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India Makes CSR A Requirement for Companies

Jan Lee
Jan Lee | Wednesday August 13th, 2014 | 14 Comments

640px-Ä3W_-_Ambulance_in_India_CSRWe laud corporate social responsibility. As a society, we put those generous acts of concern that companies do at the top of the scale when it comes to trust and our concept of product reliability. Safeway’s many local donation campaigns, McDonald’s long-standing Ronald McDonald charities, the numerous companies that have donated to community hunger programs, child education and the like. In fact, these days, it would likely be harder to find a company that doesn’t have a well publicized CSR program than 20 that do.

And American society is not alone. In India, Mahatma Gandhi introduced the concept of trusteeship to companies in the early 1900s, encouraging them to take a leading role in social responsibility. So, the Indian parliament’s landmark legislation in 2013 that large companies must donate 2 percent of their earnings to CSR projects each year is really not earth-shaking when it comes to social perspectives in the world’s largest democratic nation.

India’s new CSR mandate

Under India’s Companies Act of 2013, companies that have a net worth of $80 million, a turnover of at least $160 million, or net profits of at least $800,000 must develop a CSR policy and spend the minimum (2 percent of net profit) required on CSR. And of course, they are required to report their CSR projects.

Companies can direct the funds to a wide spectrum of needs, ranging from program that combats hunger and poverty to protecting the environment. While they cannot fulfill their obligation by donating money to political causes, they can donate to projects that have been initiated by the government. They can donate the funds through a third-party source, and small and medium startups also have the advantage of collaborating with other companies and pooling their resources for special projects.

Corporate criticisms from nonprofits

Interestingly, some of the loudest criticisms of the parliament’s revision of its antiquated 1956 Companies Act have come from philanthropists. Wipro Chairman Azim Premji, who is known for his large donations to community development programs opposed the change, expressing concern that “Spending two per cent on CSR is a lot, especially for companies that are trying to scale up in these difficult times.”

Ratan Tata, former chair of the Tata Group and also well-known for his philanthropic efforts, expressed concern that India might not have the infrastructure established to enforce such an ambitious program.

“You will have a registered NGO, you will have the money, the money goes to the NGO and it may be three or four years before the whole thing explodes in a series of fraudulent operations,” Tata said in an interview with Philanthropy Age. And it isn’t that Tata doesn’t support philanthropy. The Tata Group regularly disburses about 4 percent of its net profits to charities.

India’s ‘prosperous tomorrow’

But in the eyes of many, the implementation of a 2 percent CSR requirement for large corporations is not only fair, but necessary. As Tata pointed out, there is still significant work to be done to reverse malnutrition in India.

“You cannot have a prosperous tomorrow if, each year, 17 million people are vulnerable to this infirmity,” said Tata, speaking of the average yearly population growth rate in India.

Whether mandating CSR responsibilities will ensure that a social principle that was put into place almost a century ago by Mahatma Gandhi can help eradicate such disparity is the question. As Tata and Premji both note, it will take good government management techniques to ensure that the CSR programs and the monies collected actually meet their intended goals. Still, its notable that the world’s largest democracy, with sizable economic challenges still ahead of it, sees corporate social responsibilities not as a luxury or a laudable choice, but a vital part of its corporate development strategy.

Image credit: Aerzte3welt


▼▼▼      14 Comments     ▼▼▼

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  • THANGAVELU

    All big journey starts with a small baby step. It is necessary to take steps to bridge the gap between have’s and haven’ts within the society. Other wise it will create social tension which is not good for humanity.

    • J_N_Lee

      Excellent point, Thangavelu. Thank you for your comment!

    • Ranjit

      You said remarkable suggestion for the country which has a big Gap between HAve and Have not!!!! Corporates, Rich people must contribute to uplife poor not for the sake of poor bit fheir own if not then revolution is one of the root cause of the gap between have and have not!! Hope Haves may listen the need of the time.

