Author: Sahil Shukla, Chandigarh University
To the point
In India, mandatory Corporate Social Responsibility (CSR) has successfully mobilized considerable corporate funds for social development. However, the financial influx has achieved little to dent India’s deep social inequality. The problem with CSR, in large part, is that it is implemented as compliance rather than as a lever for social change. CSR typically has a geographical bias towards developing areas and focuses funding towards short-term, charitable ventures that address symptoms rather than the structural causes of inequality, which include caste and gender discrimination. The article will critically examine the gulf between the intentions of the policy and its actual effects.
Abstract
The requirement for Corporate Social Responsibility (CSR) under the Companies Act, 2013 is a key legislative reform in India as the country navigates its complicated socio-economic landscape. In this article, I examine the measures CSR is taking and can take to address India’s deep-rooted issues of social inequality. The key legal structure mandates corporations to finance social development and while this is undoubtedly an important development, I will assess whether actual improvements can be demonstrated. The discussion will draw upon examples of successful interventions, in particular in education and healthcare; and also will show the continuing challenges, including geographic disparity and a focus on charity in place of social reform. I will provide an overview of the state of CSR in India; engage with some of the current debates in relation to legal obligation and government policy; highlight limits of the framework, and finally I will argue that if CSR is to successfully address indelible lines drawn through India’s society and economy, ‘doing good’ can’t only be compliance-directed philanthropy; each CSR initiative must centre social justice in its methodology to facilitate change at the structural level which could help in tackling the causes of inequality.
Use of Legal Jargon
The discussion surrounding corporate social responsibility in India has evolved from the realm of voluntary engagement to a regulatory obligation, which is situated in certain legal provisions that provide the foundation of the corporate obligation and is secondary to the understanding that companies must legally comply with the requirement from the Companies Act, 2013 (the Act). At the core of the Act, is Section 135, which is the portion that legally defines a corporate obligation to perform CSR as practiced in marketing. That is, companies, with specific net worth, turnover, or profit must spend a minimum of 2% of their average net profit over the previous three years on CSR projects. More importantly, the legal obligation to spend is primarily contained in this legal provision and defines the who and how much of corporate philanthropy. The section must be interpreted alongside the order-making routine which includes Schedule VII of the Act which outlines the areas on which CSR dollars can be spent. This order-making routine acknowledges and legitimises initiatives towards “eradicating hunger, poverty and malnutrition”, “promoting education”, “promoting gender equality” and “empowering women” which can be broad terms, but in legal speak represent terms used to define the areas of corporate engagement to reduce social inequality. The success of the entire legislation depends on the interpretation and effective projects implemented by companies under the legally defined activities listed in schedule VII. The challenge lies in how these broad terms translate into legitimate projects that generate true systemic social change rather than merely compliance.
The Proof
Evidence of CSR’s effectiveness in India presents a two-pronged narrative of real success, tempered by real structural failure. The “evidence” of positive change can be seen in thousands of localized projects, where corporate funds-built schools, offered scholarships, established clinics, and ran large-scale vocational training programs that have positively impacted lives and provided opportunities to many. These initiatives demonstrate that corporate resources can, when appropriately directed, make strong contributions to social good, relieving immediate social need and creating pockets of progress.
On the other hand, there is abundant evidence that the current CSR model is not sufficient for the broader aim of eradicating systemic social inequality. The principle evidence of this failure can be seen in three areas:
Geographical Disparity: Data has shown consistently that CSR expenditures tend to be concentrated in already-developed states, and among where corporate HQs are located, such as Maharashtra, Karnataka, and Gujarat. The poorest states, which experience the deepest structural social inequality, are routinely allocated far less. This pattern of distribution indicates that, when discretion is given to corporations, CSR will favour convenience over need – thus, potentially compounding regional disparities.
Superficial vs. Systemic Impact: The majority of CSR initiatives are palliative rather than transformative; they provide services (food, shelter, a health check) but don’t address the structures of discrimination. A company might fund girls’ education, but would never fund advocacy work aimed at challenging the patriarchal systems that are keeping girls out of school. This reflects an unwillingness to tackle the more difficult, political roots of inequality, opting instead for safer charitable endeavors that will garner some PR goodwill.
