Overview: CORPORATE SOCIAL RESPONSIBILITY IN INDIA

Profile of the Author: Manishikha Mondal is a 2nd year B.B.A. LL.B. (Hons.) student of Neotia University.

Introduction

Corporate Social Responsibility (‘CSR’) was first introduced in India on 29th August 2013 under Section 135 and Schedule VII of the Companies Act, 2013, which is now a new normal for Indian organizations. India is one of the first countries to make CSR mandatory. CSR is well-accepted by shareholders and even stakeholders in India. It is an approach toward social profit sustainable development which focuses on the triple bottom line of environment, economic and social performance. Hence, it considers big companies as an integral part of the business framework for sustainable development.

CSR is a continuing commitment by business houses to integrate social and environmental concerns in their business operations. Changes in the global environment are increasing the challenges for businesses across the world to look beyond financial performance and inculcate social and environmental responsibilities into their management strategies. In India, the term CSR is being widely used for related terms such as sustainable development, business responsibility, sustainability, philanthropy, responsible business, business ethics, triple bottom line, shared value, corporate citizenship, value creation, socio-economic responsibility, stakeholder management, corporate social performance, and corporate responsibility.

The amendment made in the Companies Act, 2013 states that the companies with a net worth of INR 5 billion or more, or an annual turnover of INR 10 billion or more, or a net profit of INR 50 million or more have to spend 2 percent of their average net profits of three years on CSR. Additionally, the CSR clause was made voluntary for companies, though companies had to disclose their CSR spending to shareholders. Moreover, if businesses made expenditure towards CSR, it did not make them eligible for a tax deduction. The government re-evaluated the provision of CSR in the recently introduced Companies (Amendment) Act, 2019. Some of the amendments made in CSR under the Companies (Amendment) Act, 2019 are as follows: [1]

Until this amendment, if a company is unable to spend the whole amount of its CSR funds in a given year, it can carry forward that amount to the next fiscal year by adding that amount to the money assigned for the next year. However, the CSR amendments introduced under the Act made it mandatory for companies to deposit the unutilised CSR amount into a fund prescribed under Schedule VII of the Act by the end of a fiscal year. Further, this amount must be utilized within the next three years from the date of transfer, failing which the fund must be deposited into one of the funds specified in the Act. The amended law prescribes monetary penalty as well as imprisonment in case of non-compliance with the aforementioned provisions. The penalty ranges from INR 50,000 to INR 2,500,000. The defaulting officer of the company may also be liable to imprisonment for up to three years or a fine up to INR 500,000, or both.

CSR helps in assessing an organization’s impact on society and evaluating its responsibilities. [2]

It begins with an exhaustive assessment of the following 5 aspects of a business:

1. Customers
2. Environment
3. Employees
4. Communities
5. Suppliers

An effective CSR plan ensures that an organization conforms to the legislation while its investment planner works for the growth and development of the environment and marginalized communities. CSR needs to be sustainable and involve activities in which an organization can indulge without negatively affecting its business goals. Organizations in India have rationally pursued CSR initiatives and integrated them into their business processes. CSR is advanced in projecting the Indian corporate setting because organizations have realized that besides growing their businesses, it is imperative to share a responsible and sustainable relationship with the surrounding community. Companies have made specialized departments that develop specific policies, strategies, and goals for their CSR programs and allocated separate budgets to support these programs. These programs are generally based on well-defined social beliefs and carefully aligned with the companies business domain.

The Seven Pillars of CSR Strategy are:

1. Cross learning
2. Need of partnership in CSR
3. Capacity building of CSR workforce and re-skilling
4. Supplementing and nurturing CSR
5. Use and reuse of resources for better CSR
6. Knowledge management and documentation
7. Per beneficiary cost reduction and maximizing the impact while reaching more people. [3]

After the mandatory applicability of CSR provision in 2014, companies expenditure on CSR has significantly increased. In 2018, companies expenditure was 47 percent higher than the expenditure in 2014-15. According to a survey [4], companies contribute US$1 billion to CSR initiatives. The listed companies in India spend INR 100 billion in various programs related to society at large from educational programs, skill development, social welfare, healthcare, to environmental conservation. In contrast, Prime Minister’s Relief Fund witnessed an increase of 139 percent in CSR contribution in 2018. The highest funding was received by the education sector that accounted for 38 percent of the total. It was followed by hunger, poverty, and healthcare which received 25 percent, environmental sustainability received 12 percent, whereas rural development received only 11 percent. Programs such as technology incubators, sports, armed forces, and reducing inequalities had almost no expenditure.

Some of the suggested areas of activities for companies to implement their CSR in project mode as per Schedule VII are: [5]

1. Eradicating hunger, poverty, and malnutrition; promoting health care including preventive health care and sanitation including contribution to the Swachh Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water;
2. promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, daycare centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;
3. promoting education, including special education and employment enhancing vocational skills especially among children, women, elderly, and differently-abled and livelihood enhancement projects;
4. protection of national heritage, art, and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts,
5. ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining the quality of soil, air and water including contribution to the Clean Ganga Fund setup by the Central Government for rejuvenation of river Ganga;
6. measures for the benefit of armed forces veterans, war widows and their dependents,
7. contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government;
8. rural development projects;
9. slum area development;
10. training to promote rural sports, nationally recognized sports, Paralympic sports, and Olympic sports;
11. contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women. [6]

Conclusion

In the fast-changing world, the capacity building of the CSR workforce and skill development of those concerned people are essential for CSR performance. Human resource is the fundamentally indispensable. CSR leaders need to empower their subordinates by teaching them the right attitude and providing them with the knowledge, information and training that is required. At the same time, CSR managers should open themselves to learning new things like developing project management skill, soft skill, professional skill and leadership skill among the CSR workforce. Training them from time to time, developing, and re-skilling of the CSR manners can save time, efforts, resources and improve work.

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FAQs

Q1. Are there any tax benefits provided under the CSR?

A1. No, there are no specific tax benefits. CSR expenditure is not considered a business expenditure as clarified by Finance Act, 2014.

References

[1] ‘CSR in India’ <https://www.india-briefing.com/news/corporate-social-responsibility-india-5511.html/#:~:text=CSR%20should%20also%20be%20sustainable,negatively%20affecting%20their%20business%20goals.&text=Most%20of%20the%20time%2C%20these,with%20the%20companies'%20business%20domain.> accessed in 2020.

[2] Ibid.

[3] Rusen Kumar, ‘CSR in India’ (India CSR 9 October 2019) <https://indiacsr.in/corporate-social-responsibility-csr-in-india/> accessed in 2020.

[4] CS Gopinath Khatua, ‘How Modi Tighten disclosure norms for Corporate Social Responsibility (CSR Policy) spending to its new India under Companies (Amendment Act),2019’ (TaxGuru 9 December 2019) <https://taxguru.in/company-law/modi-tighten-disclosure-norms-csr-companies-law.html> accessed in 2020.

[5] Schedule 7 of the Companies Act, Bare Act.

[6] Ibid.