  • Katre

    Narendra Modi ,a true Visionary,said in his Independence Speech that CSR is mandatory.
    He also advised Companies to adopt a village and look after its development along with the Government. Modi also requested global companies to establish manufacturing units in India,his slogan is “Come,Make in India”. this move generates millions of jobs directly and Indirectly and there by increase in the economy. He also appealed to the Manufacturing companies to make products with “Zero Defect” and “Zero effect” on environment.
    Hail Narendra Modi,The Iron Man Of India.

    • Denise

      If this is the case why does he allow as
      asbestos plant to be built that will manufacture building materials for the
      poor?

      • Sullivan

        So whats wrong. In India they havent banned asbestos yet.

  • Raj Puttaparti

    I consider this to be a great move. The article by Jan Lee brings about the awareness to a common man that such as act does exist and the importance of it’s role. I am not sure how many companies are out there in India that even care about CSR and consider making it part of their overall company strategy? What’s important in the Indian context is the true management of such an ACT besides it’s revival and enactment. A good governance, monitoring , accountability and transparency are the key. If managed well, the CSR could contribute towards building better communities and curbing ( if not eliminating) the damage caused to the environment we live in. -Rajagopal P.

  • Ananth Rao Nancherla

    Thank God finally India has a leader who has a vision and courage to do what needs to be done and has surrounded himself with people who are as dedicated as himself and I hope that they will show the world that with good leadership,dedication.and management there is limit to what INDIA can Achieve

  • Peter

    India has 55 dollar Billionaires .Compared against the West,they are much slower at opening their wallets than their Western counterparts,exception being Premji and Tata.As far as charitable causes,India is 3.1% vs 9.1% in US. India ranks 133 out of 146 in the World Giving Index.As an example, Ambani of Reliance Industries is the 19th Richest man in the world but is a notorious cheapskate when it comes to giving. He has been charged with irregularities in pricing natural gas for his company.

    • Sullivan

      So. What is point you are trying to make. So govt need to step up and come up with laws and make it mandatory to take part in CSR. Thats what the new govt is doing.

    • J_N_Lee

      Thanks for your comment, Peter. Do you think what you’ve mentioned is the reason the government is making it mandatory? Perhaps the process with time and effort will help.

      • Peter

        Hello JN This is a good start. Modi’s Govt. needs to follow up and persistence will pay off.

  • Jay

    what about the ultra rich corrupt politicians? they will sit around and enjoy since they are not corporate!

  • Sadiq Mohammed

    Don’t just read the road signs, especially in India it could land you in the wrong place.

    The legislation is great shows committment to leverage the corporates to do more. Finally the leadership onboard seems to will to do the unwilling. Because most business dont give, period. Most of it is a lot of Green Washing. 133 of 146 in the world giving index should give you a clue.

    Have a serious talk with the corporates and you will find it is a lot of lip service, but that is the nature of the Indian corporate beast. They are more driven by revenue generation and revenue generation alone, damned be the people and the environment.

    Not to take away anything from the stalwarts like Premji, Tata and a few others.

    My other worry is the PM Relief Fund, as one of the CSR receipient organizations, that throws this whole thing awary. Do you know how many corporates will just do that, take a wild guess. There is a lot of political appeasement in doing so…

    The NGO’s like in most countries some are good others are fronts and that is it. So to be able to identify one with the political will. key point people!! to take on the establishment to do something meaningful are far and inbetween. Again I am not trying to take away anything from the NGO’s either they do great work in India. But they need to have political savvy

    And that in India could cost you some greasy favours, pork barrel project are dime a dozen.

    I am really hoping the new leadership can shake, rattle and roll all around and in particular on the much needed Drinking water, Electricity, Food, Education, SANITATION and the list can go on. So It is a great begining, just do not have too much hope on the Corporates toeing the line, with out a strong instrument to implement and bring in line the defaulters the distance traveled will be wanting…

    Just my two bits worth.