Report on how companies should enshrine corporate social
responsibility
Introduction
India is the first country in the world to make corporate social
responsibility (CSR) mandatory, following an amendment to the
Companies Act, 2013 in April 2014. Businesses can invest their
profits in areas such as education, poverty, gender equality, and
hunger as part of any CSR compliance.
Amid the COVID-19 (coronavirus) outbreak, the Ministry of
Corporate Affairs has notified that companies’ expenditure to fight
the pandemic will be considered valid under CSR activities. Funds
may be spent on various activities related to COVID-19 such as
promotion of healthcare including preventive healthcare and
sanitation, and disaster management. Follow the latest India
COVID-19 updates here.
The amendment notified in the Companies Act, 2013 requires
companies with a net worth of INR 5 billion (US$70 million) or more,
or an annual turnover of INR 10 billion (US$140 million) or more, or
net profit of INR 50 million (US$699,125) or more, to spend 2
percent of their average net profits of three years on CSR.
CSR amendments under the Companies
(Amendment) Act, 2019
Until now, if a company was unable to fully spend its CSR funds in a
given year, it could carry the amount forward and spend it in the
next fiscal, in addition to the money allotted for that year.
The CSR amendments introduced under the Act now require
companies 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 utilized 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 prescribes for a monetary penalty as well as
imprisonment in case of non-compliance. The penalty ranges from
INR 50,000 (US$700) to INR 2.5 million (US$35,000) whereas the
defaulting officer of the company may be liable to imprisonment for
up to three years, or a fine up to INR 500,000 (US $7,023), or both.
The government, however, is reviewing these rules after the
industry objected to the strict provisions, especially with respect to
the jail terms for CSR violations, and is yet to operationalize them.
The methodology of CSR
CSR is the procedure for assessing an organization’s impact on
society and evaluating their responsibilities. It begins with an
assessment of the following aspects of each business:
Customers;
Suppliers;
Environment;
Communities; and,
Employees.
The most effective CSR plans ensure that while organizations
comply with legislation, their investments also respect the growth
and development of marginalized communities and the
environment. CSR should also be sustainable – involving activities
that an organization can uphold without negatively affecting their
business goals.
Organizations in India have been quite sensible in taking up CSR
initiatives and integrating them into their business processes.
It has become progressively projected in the Indian corporate
setting because organizations have recognized that besides
growing their businesses, it is also important to shape responsible
and supportable relationships with the community at large.
Companies now have specific departments and teams that develop
specific policies, strategies, and goals for their CSR programs and
set separate budgets to support them.
Most of the time, these programs are based on well-defined social
beliefs or are carefully aligned with the companies’ business
domain.
CSR trends in India
Since the applicability of mandatory CSR provision in 2014, CSR
spending by corporate India has increased significantly. In 2018,
companies spent 47 percent higher as compared to the amount in
2014-15, contributing US$1 billion to CSR initiatives, according to a
survey.
Listed companies in India spent INR 100 billion (US$1.4 billion) in
various programs ranging from educational programs, skill
development, social welfare, healthcare, and environment
conservation, while the Prime Minister’s Relief Fund saw an
increase of 139 percent in CSR contribution over last one year.
The education sector received the maximum funding (38 percent of
the total) followed by hunger, poverty, and healthcare (25 percent),
environmental sustainability (12 percent), rural development (11
percent). Programs such as technology incubators, sports, armed
forces, reducing inequalities saw negligible spends.
Taking into account the recent amendments to CSR provisions,
industry research estimates CSR compliance to improve and range
between 97 to 98 percent by FY 2019-20.
Examples of CSR in India
Tata Group
The Tata Group conglomerate in India carries out various CSR
projects, most of which are community improvement and poverty
alleviation programs. Through self-help groups, it has engaged in
women empowerment activities, income generation, rural
community development, and other social welfare programs. In the
field of education, the Tata Group provides scholarships and
endowments for numerous institutions.
The group also engages in healthcare projects, such as the
facilitation of child education, immunization, and creation of
awareness of AIDS. Other areas include economic empowerment
through agriculture programs, environment protection, providing
sports scholarships, and infrastructure development, such as
hospitals, research centers, educational institutions, sports
academy, and cultural centers
