Calibrating CSR in India

The CSR spending in India has seen a surge at CAGR of 14 % in the last two fiscal which is a promising sign despite having only 5% growth in their net profit. However, the majority of the corporates had taken the help of  NGO’s for  CSR spending it also means internally companies had deployed minimum resources to monitor their CSR activities. Perhaps post amendment of companies acts in 2013   business houses ever since has shown good compliance prescribed by the law.  But in a larger country like  India problems are galore in the areas of healthcare, education and the environment. Hence,  CSR funds could only account for a mere 1% of the total public spending in 2015-16. The spending model of  CSR funds in India are generally are programmatic grants. So in the hindsight to make a meaningful progress in CSR spending the very nature of their involvement needs to be evolved further to create a better impact.

Need for a  participatory approach

Generally, the CSR spending trend in India needs to get evolved from individuals to an Ecosystem where corporates can play a very proactive role in creating visible changes and perceptible impact on the problems faced by the society.  In order to create a larger impact, the existing model of CSR spending need changes and corporates should take serious initiative internally if they really want to create a meaningful impact in the society. Instead of being just grant givers, corporates should transform themselves from delivering services to building capacity & enabling the market for overall development.  The participatory approach should be a continuous affair whereby companies should constantly engage with various stakeholders in the society and ensure that measurable output is generated through their engagement.  Also, business houses internally should set an objective and drive those objectives meticulously similar to the ways how their business is been driven.

 

CSR Landscape 

 

Become a catalyst for development

1)To become the catalyst for development, the companies in India should take various steps

2) Better use of resources and leveraging it effectively to create a better impact.

3) They need to establish better synergy between various players for the desired impact.

4) Bring in new stakeholders to the system and gain more competencies from them.

Promoting socially responsible business

Corporates should take a keen interest in promoting micro-entrepreneurs in the community, helping the people with financial support in starting a small business that could create a multiplier effect in the economy. So forging such useful long-term association can help improve the situation on the ground. Henceforth corporates in India should focus more one such aspect frequently rather than just becoming grant givers. The synergy between the various stakeholders in the society would help to create a win-win situation for all.

Importance of shared value creation

Beyond the corporates’ pet projects and largely advertised philanthropic activities, it only helps to improve the branding of the company and leaves very little to create an impact in the society. So beyond the objective of building a company’s brand, The active involvement in the society can only be achieved through “smart partnering “. Only through smart partnering creative solutions and strategies can be devised to address the very fundamental core issues faced by the society. The successful smart partnering initiative from HUL named “Project Shakthi”  was a very good initiative that had empowered the women folks in the rural sector by providing financial independence and have helped to achieve self-reliant.

Strengthening the core values internally&externally

Business creates impact, So it does matter how an organisation lives up to its core values extrinsically and intrinsically in relation to the society and vice-versa. How far corporates leaders are serious in practising those professed values in all aspects, Besides making profit business as an entity has a social commitment to the society or towards the community it operates. So it does matter the seriousness in which companies have aligned those core values to the overall development of the society. The whole aspect of doing business through the prism of generating value to shareholders should be replaced with a much more sanguine way of taking every other stakeholder together.

Engage the entire workforce and lead by example.

 When it comes to CSR, the workforce of every organisation is very crucial in bringing maximum benefits to the society. When it comes to employees they choose an organisation whose values resonates with them.It also helps in retaining existing as well as attracting fresh talents towards the organisation. Besides that activity that encourages the core values helps in improving the motivation level of employees which further leads to foster innovation and creative thinking in many spheres both inside and outside of the organisation.

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Business practices and social responsibility must coexist

India is  the only country worldwide to formulate  a policy for a mandatory spending of 2% of the net profit towards Corporate social responsibility, But if one tries to analyze  the progress achieved so far the true picture shows a very minimal progress on the lives of the  marginalized , poorer section of the population. The status of the poor , marginalized are still very vulnerable because their income has not seen  any significant improvement   in last 60 years after independence ,   This cross-section of the population are still reeling under  lack of  resources to  better their lives. The basic necessities for a  dignified living are still eluding them and would continue to elude them in the coming years as well. So the onus entirely not lies in the hands of the govt alone, moreover, govt is facing serious resource crunch in  funding  such a vast problem  which is systemic and social in nature . So the role of the private sector is very critical to tide over the problem which our nation is going through the last sixty years since independence  . The issues of gender inequality, caste-based discrimination are  concerns  which are  very much a legacy based issues which still left unaddressed , or given inadequate focus . So as country  traversing  a long journey for last sixty years , we should be  proud   of our achievements  of becoming  a trillion dollar economy ,  GDP growth which is comparatively better when compared to our peers globally , But  flip side of the coin indeed shows us in a very bad  light , which is very serious  and detrimental  to achieve the  target of inclusive growth which  our policy  makers  are  being rabble-rousing for  few years .As a nation, we kept a blind eye or given less importance ,which acted as  a stumbling block in bringing qualitative improvement in the  lives of those lesser privileged & vulnerable  section of the population.

Global Context : Richest 1% versus the combined population worldwide.

The recent Panama expose is only the tip of the iceberg , The staggering  7.6 trillion money hidden in the tax heavens by the extremely rich shows how rich and powerful slashes money abroad by avoiding taxes.  As per the recently published Oxfam report shows the facts which are really  shocking and revealing , How the rich and poor gap keep widening as years pass by.

1)    The bottom half of the humanity ie is roughly 3.6 billion people wealth equals the wealth 62  individuals worldwide .

