- Development processes and the development industry the role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders
Corporate Social Responsibility
What to study?
For Prelims: What is CSR? Who governs them?
For Mains: Need for and significance, a critical evaluation on the need for CSR.
Context: President of India Presents National Corporate Social Responsibility Awards.
The NCSRA has been instituted by the Ministry of Corporate Affairs to recognize outstanding contribution in the field of Corporate Social Responsibility (CSR).
What is Corporate Social Responsibility (CSR)?
It is the integration of socially beneficial programs and practices into a corporation’s business model and culture.
How is it regulated in India?
India is one of the first countries in the world to make CSR mandatory for companies following an amendment to the Companies Act, 2013 (Companies Act) in 2014.
Under the Companies Act, businesses can invest their profits in areas such as promoting rural development in terms of healthcare, sanitation, education including skill development, environmental sustainability, etc.
Section 135(1) of the Act prescribes thresholds to identify companies which are required to constitute a CSR Committee – those, in the immediately preceding financial year of which:
- net worth is Rs 500 Crore or more; or.
- turnover is Rs 1000 Crore or more; or.
- net profit amounts to Rs 5 Crore or more.
As per the Companies (Amendment) Act, 2019, CSR is applicable to companies before completion of 3 financial years.
Amount to be spent:
- Companies are required to spend, in every financial year, at least 2% of their average net profits generated during the 3 immediately preceding financial years.
- For companies that have not completed 3 financial years, average net profits generated in the preceding financial years shall be factored in.
Treatment of unspent amounts:
- Amounts to be utilised towards a CSR activity, but unspent must be parked in a special account as prescribed under the provision within 30 days of the end of the relevant financial year.
- The unspent amount must be utilised by the company for the particular CSR activity within a period of 3 financial years from the date of such transfer, failing which, it must be transferred to any fund provided for in schedule VII of the Companies Act namely inter alia the Clean Ganga Fund, Swachh Baharat Kosh, Prime Minister’s National Relief Fund.
- Any unspent amount which does not relate to an ongoing CSR activity must be transferred to a fund provided for in Schedule VII within a span of 6 months of the end of the relevant financial year.
Fines and Imprisonment:
Provision for penalty in the form of fine on the company and officers in default, between Rs 50,000 – Rs 25,00,000, has been inserted in case of failure in compliance with Section 135. Additionally, every officer in default may also be imprisoned for a term of up to 3 years.
Social responsibility has a strategic importance for two reasons:
- A healthy business can only succeed in a healthy society. Thus, it is in the best interest of a company to produce only goods and services which strengthen the health of society
- If the company wants to succeed in the long term it needs to have the acceptance—or licence to operate—from social actors affected by the company’s’ operations.
Mains Question: Do you agree that corporate social responsibility makes companies more profitable and sustainable? Analyse.