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What were the reasons behind mandating Corporate Social Responsibility in India?

Author Meena Raghunathan
  • The book “Doing Good: Navigating the CSR Maze in India” by Meena Raghunathan helps the readers understand about Corporate Social Responsibility (CSR) in India.


  • CSR is a much-discussed topic in India today. But how does one understand a concept which has no clear, uniform and universally accepted definition? About which every stakeholder has their own perspective? How does one contextualize CSR in the framework of larger debates regarding the ethical, environmental, and social responsibilities of business?


  • The book is a result as much of the author being a CSR practitioner for fifteen years, having seen CSR operations in India both before and after the Act, and having a Board Room perspective on it, as from being a student of CSR and therefore studying it from an academic perspective.


  • Read an excerpt from the book below.


Why did the Government of India take this drastic step of mandating CSR? All definitions and all scholars agree that at the core of CSR is the voluntary nature of the activity and ‘going beyond the law’. As we have seen, the government’s initial thought process was not to mandate CSR. It was expected to remain voluntary. But the thinking changed over the years that the new company law was under discussion.

Raghunathan, M.L. (2017) sums up the reasons put forward by many thinkers and practitioners as to why this might have been done. Some scholars opined that India, as a socialistic country had always had a focus on increasing economic equity; but the fruits of economic development did not trickle down quite as envisaged, and inequities continued to increase. India’s poor performance on the HDI and its deteriorating environment—both of which remained matters of concern— may also have contributed significantly to the logic behind the legislation to make CSR mandatory.

Other scholars, she mentions, see the Act as a move which achieved two objectives simultaneously—it demonstrated the government’s seriousness about strengthening social welfare measures (a step which would please the public), while at the same time not imposing tax increases on businesses towards social welfare (thus making businesses happy). At the same time, the suggested process gave businesses flexibility on how they wished to make this spend. The government might have felt that the law would help to achieve better environmental and social sustainability. Maybe the thinking took root that purely voluntary initiatives would never be taken up enthusiastically by businesses. Thus, mandating it was probably seen as a systemic way of making corporates share responsibility for overall socio-economic development.

It must be borne in mind that the law took shape at a time when there was a negative perception about big business in general. It was indeed becoming difficult for some of them to operate as social licence was not easily forthcoming from communities and society. It might have been felt that mandating CSR would force companies to recognize and do something about their responsibilities to their communities. Once tangible benefits were seen by the community it would result in a healthier environment for business. Maybe that is why this law encourages businesses to carry out CSR activities in their neighbourhoods.

There might also have been a perception that such a move could reduce the criticism that governments cared more for business than for the well-being of communities.

Some scholars like Shachi Rai and Sangeeta Bansal (2015) suggest that one reason could have been the government’s perception that philanthropic activities of corporates needed to be more accountable and transparent. A decade ago, there were many companies doing CSR, but decisions on the shape, scope and scale were taken by each individual company. The government might have seen the law as a way to streamline and direct these spends towards national priorities.

Yet another explanation could be that perhaps it was hoped that the corporate sector would bring its execution efficiency and systematic management approaches to social development through CSR. While making CSR compulsory, the financial resources it would bring in might have been only a minor consideration with the government. The calculation at the time the law was mandated was that total mandatory CSR spend was going to be less than 2 per cent of the government’s spending on the social sector, and hence would not significantly affect social development programmes or outcomes.

Hence it may be concluded that the government’s rationale to make CSR mandatory was a push to make the corporate sector take more responsibility and to inculcate the spirit of community development and inclusive growth.

The two statements which ran as a ticker tape on the official CSR website (www.csr.gov.in) as of March 2022, may provide an insight into the current perspective on CSR:

Successful companies have a social responsibility to make the world a better place and not just take from it. CSR extends beyond Corporate Philanthropy.

It is a collective responsibility to build a society which supplements Government’s efforts to achieve inclusive growth which includes broad-based benefits and ensures equality of opportunity for all.

Excerpted with permission from Doing Good: Navigating the CSR Maze in India, Meena Raghunathan, HarperCollins India. Read more about the book here and buy it here.

 

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