Csr Ajith.docx

Legacy of CSR in India. Abstract: The following paper is about the legacy of CSR in India. In an attempt in explaining the same, the paper will first discuss the history of CSR in India which can be divided into the following: 

Ancient Era

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Medieval Era

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Pre-Independence Era

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Post-Independence Era

This is done to set a historical backdrop/context so as to understand in a better way how CSR in India evolved through the times. And this evolution could be categorised into the following phases: 

Phase 1: Pure philanthropy and charity during industrialisation

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Phase 2: CSR as social development during the independence struggle

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Phase 3: CSR under the ‘mixed economy’

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Phase 4: CSR in a globalised world

After investigating into each of these phases, we will look at the state of CSR in the recent past and also the features of S.135 of the Companies Act, 2013 about mandatory CSR, its critiques and finally give suggestions for a better, more effective and efficient CSR mechanism in the country.

Methods of Research: Secondary sources (i.e.) Research papers written by other individuals/foundations, links to which are available in the footnotes.

Legacy of CSR in India. Introduction: CSR is something which is not easy to define as it includes various concepts which overlap with it, but broadly, the fundamentals of the concept of CSR is that not only the government but also the corporate bodies should make it their responsibility to address social issues. Though profit maximization is the primary aim of any business, there has been a shift in the past two decades from maximizing shareholders’ interest to maximizing stakeholders’ interest. In the same period there has been a growing realization that businesses can not run profitably in the long run if they do not take care of the society from which it procures various means of running its business and day to day activities. To dig deeper into this, we can look at it from the following basic perspectives, namely: 

Business perspective: According to this perspective, it could be said that CSR is a new business strategy which takes into account the interests of all stakeholders and in turn leads to reduced risk in investment and profit maximization.

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Environmental and Social perspective: This perspective says that businesses need to ensure stability and sustainability of social and environmental factors around it as only by doing so, any business could ensure a sustainable market for it in the long run.

And in a country like India where the richest 1% hold almost 60% of the nations’ wealth and lead to almost 75% of nations’ income generation, CSR must be incorporated by each and every business in order to work towards reducing this huge gap of income inequality.

Legacy of CSR in India. History of CSR in India: Many might think that like most of the things, even CSR came to India pretty late and only after the developed nations; but to everyone’s surprise that is not the case as the concept of CSR though not in its entirety but in its gist was present in India since the Vedic period. To have a clearer picture, let us look into the history of CSR in India. The history of CSR in India could be divided into the following 

Ancient Era



Medieval Era



Pre-Independence Era

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Post-Independence Era

Ancient Era: Ancient Era can be sub-divided into Vedic Era and Post-Vedic Era. Vedic Era (Pre-500 BCE): The basic fundamentals of CSR can be tracked back to the Indian civilization which was one of the oldest civilizations of the world. The people in this civilization followed the principles of “Vasudhav Kutumbukam” or in other words “The whole world is like a family” which means that every person has a right to lead a happy life and it is everyone’s responsibility to share whatever resources are available with each other (No inequality, Social CSR). According to Sanatan Dharma it was believed that all the trees and animals were god’s creations and it was the responsibility of people to take care of the flora and fauna (Environmental CSR). Adding to these the general business practises of the traders were heavily influenced by leaders or philosophers of that time namely, Kautilya’s Arthashastra and so on.

Legacy of CSR in India. Post-Vedic Era (500 BCE to 500 CE): This era marks the birth of one of the greatest saints whose perchings are still followed by many people, the world over; it is none other than Gautam Buddha. With respect to CSR, Buddha taught that one should not have more than required and should distribute whatever is excess. Coming to Kings and Kingdoms, the Mauryan Empire started with the reign of Chandragupta Maurya who insisted on protecting flora and fauna (Environmental CSR). And next to the Kin, Ashoka who adopted Buddhism discouraged discrimination based on caste (Social CSR), though it was in par with traditional Hindu scriptures.

Medieval Era (500 CE to 1500 CE): One of the notable kings of the Vardhan Dynasty was Harsha Vardhana, he donated huge sums to the Nalanda University. Adding to this Hiuen Tsang mentioned that “Benevolent institutions on the Ashokan Models, for the benefit of travellers, poor, the sick, were established throughout the empire (of Harshavardhana). Rest Houses (Dharmashalas) were built in both towns and rural parts, and provided with food and drink, physicians being stationed at them to supply medicine to the necessitous without stint.” “Buddhist monasteries or viharas, charity houses and theroyal lodges were constructed by the king where everyday foodstuffs were provided for 1000 Buddhist Monks and Brahmins.”1 Another notable dynasty during this period was the Pala dynasty who ruled the present north east India, Bangladesh and Nepal. They were known for their trading skills, charity and philanthropy. The Arabs referred to them as the most considerate rulers in India. It is said that Nalanda University, one of the greatest universities in the history of world was at its height during their period.

