Indian CSR Law: Forcing Companies to Think About Society

India CSR

Jun 30

This unique CSR legislation has paved the way for a new corporate ethos, where a company's responsibilities extend beyond its stakeholders to the broader community and the environment.

Rusen Kumar - Founder and Managing Editor of India CSR

The Context

The CSR law in India is part of a broader trend of increasing corporate responsibility around the world. In recent years, there has been growing pressure on companies to take into account the social and environmental impact of their operations. The CSR law in India is a reflection of this trend, and it is having a positive impact on the country.

Introduction

In 2013, India passed a law that made corporate social responsibility (CSR) mandatory for companies with a certain level of revenue or profits. India became the first country to implement a mandatory Corporate Social Responsibility (CSR) law. The law requires these companies to spend 2% of their net profits on CSR activities, which can include things like education, healthcare, poverty alleviation, and environmental protection.

In other words, the landmark legislation demanded that corporations earning a particular amount of profit should reinvest a percentage of their net profits into society's welfare, pushing them towards a greater understanding of societal challenges.

This paradigm shift has significantly transformed the corporate sector's relationship with the society it serves. This law has had a significant impact on the way that companies in India think about society. In the past, many companies saw their primary responsibility as making a profit. However, the CSR law has forced them to consider the impact that they are having on the communities in which they operate.

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CSR Law in India: A Pioneering Leap

In essence, the CSR provision under the Companies Act, 2013, stipulates that companies with a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more during any financial year must spend 2% of their average net profits made during the three immediately preceding financial years on CSR activities.

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Forcing a Socially Conscious Corporate Mindset

The law's primary impact has been to compel businesses to recognize, understand, and address social issues more comprehensively. Prior to this law, corporate engagement in social issues was largely seen as an ancillary activity or PR exercise. Now, however, it is an integral part of their business strategy.

This transformation has led to an increased understanding of societal issues within the corporate sphere, as companies are now directly engaged in solving problems such as poverty, lack of education, and environmental degradation.

There are other several ways in which the CSR law has forced companies to think about society.

First, it has made them more aware of the social and environmental challenges that exist in India. For example, many companies are now working to improve access to education and healthcare in rural areas. They are also investing in projects to protect the environment.

Second, the CSR law has forced companies to engage with local communities. In order to identify and implement CSR projects, companies need to work with local stakeholders. This has helped to build relationships between companies and communities, and it has also helped to improve understanding of the challenges that these communities face.

Third, the CSR law has forced companies to be more transparent about their social and environmental impact. Companies are now required to report on their CSR activities, and this has helped to increase accountability.

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Democratising Corporate Power

In a democracy, it is crucial for corporations, as significant societal players, to be informed about and responsive to pressing social issues. The CSR law has democratized corporate power to some extent by making businesses more accountable and transparent in their operations.

This increased engagement with social issues enables corporations to be better informed, fostering a more holistic approach to decision making that takes into account societal needs and challenges. This contributes to the development of a more empathetic corporate culture, which is not just focused on profits but also considers societal welfare as part of its business mandate.

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Conclusion

The CSR law has been a positive force for change in India. It has forced companies to think about society in a new way, and it has helped to improve the lives of many people. In a democracy, companies have a responsibility to be well informed about social issues and burning problems. The CSR law has helped to make this happen in India.

Call to action

The journey towards corporate social consciousness is a long one, and India's CSR law has only begun to push companies in the right direction. The corporate world's increased understanding of societal issues is a positive step towards more inclusive, sustainable, and responsible business practices.

Companies in other countries can learn from the experience of India. The CSR law has shown that it is possible to make corporate responsibility mandatory, and it has had a positive impact on society. Other countries should consider adopting similar laws, or they should find other ways to encourage companies to take on more social responsibility.

Takeaways

While the CSR law is not without its challenges, such as ensuring genuine commitment rather than mere compliance, it nevertheless represents a promising shift in how corporations interact with society.
This could set a benchmark for other countries to follow, potentially leading to a more globally conscientious corporate culture.

About the Author

Rusen Kumar, the Founder and Managing Editor of India CSR, is a highly accomplished and seasoned media person and social thought leader in India. He was recently honored as a Social Impact Leader by ASSOCHAM.