Exploring the reasons for the failure of the mandatory policy of Corporate Social Responsibility in India.
Shreya Gupta, Writer
Corporate social responsibility is the voluntary practice by public and privately owned companies to contribute a part of their average profits to the society- for managing the social, environmental and economic effects of its operations, in assent with public’s expectations. The CSR clause under the Companies Act, 2013, mandates companies to spend at least 2% from their average profits of the last three years on social development projects or ‘CSR activities’.
In 2013, the then government made it compulsory to perform CSR with the promise of developing for both, the businesses and the society. While the former could avail tax benefits under certain categories, the latter was promised a better tomorrow. But the truth remains that only the companies could see a better tomorrow for themselves, making CSR a prominent avenue for job seekers by dressing up the initiative as a mere image building strategy— posing as ethical change makers.
However, ever since the time, the subject has become an inevitable part of their business activities, companies have been falling short to meet the objectives of the scheme. Thus, the implementation and working of the scheme becomes contentious.
Disproportionate spending on projects
Although the government has mandatorily asked companies to spend a minimum of 2% of their average profits, the official data reveals that around 60 percent of them spends less than that and over 15000 public and private companies don’t spend at all on any CSR projects.
Income inequality has always been a burning affair in our country and that how wealth is concentrated in the hands of a few business families. Such companies can help change the face of the nation by contributing more than the mandated percent. The government should thus amend its scheme and let businesses spend in proportion to their profits. This will ensure that the social development takes place at a faster pace with better quality resources.
Income inequality prevails in India and some companies who have the capacity to change the situation for the betterment are not stepping up.
Comparison to philanthropy
CSR is often confused with philanthropy but the latter is a private matter, the individual makes a choice about the cause, where he wants to spend including the amount and no business is involved here but, CSR has to align with the business’ plan— fund allotment, cause, time duration, et cetra.
No sustainable plans
Most companies allocate their funds in the health, education and sanitation sectors and create a bulk there, ignoring other developmental aspects like eradicating visual pollution, cultural and historical heritage projects like museums, galleries, et cetra. Companies also decide to spend more on government schemes like water sanitation and Swachch Bharat mission but these projects are often left hanging in the middle of their implementation and the funds allotted are wasted. Most companies do not plan out their CSR activities and allocate funds in any project without knowing its implications. Such half-hearted jobs have led to a minimal social and economical growth.
This year during the early stage of the pandemic, the government 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. Owing to this announcement, most companies planned to donate to the PM CARES scheme which is not accountable to disclose the details of its spendings and the CSR activity goes in vain. At other times, companies discontinue an ongoing CSR activity claiming lack of funds or engage in making a limited CSR plan which is sound only for a period of time after which, the company only acts in the next financial year.
Reliance Industries, the highest contributor of CSR funds, allocated thousands of crores in building up a new educational institute ‘Jio Institute’ which is going to be a private profit-making institute by the Ambanis.
Motivated by personal objectives
Some companies engage in CSR to promote their personal and the company’s interests. They invest in projects that benefit them by making profits in the upcoming years. For example, Reliance Industries, the highest contributor of CSR funds, allocated thousands of crores in building up a new educational institute ‘Jio Institute’ which is going to be a private profit-making institute by the Ambanis. Companies often invest in projects where they either create goodwill for their business or earn tax holidays or business partnerships in the long run.
The most effective CSR plans ensure that while organisations comply with legislation, their investments also respect the growth and development of marginalised communities and the environment. CSR should also be sustainable – involving activities that an organisation can uphold without negatively affecting their business goals.
Lately, CSR has become a window dressing objective for companies, practising ‘greenwashing’ to attract employment, and wealth. The government, if it expects an overall development for the nation should not make the scheme necessary, because corporate executives are not supposed to know every implication of their activity. Rather, it’s the role of the government to facilitate schemes and act on it. The government should also lower corporate taxes instead of incorporating CSR in business activities. Real development cannot just happen with injecting money into the social and economic gaps but with bringing dignity to the poor and providing opportunities. The scheme in its current phase is merely a wastage of resources, failing to be sustainable.
National CSR Data Portal. Retrieved from: https://www.csr.gov.in/index19.php