CSR Fund India: Corporate Social Responsibility Under the Companies Act, 2013

Introduction

Corporate Social Responsibility (CSR) in India has evolved from voluntary philanthropy to a mandatory legal obligation, transforming how businesses contribute to societal welfare. Enacted under Section 135 of the Companies Act, 2013, CSR mandates that eligible companies allocate a portion of their profits to social causes, fostering sustainable development and ethical business practices. This framework not only addresses India’s socio-economic challenges but also aligns corporate growth with national priorities like education, health, and rural development. Naaz Commercial Institute, operating in rural Bihar, benefits immensely from CSR partnerships, leveraging corporate funds to enhance education and child protection programs. This article explores the intricacies of CSR in India, its requirements, implementation, impacts, and the pivotal role of NGOs in amplifying these efforts.

Historical Evolution of CSR in India

CSR in India traces back to ancient traditions of “dana” (charity) and “dharma” (duty), but modern CSR emerged post-independence with industrial growth. The 1970s saw voluntary initiatives by companies like Tata and Birla. Globalization in the 1990s introduced international standards, leading to the Companies Act, 2013, which made CSR mandatory. This shift was influenced by the UN Global Compact and global scandals, emphasizing accountability. Pre-2013, CSR was discretionary; post-2013, it’s a statutory duty, reflecting India’s commitment to inclusive growth.

Legal Requirements Under Section 135

Section 135 of the Companies Act, 2013, applies to companies meeting specific thresholds:

• Net Worth: ₹500 crore or more.
• Turnover: ₹1,000 crore or more.
• Net Profit: ₹5 crore or more in the preceding financial year.

These companies must spend at least 2% of their average net profits over the last three years on CSR activities. “Net profit” is defined under Section 198, excluding dividends and taxes. Non-compliance results in penalties, with unspent funds disclosed in the Board’s report. The Ministry of Corporate Affairs (MCA) oversees implementation, issuing guidelines and amendments.

CSR Committee

Companies must constitute a CSR Committee with at least three directors, one independent. The committee formulates policies, monitors spending, and ensures alignment with Schedule VII activities.

Reporting and Disclosure

Annual reports must include CSR policy details, expenditure, and impact assessments. Form CSR-2 is filed with the MCA, promoting transparency.

Eligible CSR Activities (Schedule VII)

CSR funds must benefit economically and socially disadvantaged sections, focusing on:

• Eradicating Hunger, Poverty, and Malnutrition: Food security programs.
• Promoting Education: Scholarships, infrastructure, skill development.
• Promoting Gender Equality: Women’s empowerment initiatives.
• Ensuring Environmental Sustainability: Renewable energy, conservation.
• Healthcare: Medical camps, hospitals in rural areas.
• Rural Development: Infrastructure, livelihood projects.
• Protection of National Heritage: Cultural preservation.
• Other Permissible Activities: Disaster relief, sports, technology incubation.

Activities must be implemented in India, with preference for local areas. Naaz Commercial Institute’s education programs in Bihar qualify, receiving CSR funds for school construction and teacher training.

Implementation of CSR Funds

Effective implementation requires strategic planning:

Policy Formulation

Companies develop CSR policies outlining focus areas, implementation strategies, and monitoring mechanisms.

Partnership with NGOs

NGOs like Naaz Commercial Institute execute projects, ensuring grassroots impact. Partnerships provide expertise, reducing administrative burdens on companies.

Monitoring and Evaluation

Regular audits and impact assessments ensure funds are used effectively. Tools like social audits and beneficiary feedback are employed.

Challenges in Implementation

• Identifying genuine NGOs.
• Measuring intangible impacts.
• Balancing business interests with social goals.
• Administrative hurdles in rural areas.

Impact of CSR on Society and Business

CSR has profound effects:

Societal Benefits

• Education: Funds build schools, reducing dropout rates. In Bihar, CSR-supported programs by Naaz Commercial Institute have educated thousands.
• Health: Improved access to healthcare in underserved areas.
• Environment: Initiatives combat climate change, promoting sustainability.
• Economic Growth: Skill development creates jobs, breaking poverty cycles.

