'Koi bhi desh perfect nahi hota, usse behtar banana padta hai!' - Rang De Basanti
Are Indian businesses truly giving back to society, or are they merely ticking a regulatory box? Why do most large Indian companies spend their CSR budgets on projects that reflect the personal interests of their promoter families? And could strategic tax breaks make even the hardest-nosed corporations more generous and genuine towards social causes?
In 2022-23, nearly 24,500 companies contributed around ?30,000 cr to CSR, with most funds directed towards education and healthcare. Maharashtra and Karnataka were the top two beneficiary states, likely due to the concentration of large corporate headquarters in Maharashtra.
India's CSR framework, under Section 135 of the Companies Act 2013, made social responsibility a legal obligation. Eligible companies must spend 2% of their average net profit from the past three years on CSR activities. This fixed percentage was meant to institutionalise corporate philanthropy, but is it the best model for a country as diverse and complex as India? This does not account for differences in earning capacity, cash flow or industry cycles.
The next evolution for Indian CSR obligations could be linking profitability in a progressive manner. A sliding scale for CSR contributions - where companies pay as low as 0.1% of their profits to up to 5% based on their profit quantum instead of a rigid 2% - could make corporate giving more equitable.
Larger corporations with substantial profits can shoulder a higher burden without affecting operations, ensuring greater social impact. This would also help bridge economic disparities, as companies benefiting most from national resources would give back proportionately.
For companies with lower profits or fluctuating revenues, reducing the CSR obligation would prevent financial strain and protect jobs. Extending CSR responsibilities to non-profitable companies and startups by introducing a minimal contribution based on turnover, such as 0.1%, could foster a culture of social responsibility from the early stages of a business.
A sliding scale may also improve compliance, as companies would see CSR as a fairer obligation rather than a rigid tax. More importantly, it could encourage early participation from startups and smaller firms, embedding social responsibility into corporate culture from the outset.
Another point to note is that CSR in India remains heavily promoter driven. Most of the country's largest listed companies are owned, controlled or operationally managed by business families. CSR funds often follow personal priorities rather than national imperatives. A disproportionate share goes into building schools, hospitals or colleges in promoters' native villages. This may be noble, but it limits the broader impact CSR can have when directed towards pressing national challenges - urban poverty, environmental sustainability, healthcare access and skilling the workforce.
Other countries offer alternative models worth considering.
- Indonesia mandates CSR for certain sectors but does not fix a percentage, allowing for flexibility.
- South Africa ties CSR to business incentives, integrating it into economic policy.
- Nigeria enforces industry-specific CSR levies, ensuring contributions are directed towards affected regions.
- Britain, while not imposing a financial threshold, has strong governance norms requiring businesses to demonstrate their impact on society.
- Corporate funding sustains CSR, but true impact stems from individual vision.
- Franco Cologni, a former Cartier executive, transformed his love for traditional craftsmanship into a movement through Fondation Cartier, ensuring that artisans continued to thrive in a rapidly modernising world.
- In India, Kiran Nadar turned her deep appreciation for contemporary art into the Kiran Nadar Museum of Art, to create a space where India's modern artistic voices could be showcased and preserved.
- Sangita Jindal's vision led the JSW Foundation to champion public art projects and museum initiatives, making cultural expression more accessible to people across India.
Critics may question whether spending on art and culture is justified when poverty, inequality and basic needs remain pressing issues. But a society that invests only in survival and not in its soul risks losing both progress and identity.
Altruism cannot be legislated, but tax policy can shape corporate behaviour. Strategic tax breaks on CSR could shift mindsets from compliance to genuine engagement.
- Brazil's Rouanet Law allows companies to direct income tax to cultural projects, promoting corporate sponsorship of the arts.
- France's Aillagon Law offers major tax relief for cultural donations, driving private investment.
- Other nations incentivise CSR in RE, healthcare and education. India could link CSR tax benefits to high-impact areas - climate change, urban slums and water security - ensuring corporate giving addresses the nation's most urgent needs.
For India's CSR policy to truly create an impact, it must evolve. It should drive:
- Conscious capitalism, where profit fuels purpose.
- Social innovation, where solutions scale beyond charity.
- Resilient ecosystems, where change outlives donations. A nation thrives when businesses embrace giving - not as an obligation but as a lasting investment in its future.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
