By Jyoti Yadav & Surbhi Chakraborty
When India became the first country in the world to mandate Corporate Social Responsibility (CSR) through Section 135 of the Companies Act, 2013, it marked a bold experiment in aligning private profits with public purpose. Over the past decade, CSR has evolved into a significant pool of funds—tens of thousands of crores annually—that touch nearly every sector, from education and health to environment and rural development. Yet, as the latest report of the Standing Committee on Finance highlights, the promise of CSR remains undercut by weak monitoring, opaque reporting, and a lack of demonstrable impact on the ground.
It is time, therefore, that the government undertakes a comprehensive review of the CSR eco-system. India’s CSR journey is at an inflection point: Either it matures into a globally credible model of corporate accountability or risks becoming a box-ticking exercise with limited social dividends.
The strength of the legal framework
The CSR law is robust on paper. Companies above certain financial thresholds must spend at least 2% of their average net profits over the preceding three years on activities specified under Schedule VII of the Act. A CSR Committee of the Board is mandated to design, monitor, and disclose the company’s CSR policy. There are requirements for statutory audit disclosures, impact assessments for large projects, and penalties for non-compliance.
These provisions create, in theory, a strong accountability chain: from corporate boards to auditors, from the Ministry of Corporate Affairs (MCA) to shareholders and the public. The introduction of the "Unspent CSR Account," which obliges companies to park unutilized funds for up to three years before transferring them to designated public funds, is also a progressive measure. It acknowledges that meaningful projects require time while discouraging indefinite delays.
The persistent gaps
But the Committee’s concerns are telling. Despite detailed rules, CSR still suffers from three systemic gaps:
-- Transparency of unspent funds: While companies are required to disclose amounts parked in the unspent account, there is no publicly accessible, real-time system to track whether those funds were eventually used for their intended purpose. The opacity creates fertile ground for under-utilization or diversion.
-- Impact assessment: Too often, CSR reporting is about how much was spent and on what, rather than what difference it made. Did the skill development program lead to jobs? Did the health initiative reduce disease prevalence? Did the education project improve learning outcomes? Without such answers, CSR risks being an accounting entry rather than a development instrument.
-- Enforcement of penalties: While penalties for non-compliance exist, the Committee notes the lack of detailed disclosure on how often they are imposed, how much is collected, and whether they deter future lapses. Without consequences, the law risks losing credibility.
Why it matters
CSR in India is not a small change. In FY 2021–22 alone, Indian companies spent over ₹25,000 crore on CSR, with the bulk going into education, health, environment, and rural development. This is more than the annual budget of several central ministries. If these resources are used well, they can complement government schemes, address last-mile delivery gaps, and catalyze innovative solutions to India’s development challenges. But if CSR remains poorly monitored, it could deepen inequalities. Companies may concentrate projects in states where they have operations—leading to geographic imbalances—or fund visible but low-impact projects such as publicity-driven donations, leaving structural issues unaddressed.
The way forward: Making CSR count
The Committee’s recommendations deserve urgent action, and they point to three key reforms.
-- Publish impact reports, not just expense sheets
It is not enough for companies to report that they spent ₹10 crore on education. They must demonstrate, through independent evaluations, how many schools were improved, what learning outcomes changed, and what challenges remain. The MCA should mandate standardized impact-reporting templates and publish them in a central, publicly searchable portal. Transparency will both improve credibility and enable replication of successful models.
-- Create a public dashboard of unspent funds
A digital dashboard, updated quarterly, could track every rupee of unspent CSR funds—when it was transferred, whether it was eventually used, and for what. This would empower civil society, researchers, and even beneficiaries to hold companies accountable. In an era of digital governance, opacity is a choice we can no longer afford.
-- Strengthen implementing agencies
Much of CSR today is executed through NGOs or implementing agencies. Yet their capacities vary widely, and there is little systematic assessment of whether they are delivering value for money. Accreditation systems, capacity-building programs, and outcome-based funding models could raise standards. At the same time, companies must resist the temptation to route CSR through group foundations alone and instead diversify partnerships.
Beyond compliance: Reimagining CSR
Even as we fix compliance, we must also reimagine CSR’s purpose. It should not be seen as a burden on profits but as an investment in long-term sustainability. Companies should align CSR with their core competencies: an IT firm can support digital literacy, a pharma company can strengthen public health, and a manufacturing firm can invest in skilling and green technologies. This creates both social impact and business relevance.
Second, CSR must address systemic issues rather than scattershot philanthropy. For instance, rather than building yet another school building, companies could fund teacher training at scale. Instead of donating ambulances, they could support telemedicine networks that bring healthcare to remote villages. The focus must shift from inputs to outcomes.
Third, CSR must complement—not substitute—public spending. It cannot replace government responsibility for health or education. But it can innovate, pilot, and demonstrate scalable models that the state can then mainstream.
Conclusion: The next decade of CSR
India’s CSR journey began with the world watching. A decade later, the country stands at a crossroads. The legal scaffolding is strong, the resources are significant, and the intent—at least in principle—is laudable. But intent without impact is insufficient.
The Standing Committee’s call for a more transparent, impact-driven, and enforceable CSR regime should not be seen as a criticism but as an opportunity. If implemented, it can transform CSR from a compliance exercise into a genuine lever of social change.
In a country where millions still lack access to quality education, healthcare, and sustainable livelihoods, CSR must be more than a line item in annual reports. It must be a contract—between companies and society—that profits are inseparable from purpose, and that business success is measured not only in shareholder returns but also in societal outcomes.
The next decade of CSR in India will decide whether this pioneering experiment becomes a global model or a missed opportunity. The choice is ours.
(The writers are associated with the Pahle India Foundation, a policy think-tank based in New Delhi.)
The views expressed are not necessarily those of The South Asian Times