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CSR in India, Available at: http://shodhganga.inflibnet.ac.in/bitstream/10603/46116/12/12_chapter%204%20csr%20in%20india.pdf

Legacy of CSR in India. The end of this era saw the rise of Alauddin Khalji who made sure that the prices of the basic necessities were fixed and are available throughout the year and other commodities priced reasonably with rest to their production cost.

Pre-Independence Era (1500 CE to 1947 CE): In this period, there have been all kinds of rulers, and then these two notable rulers who made exceptional contributions towards CSR, namely Sher Shah Suri and Akbar. “Sher Shah built roads for travellers along with resting places, dug wells, constructed hospitals, provided free kitchens for needy persons and credited for organising mail service and police. His management was so effective that Akbar the great followed his management style and further improved on it.”2 Adding to this, Akbar was also acclaimed by many to be the people’s ruler and as a “powerful monarch with a heart of a human.” The rule of the European’s started in the 18th century and this changed the economics of the nation. Indian businessmen could not compete with the foreign traders and were either running in losses or shut their business completely. While the others who could transition and capitalize on new opportunities flourished. The businessmen who made profits used those profits to help the needy. Mahatma Gandhi played an important role in inspiring these businessmen in contributing towards the society. He proposed the idea of trusteeship which will be discussed in greater detail in the following parts of the paper. Though most of the Indian business families have always contributed to public welfare. The two important business enterprises which played an important role in public welfare are TATA and Birla. The TATA group has always set aside certain amount of their profits for welfare purposes, they also made provisions for unskilled workers (daily labour in 1917) and

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Legacy of CSR in India. also maternity benefits (in 1928) even before the laws to govern those were implemented (in 1948 and 1946 respectively) and also set up the TATA Institute of Fundamental Research. Birlas too engaged extensively in philanthropy. Adding to this, they also set up Birla Institute of Technological Sciences in their hometown (Pilani) which now has various campuses across the nation and is a pioneer in engineering education of the country. Apart from this, they set up various trusts, established hospitals with state-of-the-art technology which majorly served poor people who did not have the money to get treated.

Post-Independence Era (After 1947): The Indian Business families continued their welfare activities even after post-independence, but other businesses were not so into the idea of charity, philanthropy or CSR because of the fact that Indian tax laws and stringent laws which made most of the business to practise unfair means of trade. The things we discussed so far falls more in the domain of philanthropy and charity and not entirely CSR. That was because CSR in current understanding only started spreading in the early 1970’s and was practised as a full-fledged strategy in early 1990’s. Since we are done looking at the history of CSR in India, and have set up a backdrop, now using the already set backdrop it will be easier for us to understand how CSR as a concept evolved through the ages in India.

Legacy of CSR in India. Evolution of CSR in India: The evolution of CSR in India can be categorized into the following phases3: 

Phase 1: Pure philanthropy and charity during industrialisation (1850-1914)

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Phase 2: CSR as social development during the independence struggle (1914-1947)

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Phase 3: CSR under the ‘mixed economy’ (1947-1970)

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Phase 4: CSR in a globalised world (1970-2000)

Phase 1: Pure philanthropy and charity before and during industrialization (1850-1914): Initially the major drivers of CSR among the traders and businessmen of India were the ideas of charity and philanthropy. Before industrialization reached India, i.e. before 1850, the traders and businessmen contributed to society by setting up temples, mosques and also helped the people in need when epidemics like draughts, floods etc stroke by providing them with basic necessities like food and money. By doing so they also retained a social standing in the society. When the British entered India and brought with them foreign goods and new techniques that came with the industrial revolution, the businessmen of India struggled but there were a few business families like Tata, Godrej, Bajaj, Modi, Birla, Singhania who transitioned along with the revolution and flourished. Though most of them were strongly inclined towards social welfare, many say that their social welfare decisions were highly influenced by caste and politics. Most of the CSR activities at this time period were pure charity and philanthropy which would constitute as outside the firm activities as the owner of a business organisation is

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CSR in the World and India, Available at: http://shodhganga.inflibnet.ac.in/bitstream/10603/15950/12/12_chapter%203.pdf

