Corporate Social Responsibility for Inclusive Growth in
India: Issues and Challenges
Arun Mishra*, Dr. P.K. Chopra**
* Assistant Professor, VNS Business School, Bhopal, email: [email protected]
** Director, Oriental College of Management, Bhopal
India being grown to be one of the largest economies in the world, and an increasingly important
player in the world, on the other hand, it is still having largest number of people living in
absolute poverty and the largest number of undernourished children. This shows that there is still
uneven distribution of the benefits of growth, and is the root cause of social unrest. With
increasing awareness of this gap between the haves and the have-nots, many companies and
government have been quick to sense the requirement of development, and have responded
proactively. The mandate for corporate social responsibility (CSR) has been formally introduced
to Indian companies with the passage of the Companies Act, 2013. The industry has responded
positively to the reform measure undertaken by the government with a wide interest across the
public and private sector. This paper is analyses the current CRS policy introduced by the
government and issues & challenges in strategising, planning, executing and monitoring the CSR
activities of companies. The paper also brings out the key aspects of clause 135 of the
Companies Act, 2013 and highlights its implications to companies. Through this article we have
tried to identify and suggest the models for effective CSR.
KEYWORDS: CSR, Corporate Social Responsibility, Inclusive Growth.
Corporate Social Responsibility for Inclusive Growth in
India: Issues and Challenges
Arun Mishra*, Dr. P.K. Chopra**
* Assistant Professor, VNS Business School, Bhopal, email: [email protected]
** Director, Oriental College of Management, Bhopal
The concept of Corporate Social Responsibility is not new to India, the
process has been followed since ancient times informally. Kautilya preached
and promoted ethical principles while doing business. The concept of helping
the poor and disadvantaged was cited in much of the ancient Indian
CSR has gained increasing importance over the last two decades due the
expansion of globalization, privatization and deregulation. CSR spending is
not just important for companies but is extremely vital and valuable for
community at large, customers and employees. Socially sustainable
companies add value to the communities within which they operate by
increasing the human capital of individual partners as well as furthering the
societal capital of these communities.
There exists a large growing literature that analyzes the benefits of corporate
social responsibility and investigates the positive relationship it has with high
financial performance and many other advantages it brings to companies.
This paper makes an attempt to analyze the section 135 of New Company
Act 2013 and by researching how this law will be effective on sustainable
development and also get a clear understanding of the concept of the term
‘corporate social responsibility’.
MEANING OF CSR
There is no universally accepted definition CSR. The phrase “Corporate Social Responsibility”
originates with H. Bowen, who wrote “Social Responsibility of Businessmen” in 1953.
Corporate Social Responsibility (CSR) is used to describe businesses’ integration of social and
environmental issues into decisions, goals, and operations. The sole purpose of CSR is to identify
and improve a company’s impact on society and the environment, while driving stronger
business results such as brand enhancement, market differentiation and employee satisfaction.
One of the most frequently cited definition is, “The social responsibility of business
encompasses the economic, legal, ethical, and discretionary expectations that society has of
organizations at a given point in time”.
World Business Council has defined the term Corporate Social responsibility as, “The
continuing commitment by business to behave ethically and contribute to economic development
while improving the quality of life of the workforce and their families as well as of the local
community and society at large”.
The EC defines CSR as “the responsibility of enterprises for their impacts on society”. To
completely meet their social responsibility, enterprises “should have in place a process to
integrate social, environmental, ethical human rights and consumer concerns into their business
operations and core strategy in close collaboration with their stakeholders”
The WBCSD defines CSR as “the continuing commitment by business to contribute to economic
development while improving the quality of life of the workforce and their families as well as of
the community and society at large.”
According to the UNIDO, “Corporate social responsibility is a management concept whereby
companies integrate social and environmental concerns in their business operations and
interactions with their stakeholders. CSR is generally understood as being the way through
which a company achieves a balance of economic, environmental and social imperatives (TripleBottom-Line Approach), while at the same time addressing the expectations of shareholders and
stakeholders. In this sense it is important to draw a distinction between CSR, which can be a
strategic business management concept, and charity, sponsorships or philanthropy. Even though
the latter can also make a valuable contribution to poverty reduction, will directly enhance the
reputation of a company and strengthen its brand, the concept of CSR clearly goes beyond that.”
