CSR in India: a voluntary or mandatory approach

Student name: Ms Ashna Sachdeva
Guide: Ms Annapurna Vancheswaran
Year of completion: 2011
Host Organisation: TERI BCSD India
Supervisor (Host Organisation): Mr Pratik Ghosh

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Abstract:
EXECUTIVE SUMMARY

India, is bestowed with opportunities, which is reflected in its present economic progress and growth. On one hand, we continue to grow at 7 per cent per annum on an average 1 in terms of gross domestic product. On the other hand we continue to fare poorly on critical human development indices. Corporate Social Responsibility (CSR) is an important function to accelerate the process of overall development and nation building. To translate its vision of inclusive growth for self-sustained Indian economy, the Ministry of Corporate Affairs brought out Corporate Social Responsibility Voluntary Guidelines, 20092 . The Department of Public Enterprises had also come out with mandatory guidelines for the public sector enterprises. This paper focuses on studying the trends in corporate social responsibility in India, the debate surrounding a mandatory CSR policy and the merits and demerits of a mandatory as well as a voluntary approach.

The concept of helping the poor and disadvantaged has been cited much in the ancient literature. They put the idea into action by setting up charitable foundations, educational and healthcare institutions, and trusts for community development. The donations either monetary or in kind were sporadic activities of charity or philanthropy that were taken out of personal savings which neither belonged to the shareholders nor did it constitute an integral part of business. The term CSR itself came in to common use in the early 1970s. Over the last few years, the concept of CSR has been changing. CSR is slowly moving away from charity and dependence and starting to build on empowerment and partnership. Good corporate citizenship and CSR initiatives are inextricably linked with improved brand reputation, the other key drivers of Corporate Social Responsibility in India were diverse ranging from stated philosophy of founding fathers to improving relationship with local communities to enhanced shareholder value.

While studying the trends in CSR in India it was found that all the companies included in the sample are undertaking CSR activities of which 63 per cent have a CSR policy. CSR initiatives in India largely span over diverse areas – health, education, livelihood generation, environment, disaster relief, microfinance. It has been observed that for 70 per cent of the corporates, the CSR initiative is being implemented through a well-structured separated Foundation. Further, it was found that 70 per cent of the companies did not disclose their CSR spend and 57 per cent of corporates are into sustainability reporting.

With the vision to develop a comprehensive CSR policy for the country, the Government of India has mandated CSR spend for the public companies and did propose to do so for the private companies as well by bringing an amendment in the Companies Bill 2009. The Indian industry was not in favour of this and has cited various reasons against a mandatory policy. Therefore now, the Companies Bill will make a mention requesting companies to spend up to 2 per cent of their net profits on CSR but it may not make CSR spend mandatory. However the Parliamentary Standing Committee has underlined the need to mandate firms to spend on philanthropic activities3.

The major reasons for India Inc. opposing a mandatory regime were that; a mandatory CSR could lead to increased incidences of green-washing, the compulsion can force many companies to look at CSR as an add-on to 'business as usual', the shareholders should have a say in setting out an amount for CSR initiatives, most of the companies are already involved in CSR activities.

There are also people from the industry who are in support of this mandate. According to them the benefits accruing from a binding policy are far more superior to the shortfalls and it is essential to mandate CSR if we want to move forward on the path of inclusive growth.

The debate as to whether CSR is best pursued through voluntary or mandatory means has been on-going for some time. While both approaches have advantages and drawbacks, they play a “complementary role in promoting CSR.”