Governance

CSR: Is India Inc spending responsibly?

Companies can bring meaningful changes in society through the huge Rs 13,624 crore corporate social responsibility funds

 
By Ishan Kukreti
Last Updated: Friday 21 February 2020
Spending responsibly?
A skill development centre run by RP Sanjiv Goenka Group in Kolkata (Photograph courtesy: RP-Sanjiv Goenka Group) A skill development centre run by RP Sanjiv Goenka Group in Kolkata (Photograph courtesy: RP-Sanjiv Goenka Group)

It was around 2009. Seraikela in Jharkhand’s Seraikela-Kharswan district was in deep distress as 96 per cent of the deaths in the block occurred at neonatal stage. Eighty three per cent of these deaths were because of weakness due to low birth weight, pneumonia and other infections, and asphyxia due to prolonged delivery and other birth complications.

To tackle this, Tata Steel Ltd launched Maternal and Newborn Survival Initiative as part of its Corporate Social Responsibility (CSR). The programme brought under its fold women from 167 villages who belonged to low-income families and those who did not have access to quality maternal facilities.

As many as 200 workers were trained to generate awareness and to increase demand for healthcare services. These workers went house-to-house collecting real-time information on the health of mothers and children on tablets provided to them. Corrective action was taken without delay. The programme helped reduce neonatal mortality up to 32.7 per cent and infant mortality up to 26.5 per cent within three years. 

Such philanthropic initiatives have a long history in India. But the idea was brought into a legal framework in 2014 when CSR was introduced as a statutory obligation under Section 135 of the Companies Act, 2013. Under this, every company with an annual net worth of over Rs 500 crore, turnover of over Rs 1,000 crore, or net profit of over Rs 5 crore, must spend at least 2 per cent of its net profit on CSR.

Latest data with the Union Ministry of Corporate Affairs (MCA) shows expenditure on CSR activities has increased from Rs 10,066 crore in 2014-15 to Rs 13,624 crore in 2017-18. During this time, the number of public sector undertakings (PSU) and private sector firms also increased from 16,548 to 21,397. 

These companies divert a major chunk of the CSR funds towards human development. A 2019 study by the Indian Institute of Corporate Affairs (IICA), a government think tank that provides holistic advice on issues related to corporate affairs, shows 55 per cent of the CSR funds in the country are spent on human development and social welfare.

As many as 104 companies are involved in activities related to human development. These include 30 PSUs and 74 private firms. However, the focus on economic development and environment sustainable development is relatively poor, the report states. The reason for this, say experts, is the nature of these sectors. 

“Traditionally, sectors such as health and education have a clear blueprint and are easy to undertake. Moreover, these activities are easily quantifiable which gives companies ready numbers. But companies have not focused much on environmental activities,” says Pradip Narayanan, member, CSR Laws, Praxis, a Delhi-based non-profit.

Source: Status of Corporate Responsibility India, 2019, Praxis

Philanthropy fro a distance

In the initial years of the CSR Act, the MCA observed that companies would execute projects far from their area of operations. According to the Act, companies should choose local areas for CSR activities, but 73 per cent companies were found to be engaged in areas beyond their area of operations, stated the IICA report that analysed data from 2014-15 to 2017-18.

Maximum expenditure was in industrialised areas, while the least-developed states received the least funds. The phrase “local area preference” in the Act may have been interpreted as mandatory and not directory, the report stated. Considering this, MCA issued a directive in 2018 for all companies to follow the law in letter and spirit. 

State-wise analysis of expenditure reveals low concentration of CSR activities in poor states. Jharkhand, Bihar, Chhattisgarh, Madhya Pradesh and Uttar Pradesh received only 9 per cent of the total expenditure from 2014-15 to 2017-18. These states account for more than 55 per cent of the 117 aspirational districts identified by NITI Aayog. However, Maharashtra, Karnataka, Andhra Pradesh, Gujarat, Tamil Nadu and Delhi, which account for only 11 per cent of the aspirational districts, received 40 per cent of the total expenditure.

“Companies usually undertake CSR activities in areas where work can be done without any hardship. This may be the reason that aspirational districts, with their poor infrastructure and development level, are not in the focus of companies,” says Narayanan.

Further, aspirational districts are not aware of corporates’ responsibility towards them, says Gayatri Subramaniam, director, Association of Women in Business, a Delhi-based non-profit. “NITI Aayog has directed only PSUs to spend in these districts,” she says.

CSR activities are similarly scarce in the Northeast. An MCA assessment identifies infrastructural gaps here in basic minimum services such as rail, road, water and air connectivity. However, data shows a tiny portion of the funds was spent in the North East between 2014-15 and 2017-18.

Among the states here, Assam spent the maximum with Rs 653.19 crore. While Manipur spent Rs 24.78 crore and Meghalaya Rs 24.11, Tripura, Nagaland and Mizoram spent as low as Rs 5.88 crore, Rs 3.35 crore and Rs 2.41 crore respectively. On the other hand, Maharashtra spent a huge Rs 8,468.28 crore during the period.

Subramaniam says: “There is not enough corporate presence in these states. This could be a reason for the poor expenditure here. It is also possible that corporates are unwilling to invest here because some areas are inaccessible and lack strong implementation agencies.”

What’s more, five years after the Act was enforced, 70 per cent of the companies still do not have a strategy to implement CSR activities. According to the law, companies should set up board level committees, which draw plans for the effective implementation of their projects.

According to the IICA study, if a firm has a CSR policy and committee in place, but does not have an implementation strategy, supports the conclusion that companies are more focused on complying with the law and spending CSR funds rather than making a serious initiative. Such a behaviour, says the study, could be due to lack of capacity or experience in the development sector.

CSR has a huge potential to improve the lives of a large number of people in the country. It’s Rs 13,624 crore corpus can bring change in a wide variety of sectors. Therefore, it is crucial that companies do not relegate it as a perfunctory exercise, but make a meaningful contribution to society.

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How funds flow

Human development, social welfare get a big bite from the CSR pie, environment is left with a small share
Source: Ministry of Corporate Affairs
  • Education, differently abled, livelihood generation
  • Health, eradicating hunger, poverty and malnutrition, safe drinking water, sanitation
  • Rural development
  • Environment, animal welfare, conservation of resources
  • Nature of projects not mentioned
  • Prime Minister’s National Relief Fund, any other government fund
  • Gender equality, women empowerment, old age homes, reducing inequalities
  • Heritage art and culture
  • Encouraging sports

Source: Ministry of Corporate Affairs

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