From the above definitions, it is clear that:
The CSR approach is holistic and integrated with the core business strategy for
addressing social and environmental impacts of businesses.
CSR needs to address the well-being of all stakeholders and not just the company’s
Philanthropic activities are only a part of CSR, which otherwise constitutes a much larger
set of activities entailing strategic business benefits.
KEY DRIVERS FOR CSR:
The term is often used interchangeably for other terms such as Corporate Citizenship and is also
linked to the concept of Triple Bottom Line Reporting (TBL), which is used as a framework for
measuring an organisation’s performance against economic, social and environmental
parameters. In real meaning CSR is about building sustainable businesses, which need healthy
economies, markets and communities.
The key drivers for CSR are:
Enlightened self-interest - creating a synergy of ethics, a cohesive society and a
sustainable global economy where markets, labour and communities are able to
function well together.
Social investment – One of the necessary part of doing sustainable business is
contributing to physical infrastructure development and social capital is increasingly
Transparency and trust - There is high expectation that companies will be more
open, more accountable and be prepared to report publicly on their performance in
social and environmental arenas.
Increased public expectations of business - companies are expected to do more than
merely provide jobs and contribute to the economy through taxes and employment.
REVIEW OF LITERATURE
Moir Lance (2001) reviewed definitions of corporate social responsibility from both practice and
the literature and looks at theories to explain why such behaviour takes place. The literature has
strong divides between normative or ethical actions and instrumental activities. The article
concludes by posing the question of when instrumental activities become business activities
rather than largely social responsibility.
Lantos Geoffrey P. (2001) reviewed the development of the corporate social responsibility (CSR)
concept and its four components: economic, legal, ethical and altruistic duties. Discusses
different perspectives on the proper role of business in society, from profit making to community
service provider. Suggests that much of the confusion and controversy over CSR stem from a
failure to distinguish among ethical, altruistic and strategic forms of CSR.
Sarbutts Nigel (2003) reviewed a spectrum of views on reputation and CSR and argues that
searching for a definitive, value-for-money-based formula for reputation management and CSR
is at odds with stakeholder expectations, and that much evidence exists to suggest that truly
effective CSR is the result more of pragmatism than theory or corporate strategy and in some
ways SMEs are better placed to take advantage of CSR programmes.
Marshall Judi (2007) reviewed the potential gendering of leadership in the emerging field of
corporate social responsibility (CSR). It explores whose voices are becoming dominant, how
leaders speak, and what forms men's and women's leadership take.
Simeon Scott (2007) examined five themes arising from definitions of corporate social
responsibility (CSR): responsibility to the community and society; promoting democracy and
citizenship; reducing poverty and the inequality between rich and poor; employee rights and
working conditions; ethical behaviour. The paper also aims to evaluate three important articles
on CSR, and investigate conceptual value added, with reference to these five themes.
Robins Fred (2008) explored the general question: Is corporate social responsibility (CSR) a
business duty, as many contend, or really just a benign delusion?
Bibri Mohamed (2008) explored the current practices in corporate sustainability /CSR
communications was performed through a pertinent empirical and theoretical literature review as
well as a quantitative and qualitative empirical method using a survey questionnaire. The author
attempted, in the same way, to illustrate how corporate sustainability/CSR communications can
strengthen corporate reputation and directly enhance financial performance.
Galbreath Jeremy (2009) explored how corporate social responsibility (CSR) can be effectively
built into firm strategy.
Gabriel Juan (2009) From the decision-makers viewpoint, the success of a social responsibility
program rests heavily on a corporation's ability to create links in the public consciousness
between the CSR activities of an organization and its performance to different stakeholders.
However, thinking broadly about CSR outcomes often results in a list that is much too long to be
of any practical use. The purpose of this paper is to provide an empirical study to provide
understanding as to why business organizations are increasingly engaging in corporate social
Jones Brian (2009) explored and explained corporate social responsibility (CSR) as a theoretical
construct that has implications and consequences for corporate governance in particular, and
more generally for the economy, business and society.
David Fatima (2009) discussed the interrelationship between corporate income tax (CIT) and
corporate social responsibility (CSR) within the international framework of the European Union.
