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Corporate Social Responsibility in India

Context: The Ministry of Corporate Affairs (MCA) has flagged the limited impact of corporate social responsibility (CSR) initiatives despite a spike in such spending in recent years, and called on India Inc to adopt a long-term approach “to yield productive results”.

What is Corporate Social Responsibility (CSR)?

  • According to the United Nations Industrial Development Organisation, CSR is a concept of management “whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.”
  • Corporate social responsibility enables businesses to participate in a variety of socially responsible initiatives.
  • The idea of CSR operates on the principle of ‘quid pro quo’ – something in exchange for something. Companies are morally obligated to contribute back to society since they rely on societal assets to operate efficiently.

Types of Corporate Social Responsibility

Among numerous types of corporate social responsibility, there are four major types of corporate social responsibility –

Corporate Social Responsibility in India_4.1

Positive and Negative Impacts of Corporate Social Responsibility (CSR)

Positive Impacts of CSR Negative Impacts of CSR
  • Enhanced Reputation and Brand Value: CSR improves a company’s reputation, enhances its brand value, and builds trust among customers.
  • Improved Customer Relations: CSR initiatives attract socially conscious consumers, leading to increased customer satisfaction, loyalty, and an expanded consumer network.
  • Increased Employee Engagement and Retention: CSR activities create a sense of purpose, leading to higher employee engagement, job satisfaction, and better employee retention.
  • Positive Impact on Communities and Society: CSR programs address societal issues and contribute to the well-being of communities, making a positive impact on society.
  • Regulatory Compliance and Risk Management: CSR helps companies comply with regulations, mitigate risks, and avoid reputational damage and legal issues.
  • Increased administrative burden and enforcement fees: Small companies may struggle to afford the expenses associated with CSR compliance, leading to financial burdens and potential enforcement fees.
  • Conflicts between different business goals: Balancing profit goals with CSR objectives can create challenges and potential disagreements among stakeholders, impacting decision-making processes.
  • The ‘greenwashing’ impact: Consumers are increasingly wary of companies engaging in superficial or deceptive CSR practices, which can damage a company’s reputation and result in negative public perception.
  • Disadvantage over competitors: CSR implementation can lead to increased operational costs, resulting in higher product prices that may deter customers who seek more affordable alternatives from non-CSR-focused competitors.

Overview of Corporate Social Responsibility in India

  • Corporate social responsibility has been a part of the Indian societal structure since its inception.
  • It is an extremely old concept. Monarchs, landowners, and businesses all embraced the idea of being socially responsible in the ancient period, and they placed a high emphasis on it. The saying “The more you give, the more you receive” is recognized by everyone.
  • In contrast to other nations that merely provide guidelines and recommendations, India has a statutory obligation on corporate social responsibility spending.
    • The Companies Act, 2013 incorporates the idea of corporate social responsibility into Section 135.
    • Additionally, Schedule VII of the Companies Act, 2013 lists a broad range of tasks that firms in the country may carry out.

History of Corporate Social Responsibility in India

  • The first phase of corporate social responsibility (1850 to 1914):
    • Corporate social responsibility in India during this period focused on philanthropy and charitable contributions.
    • Businessmen built institutions, colleges, public facilities, and religious establishments for the betterment of local communities.
    • Contributions were made from personal funds rather than from company resources, unrelated to the functioning of the company.
  • The second phase of corporate social responsibility (1910 to 1960):
    • Mahatma Gandhi’s trusteeship philosophy shaped corporate social responsibility, emphasizing social development and considering businesses as “temples of modern India.”
    • Businessmen created trusts for universities, research centers, and participated in social reform movements like women’s emancipation and untouchability abolition.
    • Corporate leaders supported Gandhi’s initiatives through their trusts, promoting social welfare and socioeconomic development.
  • The Third Phase of corporate social responsibility (1950 to 1990):
    • The establishment of public sector undertakings reduced private industry’s contribution to socioeconomic development.
    • Corporate social responsibility focused on labor laws and environmental legislation, ensuring fair wealth distribution and social accountability.
    • Corporate social responsibility involved legal controls on company operations and support for community engagement, with owners, management, and stakeholders taking responsibility.
  • The fourth phase of corporate social responsibility (1980 onwards):
    • Post-1980, economic reforms in India led to significant growth and provided opportunities for corporate social responsibility.
    • Growing profitability and success empowered companies to contribute more towards social causes.
    • India’s emergence as a global economic player enhanced corporate social responsibility strategies through integration into the global supply chain and adherence to international norms.

The Ministry of Corporate Affairs (MCA)’s Findings on CSR

  • Total spending in FY21: According to the MCA, CSR spending stood at Rs 26,210 crore in FY21, a growth of 80% since FY16. However, the impact of these funds is not widely felt, and there is a need to enhance their visibility and effectiveness.
  • Top receiving sectors: Education, healthcare, and rural development have remained the top receivers of the CSR funds.
  • Regional disparity: The MCA has also expressed concerns over wide regional disparity in the deployment of the CSR funds and called on companies to balance their area preference with national priorities.
    • Just ten states–including industrial ones such as Maharashtra, Gujarat, Karnataka and Andhra Pradesh–grabbed over 44% of the CSR funds in FY21, while the eight north-eastern ones received a mere 0.91%.
  • Self-sustenance: The MCA has also highlighted the need to ensure the initiatives undertaken become self-sustaining so that the CSR programmes can run seamlessly without being a burden on the companies themselves.

What are the Issues Pertaining to CSR Compliance?

  • Lack of community participation: Limited enthusiasm and support from the local community for engaging in and supporting CSR activities due to communication gaps between stakeholders.
  • Partner selection challenges: Difficulty in finding long-term impactful, scalable, and self-sustaining partners and projects for CSR initiatives.
  • Transparency concerns: Companies highlight a lack of transparency from local implementing agencies regarding program information, audit issues, impact assessments, and budget utilization.
  • Limited availability of well-organized NGOs: Challenges in identifying and collaborating with well-organized NGOs in remote and rural areas to assess community needs and ensure successful CSR implementation.

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