Fragmented, Compliance-Driven Efforts: Many companies view the 2% mandate as a “tax” to be paid instead of a strategic goal. This results in chequebook philanthropy, where a monetary donation is made to an implementing agency without a long-term commitment or a rigorous assessment of impact. This has resulted in a number of small projects that are isolated from each other, without the scale to be effective, proving that without a collaborative, strategic vision, you are wasting the power of the available funding.
Noted Legal and Policy Debates
Though there is no one landmark Supreme Court case that has changed the nature of the philosophy of CSR’s effectiveness, the legal environment depends on important policy battles, changes, and the government clarifying its position, which acts as an informal interpretation of the law.
•CSR and PM CARES Fund: A major legal and policy controversy arose when the government said corporate donations to the PM CARES Fund would count as CSR expenditures. Critics contended it could steer contributions from grassroots community projects that serve those in need towards a centralized government fund lacking transparency. The controversy highlights the legal vagueness and central tension in CSR: Is CSR just a tool for community-based development or a resource for the state?
•The High-Level Committee on CSR (2018): This committee was chaired by Injeti Srinivas, and it was formed to assess the status of CSR in India. The report listed many of the roadblocks, including the geographic skew and the need to focus on impact. The committee’s recommendations – remarking on geographic bias while calling for the establishment of a national-level platform to connect companies to implementing agents in underserved areas and to clarify clarity on tax benefits – are a formal, high-level critique of the appropriateness of the law, and shaped subsequent amendments and legal thought.
•Compliance and Penalties for Non-Compliance: Initially, the CSR law was a “comply or explain” framework. However, since the government observed varying levels of compliance, they made amendments to the CSR law that would enforce penalties for non-compliance. In the cases of companies that did not comply with the CSR spending obligation, the legal system has issued a legal notice and continued to enforce the penalties. There is an emphasis on the quantity of CSR spending rather than the quality, enforcement efforts are a clear illustration of how the legal system holds corporations accountable to the mandate.
Conclusion
The emergence of a legally prescribed CSR space in India is a commendable attempt to engage corporations as development partners. It has engaged a new and potentially massive resource for the social sector. However, it is uncertain whether it will meaningfully sever the deep and embedded structures of social inequalities. Corporates’ traditional, constrained short-term approach to social investment and the attendant desire for favourable reputation in the eyes of the public constricts responses to the complexities of social justice. The legal parameters of the Companies Act represent a starting point, but this cannot be the end of the journey.
To close the gap between intent and impact, a shift in paradigm is needed and large-scale reforms are urgently needed to go from charity to strategic social investment. Engagement with multi-stakeholders and long-term attention to systemic change as well as securing metrics to track real change on inequality is paramount. If India is to harness the ability of its corporate sector for the greater social good, the legal and operational framework needs to move from compliance to justice.
FAQS
What is Corporate Social Responsibility (CSR) in the context of India?
CSR in India refers to the legal framework of Section 135 of the Companies Act, 2013, where, as per the provisions, companies meeting certain requirements are expected to spend a minimum of 2% of their average net profits in a specified number of preceding years on development activities, in particular activities such as those designed to promote education, health, gender equality, etc.
How do we understand CSR as a tool to reducing social inequalities?
CSR is understood as an effective tool to act as it legally commits the profitable corporate sector that has financial and managerial resources to contribute directly to new social investments. The various actions listed in Schedule VII of the Companies Act are aimed at enhancing the status of specific marginalized groups and remedying issues that are fundamentally linked to social inequalities.
Have any legal cases referring to CSR emerged in India?
Although there are not many landmark court cases on the topic of CSR, there has been a lot of legal and policy debate. This debate has followed issues like whether the PM CARES Fund is eligible for CSR contributions, penalties for non-compliance, and formal reviews by various government committees to recommend legal reforms for effective implementation.
In what ways can CSR be improved to address inequality?
Reforms need to recognize the importance of long-term relationships with grassroots partners, provide collaborative platforms for companies to pool together for large projects, and shift the monitoring focus from money spent to actual, long term, reductions in inequality. Moving away from compliance-based thinking to a mindset of strategy and justice is essential.
