Indian companies’ commitment to corporate social responsibility (CSR) has increased significantly in recent years, but the impact of CSR initiatives has been very limited compared to the increase in spending, according to the Ministry of Corporate Affairs (MCA) June 30, 2023 newsletter.
With the introduction of the Companies Act, which makes CSR spending mandatory for eligible companies, companies above a certain size are required to spend at least 2% of their average net profit for the previous three fiscal years on social initiatives each year. Under this law, companies in various sectors have allocated larger budgets to CSR initiatives. According to the MCA newsletter, CSR spending increased by 80% to Rs 26,210 crore in FY21 compared to FY16, but the increase in financial commitments is disproportionate to the impact of CSR activities.
The MCA believes that strategic planning, implementation, and evaluation of CSR activities need to be improved to ensure that they bring about meaningful and sustainable change in society and the environment. The report added that it is crucial to execute CSR efforts strategically, “with the right balance of capital investment and operating expenditure.” On the other hand, the MCA sharply criticised the growing regional disparity in the use of CSR funds and directed companies to balance actionable preferences while keeping national priorities in mind.
On regional inequality, the MCA pointed out that only 10 states, including developed states like Maharashtra, Gujarat, Karnataka, and Andhra Pradesh, received over 44% of CSR funds in FY21, while the eight northeastern states received only 0.91%. The MCA acknowledged that one possible reason for this disparity could be the provision in Section 135(5) of the Companies Act 2013 that companies should give preference to the areas in which they operate while allocating CSR funds. “However, this is not mandatory as with the advent of digitisation, the world has become too cohesive and it is difficult to define what the local business areas are,” it said.
The MCA added that greater strategic alignment between CSR initiatives and national development priorities is needed. While companies are increasing their spending, the targeted focus on critical social and environmental issues needs to be improved. A more coherent and targeted approach is needed to address urgent challenges and maximize the benefits to society. Businesses have the potential to play an important role in overcoming regional disparities through a multidimensional approach to CSR. By identifying regions with high socio-economic vulnerability and providing resources for their development, companies can make a significant contribution to reducing inequalities.
Collaboration with local non-governmental organisations (NGOs), community-based organisations, and government agencies is crucial for the effective implementation of CSR projects at the grassroots level. These partnerships can provide valuable insights into the specific needs and challenges of communities in each region. By actively involving local stakeholders in the decision-making process, companies can gain a deeper understanding of the social, economic, and environmental issues in the region.
The MCA has also highlighted the need to ensure that initiatives taken are self-sustaining so that CSR programmes can run seamlessly without being a burden on businesses. “The focus should be on establishing an appropriate CSR structure to ensure that the funds are used for the benefit of the community,” it says. “In addition, quality risk management needs to be put in place to ensure the sustainability of CSR projects”
It is critical for companies to work with relevant stakeholders, including government agencies and civil society organisations, to identify key areas where CSR funds can bring about sustainable and transformative change. By taking a more holistic and comprehensive approach, India Inc. can better leverage its CSR spending for long-term social and environmental impact.
The limited impact of CSR spending should serve as a call for reflection and improvement. There is a need to improve transparency, accountability, and reporting standards to ensure that CSR funds are used effectively. By actively addressing these challenges and working towards a more strategic and results-oriented approach, India Inc., can realise the full potential of its CSR spending and contribute meaningfully to the country’s development.
A multidimensional CSR approach means not only addressing immediate needs but also promoting long-term sustainable development. This can be achieved by investing in education, healthcare, infrastructure, and skills development programmes. By providing individuals and communities with the necessary resources and opportunities, companies can contribute to inclusive and equitable growth.
According to official data, the education sector (including education, livelihood improvement projects, special education, and vocational skills) received Rs 44,188 crore between FY15 and FY21, which is about 37% of the total CSR expenditure. The health sector (including health care, poverty alleviation, hunger and malnutrition eradication, sanitation, and Swachh Bharat) follows with a share of 30% at Rs 38,011 crore. Rural development projects have been allocated approx Rs 12,300 crore, which is 9.6% of the total CSR expenditure during this period.
In addition, businesses can support initiatives that promote entrepreneurship, job creation, and economic diversification in regions with economic disparities. By fostering an enabling business environment, providing training and mentoring, and supporting local businesses, companies can contribute to the economic recovery of marginalised regions.
Through their multidimensional CSR efforts, companies have the potential to bridge the gap between affluent and disadvantaged regions. By focusing on inclusive and equitable development, companies can contribute to the overall progress of the nation while addressing regional inequalities. This approach not only benefits the communities directly affected but also contributes to the sustainable and equitable growth of the country as a whole.
To ensure the longevity and effectiveness of CSR programs, companies must promote self-reliance and engage in sound risk management. In this way, CSR initiatives can function seamlessly and continue to have a positive impact on society without burdening the companies themselves. Through these concerted efforts, India Inc., can make a lasting positive impact on society, contribute to the country’s sustainable development goals, and promote an inclusive and equitable future for all.
-SURESH RATHOD