Legacy of CSR in India. choosing to give some money out for social welfare. Such activities are usually one time and do not create any long-term engagements. Phase 2: CSR as social development during the independence struggle (1914-1947): Under most of this phase, CSR was heavily dominated by India’s freedom struggle and Gandhi’s idea of trusteeship. The businesses continued to contribute towards social welfare and aimed at fostering social development. They saw their economic prosperity as not only a protest against the colonial rule but also as contributing to the overall social development of the nation. With the vision of a “Modern and Free India” the businesses continued doing so and also started setting up trusts and educational institutions as advised by Gandhi. Most of these trusts were also set up to work towards achieving social reforms which were in line with Gandhi’s ideas like abolishing untouchability and women empowerment. As Gandhi once said “India is not Calcutta and Bombay. India lives in her several hundreds of villages.", many of these trusts were also dedicated towards rural development. This was comparatively a lot better than pure charity and philanthropy as under those the person donating will donate certain amount to a school or college, there is nothing long term in it, but by setting up trusts and educational institutions the businesses which have the required resources can do good and continue to do good in the long run. This could be referred to as a first step towards organised CSR in India. Phase 3: CSR under the ‘mixed economy’ (1947-1970): After the Independence, India adopted a mixed economic framework with the Public Sector Undertakings (PSUs) at the centre of it. The government implement stringent laws with respect to industry licensing, labour, environment, high taxes and so on; and hence this period was called as an “Era of Control & Command”. This led to various corporate malpractices by the businesses. The PSUs were setup in order to make sure equitable distribution of resources but

Legacy of CSR in India. through the passage of time, they failed, and the emphasis shifted to the private sector to revive the socio-economic condition of the nation. In 1965 many influential academicians, politicians and businessmen setup aimed at promoting CSR and its practises, but it failed to catch steam. This might be because the business regulations were just (around 1965) made a little flexible and businesses which found difficult all these years to profitably run business were finally given a bit of relaxation and immediately proposing the idea did not work out as planned by the said personalities. Phase 4: CSR in a globalised world (1970-2000): Though the businesses were initially reluctant towards incorporating CSR into their business strategies, as the time passed (i.e.) early 1980s the businesses moved from pure philanthropy and charity to setting up trusts and to finally incorporating CSR as one of their business strategies. Just when CSR was picking up among the Indian corporates, the government decided to open Indian markets for foreign trade and investment (1991 Liberalisation), experts thought this might lead to reduced CSR activities by the Indian companies but to the contrary as the opportunities increased for them through liberalised laws, they also invested increasing amounts in CSR year after year. After liberalisation, India became a hub for foreign companies for outsourcing various activities due to availability of cheap labour and also lenient labour and environment laws. Though this might look like all sunshine and roses, it is not always the case, some of the MNC’s are trying to take huge advantage of the developing countries by manufacturing and selling them goods which they wouldn’t otherwise sell in developed countries like the US or UK. A real-life example was when “Coca-Cola recalled 500,000 bottles Dasani (bottled water) from UK market due to excess of Bromate by a very small quantity than the prescribed legally. On the other hand, when in 2003 Coca-Cola and Pepsi exceeded the EU pesticide standards in the

Legacy of CSR in India. carbonated drinks, the company did not take any action. Only reason was that at that time Indian standards were not having any pesticide limit for the carbonated drinks. The moral of the story is that MNCs do not care for the society and they take most profitable route to do the business by following the minimum standards of the country of operation.”4 It is also CSR for MNCs to not take advantage of their weak regulatory authorities and exploit the developing nations by selling them products of mediocre quality or setting up factories with no or low safety measures. This is something which is still happening in developing and third world nations and it is important for MNCs to wake up and stop doing this.

CSR in the recent past (2000-2013): As aforementioned, CSR is not new to India, maybe in a different form but it has always been there and with globalisation it only led to more companies coming forward and incorporating CSR in their business plans and not just as some other expense or a promotional strategy. Companies have separate teams to formulate strategies, allocate budgets and measure results of their CSR activities so that they could better them. There are innumerable examples of good CSR by Indian companies. Since we have already discussed abut what the TATAs and Birlas have done let us look into some other giants that have contributed substantially towards CSR, like “Bharat Petroleum Corporation Limited, Maruti Suzuki India Limited, and Hindustan Unilever Limited. Provision of improved medical and sanitation facilities, building schools and houses, and empowering the villagers and in process making them more self-reliant by providing vocational training and a knowledge of business operations are the facilities that

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Legacy of CSR in India. these corporations focus on. Many of the companies are helping other peoples by providing them good standard of living.”5

Post Companies Act, 2013: Former head of Indian Institute of Corporate Affairs (IICA), Dr Bhaskar Chatterjee when the companies Act was passed by the parliament and came into force in 2014 outlined the following important features about the section (S.135) that was put in to govern the CSR activities of the companies6. 

"All companies with turnover of Rs.1,000 crore and more - or a net worth of Rs 500 crore and more or net profit of Rs.5 crore and more - will have to spend at least two percent of their three-year average profit every year on CSR activity,"

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“From April 1, all 16,245 registered companies must nominate three members for their CSR committee from their board. Companies cannot do whatever they want and claim it as a CSR activity according to the new law,"

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"Under the new rules coming into effect, anything done the employees is not CSR, it is a human resource activity. Compliance with any rule or regulation is not CSR. Companies should take up this role and voluntarily do it beyond the rule.”

