In India, corporations have a duty to protect the rights of deprived and underprivileged people and larger businesses are increasingly expected to take responsibility.
India was the first country in the world to legally oblige corporations to allocate spending to corporate social responsibility (CSR) activities. Under Section 135 of the Indian Companies Act 2013, 2% of a company’s profits must be allocated to CSR.
This applies to companies meeting any of these thresholds: net worth of INR5bn, turnover of INR10bn or net profit of INR0.05bn. INR1bn is equivalent to approximately USD13.8m.
Advantages of the approach
Many companies have scaled up their CSR capabilities and are looking for opportunities to help build a more viable society. They have set aside budgets to fund specialist teams to deliver CSR policies, strategies and goals. Where CSR programmes are aligned with the company’s business goals, they can be very attractive and fruitful for the organisation.
For example, e-Choupal is an initiative of the Indian Tobacco Company Ltd (ITC) which makes the power of the internet available to rural farmers to help in the procurement of produce such as soybeans, coffee and prawns. By removing middlemen, this helps to unshackle the potential of farmers who have traditionally been trapped in a cycle of little risk-taking, low investment, poor productivity, weak market orientation and low added value.
The Coca Cola India Foundation, has undertaken various initiatives including water sustainability and solar energy projects. It has also launched its VEER campaign, which reaches out to disabled people across India to give them a voice and an opportunity to fulfil their ambitions and enhance their livelihoods.
Under the banner of CSR, many Indian corporations became involved with the relief programme following the recent floods in Kerala. And an increasing number of corporations are using renewable resources for production to help improve environmental sustainability.
While many of these philanthropic activities help the needy to increase their standard of living, businesses also get to reap the benefits by aligning CSR programmes with their own values and strategies.
Limitations of the approach
Although CSR is mandatory, the Government restricts the deductions towards CSR expenses. Under income tax law some organisations are eligible for a 50% deduction of their CSR expenses, subject to various limitations.
According to an official Government website, approximately 40% of relevant companies in the 2016/17 financial year recorded CSR expenditure of less than 2% of profits. However, this is an improvement on the previous year, in which 81% of relevant companies recorded expenditure of less than 2%.
To further improve compliance, accountability and transparency, the Ministry of Corporate Affairs (MCA) has introduced data portals which will capture information on CSR activities that eligible companies file in their financial statements. The MCA has also started issuing so-called show cause notices to initiate prosecution for non-compliance with provisions under the Companies Act.
CSR is not a panacea for all the world’s problems, but it certainly starts to move the needle towards economies that are healthier environments in which to conduct business.
For more information, contact:
Sailee Megharaj and Madhavi Nirban
Chaturvedi & Shah, India
T: +91 99204 31791