a corporate initiative to assess the impact and social welfare of a company on the environment and take responsibility. Even today on the current standards of quality of life, where about two-thirds of India's population is living in poverty and climate conditions are deteriorating day by day, the importance of CSR cannot be judged by reducing the importance of CSR. Companies need to take more serious and responsible stance towards CSR compliance.

Corporate social responsibility

Does CSR have legal support in India?

The concept of CSR in India is ruled by section 135 of the Companies Act, 2013.

India is the first country in the world to make CSR expenditure compulsory with a structure to identify potential CSR activities.

The CSR provisions under the Act apply to companies whose annual turnover is Rs 1,000 crore and above, or whose total assets are Rs 500 crore and above, or their net profit is Rs 5 crore and more.

Under the Act, there is a need to set up a CSR committee for companies that will recommend a corporate social responsibility policy to the board of directors and will also monitor it from time to time.

The Act encourages companies to spend 2% of its average net profit of the last three years on CSR activities.

What activities can be done by a company under CSR?

The Companies Act, 2013 includes these activities specified under the Schedule VII:

1. Elimination of extreme starvation and poverty.
2. Educational, gender equality and women empowerment.
3. Compete HIV-AIDS and other diseases.
4. Ensure natural flow of environmental activities
5. To contribute to any other fund established by the Prime Minister's National Relief Fund or the Central Government for socio-economic development and relief.

Importance of CSR compliance

CSR is being benefited more and more for the construction of positive brand image for the corporation and to help in their ESG compliance.

At present, brand image has become important because stakeholders have become more aware and have attachment to social issues.

Since the introduction of the Covid-19 epidemic, the number of philanthropists of India has increased more than double, which is raising wealth from foreign and domestic philanthropic works, high-quality people, CSR Funders, Private Capital etc. 

Through these diverse streams, there has been a significant increase in the amount of cooperative funds to improve the lives of people.

In addition to the increase of funding level, innovative financing approach has also developed for the conduct of social impact; This includes 'Development Impact Bonds- DIBS' and other mixed financing mechanisms such as 'pay-for-outs models'.

Problems related to CSR compliance

Search for right partners: Despite increasing awareness about the importance of CSR compliance, there are challenges to identify the right partners and projects as well as to select long-effective, scalable and self-determination projects.

Lack of community participation in CSR activities is lacking in local communities to participate in CSR activities of companies and contribute.

This is mainly because local communities have no information about CSR or have very little information. This situation is because serious efforts have not been made to spread awareness about CSR.

This situation becomes more serious due to lack of dialogue between the company and the community at the ground level.

Problems of transparency: One thing is said by companies that there is a lack of transparency from local implementation agencies as they do not make enough efforts to disclose information regarding their programs, audit subjects, impact assessment and use of money.

This lack of transparency negatively affects the process of building confidence between companies and local communities, while the key to the success of any CSR initiative at the local level lies in this confidence.

Unavoidable non-governmental organizations: There are no organized non-governmental organizations (NGOs) available in remote and rural areas, which can assess and identify the actual requirements of the community and work together with companies to ensure successful implementation of CSR activities.

How can CSR be made more effective?

Role of companies: Moving forward only by allocating money, companies should regular review of the progress of CSR compliance and take some measures for a more professional approach towards it. In addition, they should determine clear objectives and all stakeholders should align with them.

It is equally important to make their NGO partners aware of their business needs.

NGOs should know that companies which give money from their CSR budget are also serious about the subjects selected by them.

Companies should also reconsider the roles of boards, CSR committee, CFO and set up new standard operating procedures (SOPs) including a defined procedure for the use of funds. Along with this, the purpose of impact assessment should be determined, a wide checklist of procedures with owners and deadline should be prepared and an annual action plan should be shaped.

Government role: The government should ensure that the activities involved in the company's CSR policy are implemented by it.

It is also the responsibility of the government to address issues of non-governmental organizations unavailability and to create awareness in the society about the importance of CSR and its activities.

The government is planning to use technology equipment such as artificial intelligence and machine learning to mining data specified reports to change its policy on CSR.

It is welcome to take advantage of technology to improve the monitoring of companies by the government, but it should be implemented on their financial and governance aspects before applying to the social obligations of the companies.

What are the suitable areas that CSR investment can be folded?

Technological innovation: The key to the non-linear scale-up of any project lies in availing technology and solving social problems is also no exception.

A policy environment, which encourages the CSR investment in technology -based solutions, has actually demolished the sustainable and measured solutions.

Additionally, cooperation with local bodies and establishing governance and community enclosure structures can ensure that these projects can become self -sufficient in the long run.

Higher education: CSR can be used in many ways to support the tertiary education sector meaningfully.

Money can be used in the implementation of socially relevant projects determined by faculty members or to support scientific research, which will be able to answer major scientific questions underlying in social problems.

Incubator management: Such grants can also be given with the aim of assisting more people through government-recognized incubators, establishment of new incubators, helping more people to attach more people to attach more people and provide seed funding for start-ups.

The fact that the CSR policy of the government allows a company to choose to interfere at any point in the end-to-end technology price manufacturing process, is an important promoter.

Environmental friendly schemes: Creating sustainable construction materials that are inexpensive and re-purpose, developing India-focused green options (such as new heat and power management system) and addressing social-industrial issues (eg flood management system) with intensive risk analysis on relevant criteria (eg flood management system) .

Such projects, supported by CSR funding and implemented under higher education institutions, will intensify the infection from the laboratory to the actual ground and serve the communities in new ways.