Written by: Surya Sriram
“Businesses cannot be successful when the society around them fails.”
India is one of the largest economies in the world with around $3 trillion GDP. India is also one of the fastest-growing economies in the world. There is also a flip side to the picture of India where there is serious hunger, extreme poverty, malnutrition, and other harsh phenomena. The development in terms of the economy was possible because of the business organizations, which played a vital role in the process. At the same time, the dearth conditions are also present which need to be taken care of because the business operates in society and the health of the business somewhat depends on the conditions of the society. If society is healthy then businesses can operate smoothly. Businesses derive their wealth from society through various strategies, therefore, they are also responsible to society. This responsibility of business to society can be termed as corporate social responsibility. It is a kind of ethical responsibility where businesses give back to society through various welfare means and activities, as they earned their profits from the society itself. Experts define corporate social responsibility as a commitment of business to behave ethically, to improve well being of various communities, and to contribute to economic development by improving the quality of life of workers and their families, also by integrating social and environmental interests. Corporate social responsibility also helps businesses to engage with different communities of the society, understand their problems, and ultimately it can help the businesses gaining a better understanding of the market.
The CSR work done by the businesses can increase customer loyalty and develop a positive attitude towards them which acts as an invisible marketing factor. The roots of CSR present in charity work which includes donations, relief work, and some other activities. The importance of CSR is increasing because it strengthens the relationship between companies and stakeholders, enables improvement and encourages innovations, and lessens the risk because of its corporate governance framework.
Another factor increasing the importance of CSR in India is the legal obligations of businesses under the Companies Act. This factor is the prime reason for companies to adopt CSR obligations.
The evolution of the concept can be pointed to the ancient history of India where scholars like Chanakya emphasized ethical practices and principles that need to be followed while conducting a business. The concept is also embedded in our customs and traditions as the Hindu merchants of the past used to donate huge sums to temples and communities etc. The concept was also prevalent in the modern history of India as Gandhi influenced many industrialists to share their wealth with the marginalized, to set up trusts and colleges, etc. Even before Gandhi’s influence, some industrialists like Tata, Birla, Bajaj, etc. actively promoted this concept by establishing charitable trusts, educational and healthcare institutions. After independence, there was the emergence of public sector undertakings, and the concept of CSR was embedded in their work. Later the LPG reforms given a boost to CSR as many corporations could contribute to society now.
CSR Laws in India
The two major regulations obliging companies to do CSR activities are the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014.
Section 135 (1) of Companies Act, 2013 provides an obligation to companies with;
· Net worth of five hundred crore or more, or
· Turnover of rupees thousand crore or more, or
· Net profit of five hundred crore or more.
If any of these are met in a financial year, then the company shall constitute a CSR committee of the board consisting of at least 3 directors out of which one is an independent director.
Section 136 (3) (a) of the Companies Act mandates the CSR committee to formulate and recommend CSR policy that shall indicate activities to be undertaken by the company as specified in Schedule VII. Under clause (c) the committee is also responsible to monitor the CSR policy.
The activities relating to CSR, under Schedule VII, include eradicating extreme poverty and hunger; promotion of education, gender equality, and empowering women; reducing child mortality and improving maternal health; combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria, and other diseases; ensuring environmental sustainability; social business projects; and such other matters as may be prescribed.
CSR Rules, 2014 provides the definition of terms like CSR, CSR policy, CSR committee, Net profit, etc., and it also contains other provisions elaborating on CSR policy, committee, expenditure, reporting, etc.
In the capitalistic and materialistic world of today, CSR activities are being legally obligated to achieve sustainable goals and promote the welfare of society.
CSR activities during the pandemic
There were three major policy changes in CSR, which had changed the quantum and the nature of the spending on CSR activities. Firstly, spending of CSR funds on covid related activities are allowed, which include a donation to PM-CARES Fund, to State Disaster Management authorities, and expenditure on preventive health care, sanitation, providing quarantine facilities, etc. Secondly, all the donations for Covid related activities were made eligible for 100 percent tax deductions. Thirdly, offset against CSR obligations in subsequent years for the excess spending over the minimum prescribed amount was allowed.
As a consequence of these changes, businesses had shown that they care as much as the government. For instance, Reliance industries ltd arranged its resources to produce medical grade oxygen, as a CSR initiative, which now amounts to more than 11 percent of the country’s total production. Other corporations as part of CSR contributions done: Infosys foundation opened 100-bed quarantine facility; Wipro donated Rs. 1125 Crores for handling this unprecedented health crisis; Zomato set up a fund for daily wage workers in India; Adani Foundation donated Rs. 100 Crores and stitched over 1 lakh masks for use of frontline workers; JSW group donated Rs. 100 crores to PM-CARES fund; Mankind pharma donated PPE kits, ventilators, and medicines to states reporting maximum Covid cases; etc.
These efforts taken by corporations proved to be of major assistance in the time of this health crisis. The effective policy changes motivated and encouraged the business to actively participate to tackle the situation.
In the present world, earning profits has become easy as enabled by technology. With the increasing profit maximization of the businesses, their accountability towards society is also increasing as the law is also evolving towards that objective. CSR acts as a bridge between businesses and society, which promotes the well-being of society. The concept of CSR is there in our past, working in our present, and will work in the future too.
To Build Back Better, a strategy adopted by UNGA, CSR will prove to be one of the major factors contributing towards such goals under it, because businesses cannot be successful when society is in crisis.
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