Over the last two decades, Indian companies have grown and become globally competitive. However, social and economic inclusion has not paralleled economic growth.
Both the previous and present government have seen the private sector as critical to the future prosperity of the country and its citizens. In this context, the 2013 Companies Act is a push for companies to develop and expand their corporate social responsibility (CSR) programs.
The role of private capital in shaping society is undeniable. However a law requiring corporates to be more mindful of their impact has raised a public debate about social priorities, and the great potential of CSR to foster the energy, talent, and resources of India’s robust corporate sector to improve the lives of all Indians.
India’s approach to, and definition of, CSR are quite distinct from most other countries. In various parts of the world, CSR is intertwined with sustainable and responsible business practices as well as social work efforts. CSR in India currently takes a philanthropy centered and number-centric approach, focused on output rather than strategic outcomes. In India, CSR is detached from business practices. This divide, created by the Ministry of Corporate Affairs in the hope of avoiding brand marketing or corporate perks, has forced CSR boards to keep charity efforts separate from a corporate’s expertise.
While CSR efforts ultimately create a net positive result, the current discussion revolves around whether the law is written in a way that promotes the most impactful processes and long lasting results and, if not, how the law can be reworked.
The potential of CSR lies in harnessing the particular strengths of a company to integrate sustainable business with societal giving, rather than simply requiring the company to donate money and outsource all of its CSR efforts.
The strict definition of CSR in the Act emphasizes the involvement of corporates with certain types of social causes in partnership with NGOs. Health and education have gained a tremendous amount of support and funding, while relatively more controversial and non-traditional causes have received less assistance. The narrow definition and the even narrower efforts made by many companies only address specific needs rather than nurturing civil society more generally. Furthermore, government-backed programs are benefiting from corporate giving, as many companies have tailored their CSR programs to fit in with governmental goals. While CSR in any form is beneficial, the CSR scale in India is tipped in favor of conventional causes and away from social innovation.
Whatever the causes, the government suggests that companies partner with NGOs to help in their CSR efforts. With screenings and field visits, NGOs are at the mercy of corporates who choose these partnerships. Corporates are looking for NGOs that possess capacity, knowledge, and resources, and will be able to handle their strict requirements of project monitoring and reporting. This means that large NGOs have been accumulating more partnerships, while corporate support tends to stay away from smaller NGOs. The big get bigger while the small are starved of resources, which reduces the range of new ideas and policies being developed.
While NGOs provide an established framework and infrastructure for companies to build their CSR efforts upon, the cost of compliance raises the question: why should companies bother to comply with the law? Creating a CSR committee, reporting CSR activity annually in a specified format, creating an internal CSR structure, using third parties such as law firms or CSR consultancy firms, and complying with other aspects of the law, all add up to a significant effort. These hurdles detract attention from where it truly should be directed: socially responsible practices.
Moreover, the Act stipulates no penalty for non-compliance with regard to spending 2% of a company’s profits on CSR. The reasons to comply are then only a willingness to obey the law and the pressure to comply that is created by consumers and other companies.
As the first country in the world to legally mandate CSR, India does not have an existing model to follow or successful example to emulate. There is, however, scope for continued discussion and reform. After only one fiscal year, we saw trends in the CSR environment and recognized the potential impact that could be made; what is less certain is whether that potential will become reality.
If the 2013 Companies Act is effective, social spending will continue increasing, corporates will steadily play a larger role in CSR efforts, and the standard of living of the neediest will improve. However, corporate giving cannot be a substitute for effective governance.
Kelly Scharff is a senior at Lehigh University, Pennsylvania, U.S., with a major in economics and minors in sustainable development and religion studies. She has studied and worked in Kenya, Spain, and India.
Sarah Berman is a senior in Political Science at Lehigh University, Pennsylvania. She has worked in Morocco, India, and Ghana. At Lehigh, Sarah is a United Nations Youth Representative for the Bethel Youth Aid Foundation.
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