GS Paper 2/4
Syllabus: Development process and the development industry/ Corporate governance
Source: ET
Context: The Ministry of Corporate Affairs (MCA) has flagged the limited impact of corporate social responsibility (CSR) initiatives despite a spike in such spending in recent years.
What is CSR?
- It is a commitment by businesses to integrate social and environmental concerns into their business operations.
- India became the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to the Companies Act, 2013 in April 2014.
- Businesses can invest at least 2% of their net profit (over the preceding 3 years) in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.
Significance: Every company has a moral responsibility to play an active role in discharging social obligations, subject to the financial health of the company.
CSR trends in India:
- Since the applicability of the mandatory CSR provision in 2014, CSR spending by corporate India has increased significantly.
- For example, CSR spending stood at Rs 26,210 crore in FY21, having grown 80% from FY16.
- The education sector received the maximum funding (38%) followed by hunger, poverty, and healthcare (25%), environmental sustainability (12%), and rural development (11%).
Examples of CSR in India:
- Tata Group: It has engaged in women empowerment activities, income generation, rural community development, and other social welfare programs.
- Ultratech Cement: The company has organised medical camps, immunisation programs, sanitization programs, water conservation programs, organic farming programs, etc.
- Mahindra & Mahindra: It runs programs such as Nanhi Kali focusing on education for girls, Mahindra Pride Schools for industrial training, and Lifeline Express for healthcare services in remote areas.
Concerns:
- The impact of the CSR funds is not widely felt.
- Programs such as technology incubators, sports, and armed forces, reducing inequalities saw negligible spending.
- Regional disparities as the Companies Act require companies should give preference to the areas around which they operate while allocating CSR funds.
Way ahead:
- Companies need to adopt a long-term approach “to yield productive results”. This will –
- Enhance the visibility as well as the impact of invested funds
- Strike the right balance of capital investments and operational expenses
- Ensure the initiatives undertaken become self-sustaining – running seamlessly without being a burden on the companies themselves.
- The highest quality risk management framework needs to be adopted, so as to make the CSR projects sustainable
- It is imperative to strike a balance between local area preferences with national priorities to avoid any concentration of CSR funds in specific regions.
Conclusion: The emphasis should be on creating an appropriate structure for CSR, ensuring that the funds go towards the well-being of the community.
Insta Links:
Mains Links:
Case Study: CSR Funding in Amaria (UPSC 2020)
