The Fundamental Flaw in India’s Corporate Social Responsibility Policy

By Kelli K. Clark — 

School health program implemented via a corporate social responsibility initiative in Bengaluru, India. Source: Trinity Care Foundation | CSR Projects in India’s flickr photostream, used under a creative commons license.

India’s High Level Committee on Corporate Social Responsibility (CSR), 2018 recently published recommendations regarding India’s CSR framework. The committee’s report is a valiant attempt to ease the burden of CSR regulations, but the recommendations ultimately fall short due to a fundamental misunderstanding of social development; under the committee’s recommendations, businesses are expected to design, implement, monitor and evaluate development projects in sectors in which they have no capacity or expertise. With the acute challenges of development work, this will divert corporate funds to inefficient and ineffective development projects unless India  is willing to make more dramatic changes to CSR.

Analyzing Five Key Committee Recommendations

  1. Issue a local area’s clause clarification: There has been a mismatch between the CSR mandate and the CSR need. By issuing this clarification, businesses would be released to engage in CSR activities where they are most needed.

 

  1. Make CSR expenditure tax exempt: By making CSR tax exempt, the financial burden on companies would be reduced.

 

  1. Penalize non-compliance with heavy fines, but no imprisonment: Rather than criminalizing non-compliance, as was recently announced by the finance minister, the committee recommended imposing a fine of 2-3 times the default amount, up to a maximum of 1 Crore Rupees or $139,340.

 

  1. Lesson the burden of implementing CSR framework by:
    A. Only requiring newly incorporated companies to contribute CSR after they have been in existence for three years.
    B. Not requiring companies with prescribed CSR amounts below 50 lakhs ($69,670) to create and maintain a CSR Committee.
    C. Developing a CSR Exchange Portal for creating an interactive platform for all stakeholders, including contributors, beneficiaries, implementing agencies (IA), etc.
    D. Allowing businesses to spend CSR funds over a period of 3-5 years rather than only 1 year.

 

  1. Allow International Organizations to serve as partners: This would allow the international community to provide expertise in designing projects, monitoring and evaluation, and capacity building for companies and IAs.

The Fundamental Flaw

Although these recommendations are a significant step in the right direction, the committee has ultimately decided that “mere disbursal of funds” to IAs is not CSR. They suggest that the key to successful CSR is strong business involvement that will ensure “innovation and efficient deployment of resources for achieving stated outcomes.” This assumes that companies are best positioned to implement and monitor CSR activities and demonstrates a fundamentally flawed understanding of development work.

The truth is, development is a tricky field and development done wrong can cause more problems than it solves. For example, U.S. agencies have long grappled with achieving the best outcomes in development work. Although USAID has been trying to implement development projects for over 50 years, July’s Inspector General’s statement called for even stronger internal controls, expanded monitoring of projects, and enhancing fraud prevention training in light of recent diversions of USAID-funded commodities to terrorists. If experienced organizations, whose sole focus is development work, struggle to successfully implement programs let alone actually see results from these interventions, how are we to expect Indian businesses with no prior experience to do any better?

Granted, these Indian businesses have a leg up as they have already learned how to function successfully in the Indian context, but if CSR funds are to actually go to the neediest parts of the country, activities will be implemented in states where businesses often have limited connections and expertise. The committee seems to prioritize the notion of businesses being heavily involved in the process over thinking critically about how to maximize results from CSR spending. Rather than trying to get 21,337 different companies to implement activities of their own, the government ought to embrace the important role of IAs and invest resources into strengthening business-IA partnerships. This could include standardizing the relationship between businesses and IAs, putting real resources into registering the most credible implementers with the Ministry of Corporate Affairs and developing a robust monitoring system for IAs so that companies can efficiently funnel their funds to the most meaningful projects.

The committee’s recommendations provide for some meaningful changes in the CSR framework, but continue to ask businesses to engage in complicated work that they don’t have the capacity or expertise to do well. If the Indian government is truly committed to achieving the Sustainable Development Goals, they need to be willing to make more substantial changes to CSR and embrace business-IA partnerships.

Ms. Kelli K. Clark is a research intern with the Wadhwani Chair in U.S.-India Policy Studies at CSIS

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