Businesses must abide by the law in order to operate profitably, and they must also design their rules so that customers are treated fairly and society is not exploited. Businesses are required to perform some tasks for which they won’t be paid in order to benefit society.
The logic behind making businesses serve society without expecting anything in return is that businesses use social and natural resources to get the most out of their money and to get higher returns on their investments, so businesses should feel more obligated to give something back to society without expecting anything in return.
Corporate Social Responsibility refers to a company’s commitment to do something for society as a whole without expecting anything in return. It is a voluntary activity in which businesses operate for the benefit of society without expecting a profit in return. It is conducted all over the world. The activities are performed for the benefit of society in order to benefit not just society but also the company’s goodwill, therefore the job is not only for welfare motives.
India is the only country that has enacted legislation requiring corporations to engage in certain activities or demonstrate their social duty. This is known as Corporate Social Responsibility. CSR was adopted by the parliament in the 2013 Companies Act revision, despite the fact that the idea is not new.
Evolution of Corporate Social Responsibility in India
CSR in India has a long history that parallels the country’s historical growth. Community engagement, socially responsible production, and socially responsible employee interactions are all examples of CSR phases. As a result, India’s corporate social responsibility history can be divided into four phases:
The wonderful deeds of philanthropists and charity drove the first phase of CSR. Family values, traditions, culture, and religion, as well as industrialization, shaped it. Prior to 1850, affluent businesses gave back to society by establishing temples or other religious institutions. They opened their granaries to the needy and hungry during famines. With the establishment of colonial power in 1850, the attitude about CSR shifted. CSR was also encouraged by the pioneers or propagators of industrialization in the pre-independence era.
Industrialist families such as the Tata’s, Birlas, Modis, Godrejs, Bajajs, and Singhanias supported this philosophy in the early 1900s by establishing philanthropic foundations, educational and healthcare institutions, and community development trusts. It’s also worth noting that their initiatives for social good were motivated by political considerations.
The second phase was the struggle for independence, during which industrialists were pressured to demonstrate their commitment to the betterment of society. Mahatma Gandhi urged wealthy industrialists to distribute their wealth for the benefit of the underprivileged in society. He introduced the idea of trusteeship.
The concept of trusteeship aided India’s socioeconomic development. India’s businesses and industries were referred to by Gandhi as “Temples of Modern India.” He urged business leaders and industrialists to establish trust in colleges, research, and training institutions. In addition, these trusts aimed to improve social changes like as rural development, women’s empowerment, and education.
From 1960 to 1980, the third phase of CSR was impacted by the creation of public sector undertakings to promote equitable wealth distribution. A system of industrial licensing, high taxes, and limitations on the private sector led to corporate malpractices. As a result, legislation on corporate governance, labor, and environmental issues was enacted.
Nonetheless, the PSUs were a failure. As a result, there was a natural shift in expectations from the public to the private sector, as well as their active participation in socioeconomic development. Academics, legislators, and businesspeople convened a national workshop on CSR in 1965, with a focus on social accountability and transparency.
From 1980 to the present, Indian corporations have incorporated CSR into a long-term business plan. The country’s economic growth soared in the 1990s as a result of globalization and economic liberalization, as well as the partial removal of regulations and licensing systems. This resulted in a boost in industrial growth, allowing businesses to make greater contributions to social responsibility. What began as a charitable act has evolved into an obligation.
Current status of CSR in India: Now a Law
India was the first nation to make corporate social responsibility a requirement of law as of April 1, 2014. Companies with a specific turnover and profitability must spend 2% of their average net profit over the previous three years on CSR, according to Section 135 of India’s Companies Act.
The law stipulates that CSR activities must be carried out in a “project/program” format and establishes specific criteria for which activities are admissible in various categories. Hunger and poverty, education, health, gender equality and women’s empowerment, skills training, the environment, social entrepreneurial ventures, and the promotion of rural and national sports are among the issues addressed.
The implementation of the rules has been gradual since they were enacted. As a result, spending projections have been cut. The majority of businesses do not expect to fulfill their goals.
This spending pause isn’t altogether unexpected. The original legislation was pushed through by Manmohan Singh’s Congress government. Many expected Modi’s pro-business BJP party would alter or delay the bill. That did not occur, and now businesses must play catch-up.
The law’s guidelines emphasize the need of “implementing agencies” and state that corporations are not compelled to run CSR programs on their own. As a result, numerous non-governmental organizations (NGOs) are doing research, developing internal capacity, hiring people, and developing business engagement strategies. Some of the most powerful are portraying themselves as enablers and influencers.
Many NGOs are being added to databases created by the government, non-governmental organizations, and private entities to connect companies with implementation partners. The Indian Institute of Corporate Affairs (IICA) is striving to develop a CSR Implementing Agency Hub that will: Provide a database of implementation partners with information about their geographical presence, areas of work, and past projects completed.
- Create a database of implementation partners that includes information about their geographic presence, areas of expertise, and previous projects.
- Provide a list of organizations that do baseline surveys, impact assessments, and social audits.
- Assist with essential training and development, organize sector-specific events, and highlight success stories.
There are approximately 3.3 million (33 lakh) registered NGOs in India, with around one-third of them fully operational and ready to assist with the law’s implementation. However, it appears that tiny or marginal NGOs will not be well compensated. They lack the capacity, systems, governance, and openness that businesses demand. Similarly, the IICA will be tasked with keeping track of all implementing partners’ progress. There will be winners and losers in the end.