CSR IN INDIA
Since its inception CSR in India continues to be characterized mainly by philanthropic and
community development activities. The development of CSR in India has been divided into four
phases. This phase highlights that how CSR practice in India has been different from period to
The first phase of CSR is primarily determined by culture, religion, family tradition, and
industrialization. Co-relation between Business operations and CSR agenda was based mainly on
corporate self-regulation. In the pre-industrial period up to the 1850s, merchants devoted
themselves to society welfare for religious reasons, for example, giving out their wealth by
building temples and providing relief in times of crisis. The first phase of CSR showed a lack of
long term planning and charity practiced outside the company affairs.
The second phase of CSR development included social development in wake of the freedom
struggle. Profits and other monetary consideration did not form part of this phase and companies
and business organisations supported Gandhi and other leaders in their reform programmes.
The third phase of CSR witnessed rise of public sector undertakings after Independence. It shows
a marked shift from self-regulation to strict legal and public regulation. The activities of the
private sector were completely regulated in view of the requirements of the country’s unfortunate
population and to prevent any further exploitation.
This phase highlights the marked shift in the approach of the companies as they started
integrating CSR as a part and parcel of their business strategy. It was no more considered an
external requirement or obligation. The process of liberalisation of the Indian Economy linked
the Indian market and the global market, thereby abolishing licensing and control systems.
Increased profits also increased the ability and willingness of business organisations to give.
CSR in India Today
India being a socialist democratic republic, many programs was commenced for the alleviation
of poverty, employment generation, nutrition, health care and education. Despite all these efforts
and initiatives the gap between the rich and the poor continues to grow wider. That is why the
concept of CSR has gained much significance in India. CSR initiatives of corporate can support
the government by undertaking various programs for the benefit of society and the environment.
CSR in India has traditionally been seen as a philanthropic activity. However, it is clearly evident
that with global influences and with communities becoming more active and demanding, there
appears to be a trend, that while CSR remains largely restricted to community development, it is
getting more strategic in nature (that is, getting linked with business) than philanthropic, and a
large number of companies are reporting the activities they are undertaking in this space in their
official websites, annual reports, sustainability reports and even publishing CSR reports.
A deeper aspect of the importance of CSR in India comes to light when one considers CSR as a
concept that covers a range of issues under the fabric of sustainable development. Protection of
the environment and a country's natural resources are a key element of this concept. Additionally,
there is this equally important need to ensure that society does not suffer from disparities of
income and provision of basic services like health care, education and literacy.
COMPANIES BILL 2013: CORPORATE SOCIAL RESPONSIBILITY
In India, the concept of CSR is governed by clause 135 of the Companies Act, 2013, which was
passed by both Houses of the Parliament, and had received the assent of the President of India on
29 August 2013. The Act has introduced the idea of CSR to the forefront and through its
disclose-or-explain mandate, is promoting greater transparency and disclosure. The CSR
provisions within the Act is applicable to companies with an annual turnover of 1,000 crore INR
and more, or a net worth of 500 crore INR and more, or a net profit of five crore INR and more.
The new rules also require companies to set-up a CSR committee consisting of their board
members, including at least one independent director. The draft rules provide a number of
clarifications, some the highlights are as follows:
1. The New Companies Bill makes it mandatory for companies to allocate at least 2% of
their average net profits for the preceding three financial years, for implementing a
corporate social responsibility (CSR) strategy.
2. The bill is applicable to companies with a net worth of Rs. 500 crore or more, a turnover
of Rs 1,000 crore or more and a net profit of Rs 5 crore or more during any financial year.
3. Thus the bill makes it compulsory to not just earmark the funds but also form a CSR
committee (of board members consisting 3 or more directors out of which atleast one is
an independent director), formulate a CSR policy , allocate the amount to different
activities and monitor the implementation from time to time. Further, the CSR policy is to
be disclosed on the company website.
4. With regard to implementation, only project based investments, and not mere donations,
will be accepted as CSR which involve innovative social inventions/initiatives that factor
in hazards, risks and vulnerabilities. Baselines surveys, social impact assessment and
meticulous evaluation including documentation are mandatory along with training and reorientation of the staff.
