Speaker: Prof. Sangeeta Bansal, Centre for International Trade and Development, JNU

The government of India recently enacted an Act that mandates firms to spend a minimum amount on corporate social responsibility (CSR) initiatives. This makes India the first country in the world that makes it mandatory for large firms (defined in terms of net profits, net worth or turnover) to set aside at least 2% of their average net profit for socially responsible expenditures. These funds have a potential to contribute to the social development agenda of the country and improving its environment. This paper aims at providing an early assessment of the response by firms to this Act. It examines the extent to which the CSR Act has led firms to comply and increase the share of profits being spent on CSR and the extent to which implementation of the CSR Act over the financial year 2014-2015 has contributed additional funds towards the social development of the country. The analysis is based on firm level data set of firms all over India over the years 2010-2015. We use difference in difference methodology to quantify the effect of the Act on CSR expenditure of firms. We find that following the implementation of the CSR Act there has been an increase in the number of firms that are spending on CSR initiatives as well as the total amount spent on CSR activities. On average, an eligible firm spent between Rs 12-13 million more on CSR due to the Act. However, there is a very unequal distribution of CSR expenditures among firms. About 80% of the firms in our sample that come under the purview of the Act did not comply with it in the first year of implementation.