India’s Corporate Social Responsibility Revolution

Last year, India passed the Companies Act, a revision of outdated business practices that resulted in a stronger commitment to corporate social responsibility (CSR). The Act mandates companies worth more than $92.5 million, or with yearly profits exceeding $78 million to:

The Companies Act strives to eliminate corruption and increase public trust in the business community
The Companies Act strives to eliminate corruption and increase public trust in the business community
  • Spend at least 2% of their profits on CSR
  • Establish a CSR committee overseen by a minimum of three directors
  • Noncompliance with the mandate can result in government sanctions and jail time

The government heralds the law as a huge step forward for the Indian business community, with Sachin Pilot, the Minister of State for Corporate Affairs, proudly describing India as the “first country to mandate corporate social responsibility through statutory provisions.”

Supporters of the law are encouraged by the potential for business development, claiming it creates an opening for smaller businesses to grow. The Companies Act discourages one-time monetary donations as a form of CSR and encourages the formation of long-term projects and relationships between large corporations and social sector businesses. The law has created a niche for CSR consulting firms to help corporations develop long-term CSR projects. Consulting firms can increase business while also advertising the projects of small social enterprises. This business development is especially critical in light of India’s recent stagnating financial growth.

Increased corporate social responsibility also has the potential to transform India’s philanthropic culture. According to the World Giving Index, India ranked 134 out of 153 nations based on monetary donations, volunteerism, and willingness to help strangers.

World Giving Index 2010
World Giving Index 2010

But the Center for Global Prosperity showed in the Index of Global Philanthropy and Remittances that 80 percent of Indian citizens donated money annually. India does not lack generosity. What is missing is a long-term commitment to philanthropy at the corporate level. The government hopes to improve corporate involvement in philanthropy through this law.

Some argue the Companies Act does not prioritize sustainable development
Some argue the Companies Act does not prioritize sustainable development

Yet, the Companies Act has been met with more resistance than anticipated. Much of the criticism originates from the government mandating businesses participate in CSR. Mark Hodge, from the Institute for Human Rights and Business, argues that government involvement only reduces government accountability for providing social services. He believes increased CSR is the improper approach to sustainable development because it not only reduces government accountability but also counteract harmful business practices. He instead believes the government should direct its attention towards reforming business practices in a way that encourages sustainable development. This connects to Michael Porter and Mark Kramer’s concept of shared value, where the economic development of a company is strongly tied to the social development of its surrounding community. By eliminating harmful business practices, Indian companies could increase their profits while also improving the community’s quality of life

Other detractors criticize the mandated aspect of the law. Do governments have a right to mandate social responsibility from corporations? Pilot describes the goal of the Companies Act as “encouraging firms to undertake social welfare voluntarily.” But is it really voluntary when the consequences for not complying include sanctions and incarceration? According to Arun Maira, a member of the planning commission, the voluntary nature of CSR has the ability to earn companies public trust and loyalty, which is especially important in the Indian culture where general distrust of businesses is still high. Mandating CSR, however, might discredit the altruistic nature of public service and might create even more distrust of large corporations.

It remains to be seen whether the increase in CSR will promote business development and corporate philanthropy in India or whether it will create distrust and outsource the government’s social service responsibilities. If successful, would India’s corporate philanthropy translate into increased international philanthropy? If unsuccessful, however, this could be a set back for India’s future philanthropic development and general trust in the business community.

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One thought on “India’s Corporate Social Responsibility Revolution

  1. joseph bisaillon January 18, 2014 / 2:13 pm

    A very informative blog post. Thanks for the information.

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