5. The CSR amount unused/unlapsed in a particular year will be carried forward to the
following year. CSR budget itself hence is non lapsable.
6. With regard to failure to spend the requisite amount, the bill states that the company shall
have to provide sufficient reasons for not spending the allocated CSR budget. While no
specific penalties are contemplated in the Bill
with respect to CSR, sections 450 and 451,
provide for general penalties for flouting the
rules and repeat offences.
7. An estimated 2,500 companies fall into this
“mandatory” CSR-reporting category.
8. CSR activities in the first year would be
between Rs. 9,000 crore and Rs. 10,000 crore
spent in social welfare.
Figure 1: List of activities under
The Act lists out a set of activities eligible under
CSR. Companies may implement these activities
taking into account the local conditions after seeking
board approval. The indicative activities which can
be undertaken by a company under CSR have been
specified under Schedule VII of the Act.
IMPLICATIONS FOR THE COMPANIES
The new bill has two vital provisions with respect to CSR. The first is that the board is remitted
to confirm that the corporate will spend on the CSR. Second, being that they have to provide a
proof concerning the spending. Though there is no necessary obligation on the corporate, but a
responsibility is cast upon the board members. The Act has empowered the regulator to question
the roles and duties of the administrators creating it not simply a provision on paper however an
obligation on the board. This can be a best concept, enhancing welfare of all the involved
ISSUES & CHALLENGES AHEAD
1. The first and most vital challenge is that of political pressure by local politicians
particularly for PSU’s to pay in their constituencies. The obligatory disbursal and the
essential baseline together with social impact assessment will lose its meaning if the
initiatives can’t be directed in areas which require them the foremost with regard to
mitigation of operational risks.
2. Another concern is that a compulsory disbursal is nothing but tax. Hence, obligatory CSR
will increase the country’s already high corporate tax, implicitly. It stands at 32.5% which
itself is higher than the world average of 24.09 %. Increase within the corporate tax could
hamper the India's ranking as an investment destination, leaving at a competitive
disadvantage within the world marketplace.
3. An additional issue is that the monetization of the Returns on Investment (ROI) for the
company’s initiatives. This can be because CSR based initiatives could have an enormous
gestation period so calculative returns on investments like scholarships for deprived
sections or profit to the surroundings by adoption of cleaner fuels etc. extended drawnout propositions.
4. Companies could also be forced to do some shuffling among the organization that could
lead to diversion of its workforce far from the core activities. Because of lack of
expertise, this may further pave way for CSR consulting in huge proportions. Hence, the
method of empanelment of skilled agencies into the CSR framework of a company
should be alleviated.
5. Finally, the companies bill is a great revolution, efforts should be made to clear the haze
round the reasonably activities that may be haunted by corporations under CSR to
prevent the initiative from getting encumbered by emergence of corruption with
Companies can set a network of activities to be taken up in a consortium to tackle major
environmental issues. It would also provide an opportunity to learn from each other.
Companies should provide wider professional development activities.
Training, conferences and seminars could be organised time to time by companies to
disseminate and generate new knowledge and information in this sector.
A strong budgetary support would definitely help to grow this sector and research related to
respective industry would enhance their organisation’s contribution further.
Government regulations which are supporting in this direction could attract more response
from organisations. All this would also lead to benchmark CSR activities.
Companies need to involve their stakeholders in order to build meaningful and long term
partnerships which would lead to creating a strong image and brand identity.
It is also suggested to review existing policies in order to develop more meaningful visions
for the companies and broaden their contributions to reach to local communities.
CSR should be made mandatory for all companies operating in India which reports annual
profit to the Registrar of Company.
Percentage of profit amount to be spent on CSR programme should be determined on the
basis of the turn-over of the respective profitable company.
Companies associated with manufacturing products like cigarette and alcohol should BE
encouraged to spend more of their profit amount on CSR programme than other companies.
More and more companies should be encouraged to adopt backward and under-developed
villages and undertake development work, like, establishing health-centers and hospitals,
schools and colleges, night schools for elderly people etc.
The Central Govt. should also encourage companies to try to develop village infrastructure
by developing roads and establishing pure drinking water facilities.
In return, the Central Govt. should think of providing companies tax-relief or duty-relief to
some extent as an impetus.
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