Business Advantages

• Reputation: Enhances brand image and stakeholder trust.
• Employee Engagement: Boosts morale and attracts talent.
• Regulatory Compliance: Avoids penalties and fosters goodwill.
• Innovation: Encourages sustainable practices.

Studies show CSR spending reached ₹25,000 crore in 2022, benefiting millions. However, critics argue it’s “greenwashing” if not genuine.

Case Studies of Successful CSR Initiatives

Tata Group’s Rural Development

Tata Steel’s CSR in Jharkhand improved livelihoods through agriculture and education, impacting 500,000 people.

Reliance Industries’ Education Focus

Reliance partnered with NGOs for digital literacy, reaching rural students.

Naaz Commercial Institute Partnership

A corporate partner funded vocational training, empowering 200 youth in Bihar, reducing migration and child labor.

These examples demonstrate CSR’s potential when aligned with local needs.

Challenges and Criticisms

Despite successes, challenges persist:

• Underutilization: Many companies under-spend; in 2021, ₹7,000 crore remained unspent.
• Lack of Expertise: Companies struggle with project execution.
• Focus on High-Profile Projects: Neglects grassroots issues.
• Measurement Issues: Quantifying social impact is difficult.
• Pandemic Disruptions: COVID-19 diverted funds to relief.

Critics like Praful Bidwai argue CSR perpetuates inequality, suggesting taxes instead.

Future of CSR in India

The future looks promising with amendments for greater flexibility. Emerging trends include ESG integration, technology-driven solutions, and focus on SDGs. The government encourages CSR in aspirational districts, aligning with Vision 2030. Naaz Commercial Institute anticipates more partnerships, scaling education initiatives.

Role of NGOs in CSR

NGOs bridge corporate intent and community needs. Naaz Commercial Institute exemplifies this, providing on-ground expertise, ensuring transparency, and delivering measurable outcomes. Partnerships amplify impact, with NGOs offering credibility and local insights.

Impact of CSR in India

CSR has transformed corporate giving, with significant contributions to social sectors:

• Education: CSR funds have supported over 10,000 schools and skill development programs MCA Annual Report.

• Healthcare: Improved access to medical services in rural areas, with millions benefiting.

• Environmental Sustainability: Projects in renewable energy and conservation.

• Rural Development: Infrastructure and livelihood initiatives.

For Naaz Commercial Institute, CSR partnerships have funded vocational training for 2,000 youth and child protection programs in 10 villages, demonstrating direct impact on Bihar’s development.

Challenges in CSR Implementation

Despite successes, challenges persist:

• Compliance Burden: Companies struggle to spend the mandatory 2%, leading to penalties.

• Impact Measurement: Difficulty in quantifying social outcomes.

• Sustainability: Ensuring long-term benefits rather than one-off projects.

• Awareness: Lack of knowledge among stakeholders.

• Regulatory Changes: Frequent amendments complicate planning.

Future of CSR in India

The future looks promising with potential reforms:

• Increased Spend: Proposals to raise the threshold or percentage.

• SDG Alignment: Focus on UN Sustainable Development Goals.

• Technology Integration: Digital platforms for better tracking.

• Public-Private Partnerships: Enhanced collaboration.

Amendments in 2021 allowed CSR for COVID-19, setting a precedent for flexible responses.

International Comparison

India’s mandatory CSR is unique globally:

• United States: Voluntary, with tax incentives IRS Guidelines.

• European Union: Directive on non-financial reporting, but not mandatory spend.

• China: Encouraged but not enforced.

India’s model can inspire other developing nations World Bank Report.

Conclusion

CSR under the Companies Act, 2013, is a cornerstone of India’s social development strategy. By partnering with NGOs like Naaz Commercial Institute, companies can maximize their impact, fostering inclusive growth.

Call to Action

CSR is a powerful tool for change. Companies should prioritize impactful projects, while individuals support ethical businesses. Donate to NGOs like Naaz Commercial Institute to amplify CSR efforts. Together, we can build a responsible corporate ecosystem that uplifts India’s marginalized communities.

References

• Companies Act, 2013: Section 135 MCA India

• Ministry of Corporate Affairs (MCA) Guidelines MCA.gov.in

• Naaz Commercial Institute Reports

• CSR Reports by KPMG and EY KPMG India