2)    The richest 62 people wealth has increased to 45% in five years since 2010. Ie is  an increase of 1.76 trillion from their 2010 figure.

3)    Contrary to that, wealth of the bottom half of the world population witnessed a drop of 38% in the same period

4)    Since turn of the century poorest half of the world, population received  1% increase in their total wealth while half of the increase in wealth went to richest 1%

5)     The poorest 10% of the global population’s average income has risen by less than $ 3 each year in an almost quarter of a century. So it means less than a cent increase in every year.

The above chart clearly shows the income disparity and how wealth increasingly gets to the top and remaining bottom of the population’s  increase  in income is insignificant compared to the top 1%. This is the real picture of the income distribution worldwide where select few are calling the shots by influencing the policies in their favor, getting the benefit of huge tax cuts at the cost of rest of the  population who severely fights  day in and day out to survive  without basic support systems for dignified life.  The economics of trickle down is not happening , but everything is getting sucked up at the top of the pyramid.

As per the IMF report which recently found that countries with highest economic inequality are like adding insult to the injury in a way creates further inequalities which are in the form of widening the gap between men and women in terms of health, education, labor market participation & representation in the elections.

Effect Of inequality on environment&Wages.

As per the Oxfam report , poorest people live in the part of the globe where  climate change is going extreme, the poorest half of the population  only contributes to 10% of the total global emissions. But richest one percentage contributes 175 times of the poorest. So, in the end, the rest of the 50% are left with no choice but to bear the outcome of the actions made by the richest 1%.

In developed & developing countries , the share of the national income going to the workers has been falling ever since 1985 onwards.ie means countries are growing and their GDP has proportionally grown, but the end of the day workers share of the earning has come down drastically.But owners or the capital investors income has swollen continuously through (interest payments, dividends& retained earnings) ,State support to tax avoidance for the capital investors, owners and policies by the govt for continuous and liberal tax regime for the corporate. The CEO’s of the top Indian  IT companies earns 416 times the salary of the ordinary employee.

Economist  ThomasPiketty’s view on India

As per the book  “Capital in the 21st century, a serious work on the comparative analysis and his basic conclusion is that capitalism is hugely in favor of capitalists. In his book, he clearly touches the aspects of the distribution of income and wealth which is hugely in favor of rich who inherit huge wealth which normally  should have been redistributed , but certainly worked another way round . Thomas Piketty was of the view that Indian elite class needs to pay more taxes on their wealth& income . Our country’s tax to GDP ratio is less than 11% which is very low to meet the challenges faced Indian society. So as a nation, our responsibility to  eliminate the poverty  to  zero levels  is very significant because 50% of the global population lives in subcontinent ie is , India & China.

How private sector can play a proactive role in promoting sustainable development

Income and wealth concentration of  India today is probably high by international and historical standards ie is top 10 % of the income share is equal to 50 to 60 % of the total income.

1)    The private sector should come forward and take the initiative to pay taxes diligently instead of collectively bargaining for lower tax regime, In fact, India has a comparatively lower corporate tax regime globally.

2)     The private sector should voluntarily come forward to take up social & welfare issues.

3)    It can create more jobs and build roads

4)     Creation of innovative products and services

5)    Working closely with Govt as a partner in sustainable development

6)    Practice more ecology friendlier  business practices

7)    Contribute to conflict and disaster management.

8)    Leveraging their capabilities in creating positive outcome  through CSR , NVG guidelines

9)    The need to move away from shareholders interest  to a  much more inclusive stakeholders concept.

10)    Learn to pay their fair share of the income and wealth

11)    Encourage business and practices which are more pro-poor.

12)    Become a true example for an equal opportunity employer.

CSR spending In India

The recent reports suggests that in the last  fiscal year 2015 contribution towards CSR was 4000 Crs  , which is well below the expected target of 9000crs which was year marked in the first year  target  and this year Govt targets to achieve 9000 Crs , But the way corporate from various sectors responded to this mandatory spending of 2% of their net profit seems to be inadequate to solve the social issues our country is undergoing in the last two decades.

Meeting the bare minimum target of 2% is significantly lower for top most companies , the Present situation demands more from the top 75%  companies , It is imperative and need of the hour to spend more by becoming responsible leaders in showing the way forward for others to follow .So that lesser and smaller companies can emulate what top companies performs.

It is widely believed  just mere spending on CSR would not serve the purpose of meeting the goals of social development , Certain companies contributed to PM relief funds, instead of that to make the mission successful we need the corporate to take up the responsibility in full extent possible and use their resources at their disposal to create a positive outcomes by involving directly in social , environmental & health  care activities with the same seriousness as they do their business. The private sectors should be exemplars of change leaders  than  observing the activities from the sidelines.

It is very hard to monitor the progress of CSR and NVG  guidelines by the corporate , so seriously a  framework needs to be evolved to bring in more  accountability and it would be better if a  separate index on social responsibility could be  coined in the immediate future, a rating mechanism can also be considered which can bring more companies into the public domain through the ranking  system in the public domain ,So when there is reputational risk , which could  force them to include social responsibility as one important parameter while taking corporate strategic decisions.

So the conclusion is very clear corporate in the last two decades has seen their business growing , balance sheet soaring, company stocks created wealth for many. But in this 21st century,  it is the time  that private corporations cannot shy away from taking up the responsibility .The need  to adopt sound business practices which are collaborative and participatory  in nature . The sound business practices should be based on shared value both economically & socially. In order to scale up the efforts   to solve social issues a concrete voluntary commitment  from private sector  is required.