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"Any activity done must have been the part of the CSR policy of the company which must also be made available on the company's website. CSR must be conducted by professional implementation using implementing agencies,"

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Evolution of CSR in India, Jana Foundation, Available at: http://www.janafoundation.org/wpcontent/uploads/2015/10/evolution_of_csr_in_india.pdf 6 Evolution of Corporate Social Responsibility in India, Sawati Nagwan, July 2014, Available at: https://www.ijltemas.in/DigitalLibrary/Vol.3Issue7/164-167.pdf

Legacy of CSR in India. 

"The project should have a starting time and an ending time. Any activity that has not been given board approval, passed by the board and does not have a board resolution number is not CSR."

Apart from these other significant features include: 

If any company that qualifies for doing CSR (Net worth of INR 500 crores or more Turnover of INR 1,000 crores or more Net profit of INR 5 crores or more) and fails to use 2% of its average profits for the last three years towards CSR activities, the reason/s for their acts should be included in their annual board report.

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Any income arising out of CSR will not be included in the business profits and should be put towards further CSR activities.

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Any collaborations with NGOs and other corporates towards CSR activities will be counted as that years’ spending towards CSR.

Critiques & Suggestions: Critiques: 

There are no penal provisions for default in spending the specified amount towards CSR activities and also there has been a lot of confusion whether to create a provision in the company’s financial statements for the specified 2% if the company fails to spend the prescribed amount towards CSR.

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The section requires the corporates to focus on the local areas where it is situated this might lead to a lot of developmental disparities between cities and states as some have a lot of industries and companies while others might not.

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CSR is required even more during recessionary times but during that time since most of the companies make low or no profits, they won’t be compelled to contribute to CSR.

Legacy of CSR in India. As very few companies fall in the bracket of the other two parameters (Net worth of 500 Crores and Turnover of 1000 Crores), CSR won’t be available to people when they need it the most. 

It is almost impossible for Indian companies to take part in strategic CSR as any expense that can be traced back to a company’s profit or benefit won’t be considered as a CSR activity.

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The CSR activities suggested by the government under the Companies Act do not concern anything long-term and if the companies choose to do those then it would not make any long-term impact and would ignore more important problems like income inequality, regional inequality, social stigmas and so on.

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Though it looked like large number of corporates practised CSR, after this section came into force, many studies were made to know how much these corporates were putting towards CSR and whether they were meeting the 2% criteria but to everyone’s surprise these studies yielded that though most of the corporates were putting forward a certain amount towards CSR activities, these corporates were only using half or less than half of the prescribed 2%.

Suggestions: 

From the above critiques it is clear that one of the major concerns here is the companies not complying with S.135 of the Companies Act. The main reason behind this is because of the reason that there are no penal provisions for companies for their default but a mere report explaining why they did not meet the 2% criteria which could be manipulated by huge corporates very easily.

Legacy of CSR in India. 

As the current CSR activities suggested by the Companies Act are not up to the mark, the government can introduce schemes which will have a long-term impact on society in which the corporates could spend their 2% in.

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Certain relaxations could be given to companies practising strategic CSR and also certain CSR expenses could be made tax deductible so as to get the most out of the money put towards social welfare.

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Efforts should be made towards facilitating government, corporate and NGO partnerships so as to make the best use of each other’s skill, expertise, man power, finance and others, so as to obtain more effective and efficient outcomes.

Conclusion: From this paper, it can be concluded that the essence of CSR has always been present in India in some or the other form. It has evolved from pure charity and philanthropy to setting up schools, colleges, and trusts to integrating CSR into the corporations’ plans. Companies which have been doing this for a long time are continuing to do so while some others are only spending a fraction of what they are supposed to spend. India is one of the very few nations which mandates CSR for companies meeting certain parameters as mentioned above but without any control mechanisms like penal consequences or fine for failure of not spending enough towards CSR such laws do not really make any difference. Therefore, the government should look into this and take appropriate measures to make sure all the companies falling in the bracket of the parameters will do their part towards CSR. In the words of Former CEO and Chairman of Unilever, Niall Fitzgerald “We believe that the leading global companies of 2020 will be those that provide goods and services and reach new customers in ways that address the world’s major challenges - including poverty, climate change, resource depletion, globalization, and demographic shifts.” And through

Legacy of CSR in India. multiple empirical researches it has been concluded that any business can only run profitable in the long-term by making timely contributions towards the society and by ensuring a sustainable market. As a great person once said, “Change comes from within”, businesses need to realise that CSR is not some publicity stunt or philanthropy, but it is much more wider than those and that too they need to realise this before it’s too late and start acting towards building a better world and a better tomorrow for the future generations.

By Ajith Reddy D 2016-1560