India Makes CSR A Requirement for Companies

We 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