Companies used to comply with the requirement fully or partly and then explain and get away with it. Now, there would be a provision wherein the unspent CSR amount would be transferred to an escrow account for three financial years. Subsequently, if the amount remain unspent then the same would be moved to funds specified in Scheduled VII of the Companies Act.
...Nirmala Sitharaman, Minister of Finance and Minister of Corporate Affairs
India is the first country in the world that has legislated that a part of the PAT(Profit After Tax) by corporates needs to deployed to impact the society. Whilst France, Denmark, South Africa and China have a mandatory reporting obligation on the amount spent on CSR activities, India became the first country in the world to have a mandatory CSR contribution legislation in 2014. Since July 2019, it is mandatory for companies to create a ring-fenced escrow account for corporate social responsibility expenditure and transfer unused funds to the National CSR Fund.
The 2pc of PAT for the corporates has over the last 5 years added up to an overall actual spend of more than INR 50,000 crores. About 20,000 corporates fall into the CSR net and if all of them spent their entire kitty it would roughly add up to about INR 20,000 crores per annum. The 2019 legislation, in effect, forces the deployment of CSR funds. However, as a sector, there is much to be done on the scalable deployment side of CSR. To drive that change we need different approaches and organisations that can build this new eco-system. We need new tech-infra, trained personnel, campaigns for awareness around the causes and in effect, build the retail space around this sector.
One who enjoys abundance without sharing with others is, indeed, a thief- Bhagavad Gita
Philanthrophy in India is an age old tradition or practice. 'Athaazham Pattnikaarundo' (Is there anyone left without supper) - this was the question that every feudal landlord in Kerala used to ask before closing their main gates every night. Similar is the practice through “Zakaat” in Islam and “Langar” in Sikhism.
It is not only individuals but also business houses and communities that have been contributing to economic and social development since the pre-independence era. Family houses such as Tatas, Birlas, Godrej, Bajaj etc., have contributed enormously through their initiatives, driven by the philosophy of wealth being deployed for mass good. Now, these have become a part of the strategic plans across most progressive companies from Tatas, ITC, Ambuja Cement, Infosys, Mahindras, PSUs and most of the MNCs as well.
The Government legislation now has brought in a forcing function into play. The ‘giving’ culture received a big boost in 2014, when the government of India made it mandatory for certain categories of corporates (based on a certain size and PAT) to earmark 2% of their average Profits for last 3 years for social good.
In the recent past, corporations have also evolved their strategies and deployments from an ad-hoc approach earlier to a more strategic approach that not only adds to maximizing impact but adds back to the strategic branding / perception of the corporate brand in a telling manner. In addition, the emphasis has moved to making CSR a ‘SMART’ initiative – Specific, Measurable, Attainable, Relevant and Time-bound.
Education and Health comprise about 60% of the CSR spends in India. Quality of education, teacher training, girls education, infrastructure, careers and coaching are attracting the bulk of allocations in the school education while skilling and employability, research, start-ups are the sweet spots in higher education. In Healthcare, focus has been on building or upgrading toilets, health camps, drinking water facilities, mobile vans, hospitals and such.
Pivoting this space is required on an urgent basis. Newer areas like Ed-Tech, Health-Tech and investments in solutioning (even if pilots) is of essence rather than perpetuating traditional systems. Aggregation of smaller budgets, collaboration amongst various stakeholders, mid to longer term project plans, a programmatic approach, sustained outcome focus are some of the mantras for more effective CSR.
Our own experience with marquee names such as HP, Steelcase, Federal Bank, Nalanda Foundation, IITBHU, Delhi and Haryana Govt. Schools etc. provides persuasive evidence about the direction that CSR will take post the new legislation. Needless to say, Govt. deserves kudos in showing thought-leadership in following through with greater reforms on this front. The onus now shifts clearly to the leaders in the stakeholder eco-system
Cheers to impacting India through CSR!
Co-Founder and CEO at Drstikona