The concept of Corporate Social Responsibility (CSR) has become a buzzword in the modern day Corporate Governance. The latest amendment in Indian Companies Act, 2013 has introduced the clause of CSR for Indian companies. CSR is a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all the stakeholders. It is aimed at encouraging companies to be more aware of the impact of their business on the rest of society, including their own stakeholders and the environment. The implementation of CSR activities in Indian context has been marred with certain challenges, including skewed pattern of CSR expenditures, its geographical distribution and so on. There is a need of streamlining the CSR activities and related expenditure in a more professional manner.

Concept of CSR –

Corporate social-Responsibility (CSR) has been made mandatory under Companies Act, 2013 which has replaced the 57 years old Companies Act, 1956. As per section 135 of this Act, every company having net worth of Rs 500 crore or more or turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more during any financial year will have to spend, in every financial year regularly, at least 2 per cent of the average net profits of the company made during the three immediately preceding years. The companies identified for the mandatory CSR spending have to constitute a CSR Committee of the Board which have to include three or more Directors along with at least one Independent Director. The CSR Committee is expected to formulate the CSR policy and recommend it to the Board for undertaking activities to be undertaken by their company. It also earmarks  the amount of expenditure to be incurred on CSR activities and is empowered to monitor the CSR policy of the company and its implementation regularly.

Challenges and suggestions towards CSR–

The expenditure pattern by Indian companies through CSR activities indicate- lack of expertise in implementation of CSR activities; duplication of efforts and funds expenditure through CSR activities and skewed nature of distribution of CSR funds in specific geographical areas, respectively. It is observed that corporate entities have limited experience and expertise in addressing the complexities of societal development. Despite being committed to social upliftment through CSR, lack of expertise by the corporate sector poses great challenge in terms of quality of CSR projects. Secondly, the MCA data shows that the bulk of the CSR money (almost 75 per cent) is allocated to just three sectors — education, health (including sanitation and water) and rural poverty. This trend is indicative of duplication of efforts by the corporate entities as well as neglect towards other aspects of social  as well environmental development. Thirdly, it is to be noted that 40 per cent of the CSR funds are expended in just a few relatively well-developed states — Maharashtra, Gujarat, Karnataka, Tamil Nadu, Andhra Pradesh and Telangana. It is not surprising as India’s most profitable companies (Reliance, Infosys, Wipro, ITC, IOC, HDFC) invest preponderantly in these states and Section 135(5) of the Act encourages companies to give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities. The current model, in short, aggravates rather than alleviates existing regional and social disparities.

The solution for streamlining of CSR expenditure all over India lies in creation of a common ‘CSR Trust’. The corporate entities should pool their CSR funds into a common ‘CSR trust’ and should allow an autonomous body to manage and disburse these funds. This body should be a confederation of corporates, NGOs, domain experts and government. Its role should be to define the CSR agenda, identify the CSR projects, select the local partners, allocate the resources and oversee implementation.

The CSR concept is inherently a good beginning in a modern day Corporate Governance phenomenon. However, there is a need to review certain clauses of Companies Act and introduce the concept of common pool of CSR fund to ensure efficiency and effectivity in CSR funds utilization.

 

(The author of this article ,Lt Col (Dr) Satish Dhage, is an ex Army officer and has been qualified for IPS (Indian Police Services) through IPS LCE 2012. Presently, he is Director, MGM Institute of Competitive Exams Aurangabad.                                

 For any queries or feedback, he can be contacted on email id : drsatishdhage@gmail.com)