Corporate Social Responsibility in India

Corporate Social Responsibility in India

The term CSR or Corporate Social responsibility became widely popular in the year 1960 in India. As per section 135 in the Companies Act 2013, companies of a certain size in India are required to spend 2% of their net profits on CSR activities. CSR Rules 2014 give certain guidelines that must be followed by the companies while implementing their CSR programs. The following would be a quick guide on CSR as defined under the Companies Act 2013.

Understanding CSR

Under the Companies Act 2013

Does it apply to your company?

If you have a net worth of greater than 500 crores or turnover is greater than 1000 crore or net profit is greater than 5 crores in any of the previous three years.

Steps to be taken?

1. Form A CSR Committee: Three or more directors with at least one independent director.
2. Form A CSR POLICY: Activities to be undertaken based on schedule VII of companies act 2013
3. Spend 2% of net profit on CSR: Two percent of the average net profits made during the last three financial years
4. Disclosure: Annual CSR report containing particulars as specified by CSR Rules 2014. Disclose CSR POLICY in the CSR Report. And Company’s Website (If any)

CSR Rules Mandate

1. Activities must be in project or program mode
2. Must be based on CSR policy & schedule VII Of companies Act
3. Preferably in the local region of operations
4. May undertake activities through a not-for-profit of repute or own foundation
5. Must have strong monitoring & reporting mechanism
6. May invest, an amount not exceeding 5% of total CSR Expenditure, on capacity building of CSR personnel
7. Salaries to regular CSR STAFF and Volunteers can be included in CSR Expenditure

Activities that don’t come under CSR

1. Expenses on activities required for any compliance
2. Expenses on activities in  pursuance of a normal course of business
3. Activities benefiting only the employees of the company & their families
4. One-off events such as marathons/ awards/ charitable contributions/ Advertisement/ Sponsorship etc.

Why CSR Important in India? What are the benefits?

The importance of CSR in India is often misunderstood or misinterpreted. Majority of Indian corporates believe that merely complying with laws and regulations fulfils their need for social responsibility. Whereas, a responsible corporate recognize that CSR activities have a wider impact on the society in which it functions. Therefore, it takes into account the economic, social, environmental and human rights impact of its activities on all the stakeholders.

CSR as a strategy is becoming increasingly important for India today because of three identifiable trends:

1. Changing social expectations: Consumers and society, in general, expect more from the companies whose products they buy.
2. Increasing affluence: This is true within developed nations, but also in comparison to developing nations. Affluent consumers can afford to pick and choose the products they buy.
3. Globalization: Growing influence of the media sees any mistakes by companies brought immediately to the attention of the public.
4. Human resources: A CSR programme can be an aid to the retention of employees, particularly within the competitive graduate student market. Potential recruits often ask about a firm‘s CSR policy during an interview, and having a comprehensive policy can give an advantage.
5. Unique Brand: In crowded marketplaces, the company‘s striving for a unique selling proposition. That can separate them from the competition in the minds of consumers. CSR can play role in building customer loyalty based on distinctive ethical values.

Wrap up

Many of the leading corporations across the globe have realized the importance of being associated with socially relevant causes as a means of promoting their brands. It stems from the desire to do well and get self-satisfaction in return as well as the societal obligation of the business. The Indian corporate sector is not behind either some companies have already understood & started using the CSR as a strategy, which aims at the mutual development of the company and the community simultaneously.