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Corporate Social Responsibility (CSR) in India: A Legal and Policy Perspective
Introduction
The term Social Responsibility of Businesses refers to the economic, legal, and ethical expectations that society places on businesses and industries. According to Chappel and Moon, “CSR is a company’s commitment to operating in an economically, socially, and environmentally sustainable manner while balancing the interests of diverse stakeholders.”[1]
This perspective underscores the idea that businesses have a moral obligation to contribute to social objectives and be accountable to society. In India, corporate spending on social causes—such as education, sanitation, and healthcare—was a key concern for policymakers due to underinvestment in these sectors.
With the enactment of the Companies Act, 2013, Corporate Social Responsibility (CSR) was made mandatory. Subsequently, the Ministry of Corporate Affairs (MCA) notified Section 135 and Schedule VII of the Companies Act, along with the Companies (Corporate Social Responsibility Policy) Rules, 2014 (CSR Rules), which came into effect on April 1, 2014.
CSR Provisions Under the Companies Act, 2013
Threshold for CSR Applicability
CSR obligations apply to companies that meet any one of the following financial thresholds:
Net worth of ₹500 crore or more, OR
Turnover of ₹1,000 crore or more, OR
Net profit of ₹5 crore or more.
Companies meeting these criteria must spend at least 2% of their average net profits from the three immediately preceding financial years on CSR activities. Additionally, foreign companies with branches or project offices in India are also covered under this provision.
CSR Compliance and Spending Trends
In the first year of implementation, the total CSR obligation for Indian companies was ₹6,490 crore, of which ₹5,115 crore was actually spent.[2] However, more than 50% of companies failed to meet their CSR spending obligations.
Some major companies that did not fully meet their CSR obligations included:
- ONGC, NTPC, TCS, Airtel, Monsanto India, Apple India, Pfizer, and Nestlé India.
However, in subsequent years, reports suggest that companies have become more committed to CSR compliance.[3]
Key Provisions of Section 135 – Corporate Social Responsibility
1. Formation of CSR Committee
- Every qualifying company must establish a Corporate Social Responsibility Committee consisting of three or more directors, including at least one independent director.
2. CSR Policy and Implementation
-
The CSR Committee must:
a) Formulate and recommend a CSR policy, outlining the activities to be undertaken (as per Schedule VII).
b) Recommend the expenditure required for CSR initiatives.
c) Monitor the implementation of the CSR policy. -
The company’s Board of Directors must:
a) Approve and publicly disclose the CSR policy (including on the company website).
b) Ensure that CSR activities are undertaken in accordance with the policy.
3. Mandatory CSR Spending Requirement
- Every qualifying company must spend at least 2% of its average net profits from the preceding three years on CSR activities.
- Companies must prioritize local areas for CSR spending.
- If a company fails to spend the required amount, it must explain the reasons in its Board Report under Section 134(3)(o).
CSR Activities as per Schedule VII
Schedule VII provides broad categories of activities that qualify as CSR initiatives:
Eradicating hunger, poverty, and malnutrition (including contributions to Swachh Bharat Kosh).
Promoting education (especially for children, women, elderly, and differently-abled individuals).
Gender equality and empowerment of women (including hostels and homes for women and orphans).
Environmental sustainability (conservation of natural resources and contributions to the Clean Ganga Fund).
Protection of national heritage and culture (including restoration of historical sites).
Support for armed forces veterans, war widows, and their dependents.
Promotion of sports (including Paralympic and Olympic sports).
Contributions to government relief funds (e.g., Prime Minister’s National Relief Fund).
Support for rural development projects and slum area development.
The list is not exhaustive, and companies may engage in similar or related activities.
Analysis of the Mandatory CSR Provision
Before the Companies Act, 2013, many companies spent negligible amounts on CSR while using it primarily for public relations and marketing purposes. However, under the new law:
CSR spending is a mandatory utilization of profits, ensuring greater corporate accountability.
Companies that lack expertise in social projects can partner with NGOs or donate directly to government relief funds.[4]
While some argue that mandatory CSR interferes with corporate autonomy, the provision ensures that profitable corporations contribute to social welfare.
The mandatory CSR requirement under the Companies Act, 2013, represents an effort by the Indian government to integrate corporate profits with social responsibility.
CSR promotes equitable economic development by redistributing corporate wealth for public welfare.
Despite certain implementation challenges, the provision has proven to be a landmark reform, contributing significantly to social and economic justice in India.
In the coming years, greater corporate compliance and policy refinements will further strengthen India’s CSR framework, ensuring long-term benefits for both businesses and society.
References
[1] M. Chappel and J. Moon, CSR in Asia: A Seven-Country Study of CSR (2005) 44(4) Business and Society 415.
[2] Khalid Parwez, Corporate Social Responsibility: Delivering Social Good? (2017) 8(1) Lex Witness 10.
[3] Ibid.
[4] Jayati Sarkar and Subrata Sarkar, Corporate Social Responsibility in India: An Effort to Bridge the Welfare Gap (2015) (Indira Gandhi Institute of Development Research Working Paper 023/2015, 20) [Accessed: 23 February 2017].
