CSR In India

INDIA’S GRAND EXPERIMENT IN MANDATORY CSR HAS BEEN RUNNING FOR MORE THAN FIVE YEARS NOW. HOW WELL HAS IT ACTUALLY WORKED?

- Oliver Featherston

Six years ago, India’s government introduced Section 135 of the Indian Companies Act. In a world-first, the law mandated that all businesses of a certain size – those with net profits exceeding INR5 crore (US$700,000), sales of INR1,000 crore (US$140 million) or more, or net worth exceeding INR500 crore (US$70 million) – would be required to spend two percent of pre-tax profits on corporate social responsibility initiatives.

Similar policies around ethical corporate behavior have emerged globally. California in the US and the UK have both implemented laws requiring businesses to report on actions they’ve taken to excise slavery, trafficking and child labor from their supply chains.

India’s Section 135 is, however, the first example of legally mandated CSR spending. And today, it’s common to hear Indian business leaders espouse their company’s expenditure on socio-economic issues, with many championing programs in support of poor, rural communities – education, sport, and clean water are typical support systems.

Heartening though these stories are, a wider analysis of India’s CSR spending reveals the implementation of the law hasn’t been without difficulties. Last year saw the introduction of enforcement laws, no doubt to combat the half of all companies that didn’t report their CSR activities, a proportion that has remained consistent since 2016. The remaining half collectively contributes just over half of what two percent should amount to.

In July of 2018, 272 companies were served notices for various kinds of non-compliance. However, this is down from the more than 1,000 notices that were served between July 2016 and March 2017 to companies like Adani Infrastructure and Developers, and Vodafone India Services.