Under the Companies Act, 2013, firms earning profits are required to contribute at least two per cent of their three-year annual average net profit towards corporate social responsibility (CSR) activities. The CSR provisions came into effect from April 1, 2014.
Every company with a net worth of at least Rs 500 crore or a turnover of Rs 1,000 crore or more, or a minimum net profit of Rs 5 crore during the immediately preceding financial year has to spend at least 2% of the average net profits, made during the three immediately preceding financial years, on CSR activities.
But before we evaluate the CII’s recent recommendation, let us delve into how corporations have fared so far when it comes to CSR spending.
Contributions towards CSR plunged sharply by 64% to Rs 8,828 crore in 2020-21 from Rs 24,689 crore the year before, making it the lowest in seven years.
80% of this went to the top 10 beneficiary states. In FY21, as many as 1,619 companies spent on 8,000 CSR projects. In the previous year however, 22,531 companies showed CSR spends.
94% of the total expenditure during the year was done by 1,599 non-Public Sector companies.
Mukesh Ambani-led Reliance Industries spent Rs 922 crore, topping the charts.
Tata Group’s flagship company Tata Consultancy Services was the second highest spender at Rs 674 crore while Wipro was third, with Rs 246 crore. Overall, Tata Group companies collectively spent nearly 1,000 crore on CSR in the year.
However, 353 of the 1,619 companies in FY21 spent less than the mandated amount while 178 companies showed zero spends.
Listed companies typically account for 60-70 of the total CSR spending. However, the government doesn’t disclose the collective amount that eligible companies are prescribed to spend each year.
Last August, CRISIL Foundation estimated that India Inc’s CSR expenditure in FY21 would come in at around Rs 22,000 crore. But the actual spending was less than half of this.
Bhaskar Chatterjee, widely acclaimed as the father of Corporate Social Responsibility (CSR) in India, tells us why CSR spending plunged in FY21 and what he expects going forward.
Since the CSR spending was mandated in 2014 for certain companies, the cumulative spending has crossed Rs 1.09 trillion.
There has been a secular trend in how CSR expenditure has grown since 2014, from just over Rs 10,000 crore in 2014-15 to a high of almost Rs 24,700 crore in 2019-20.
Given the trend, pandemic years can be seen as an aberration. Dominated by listed companies, the expenditure will certainly see a growth after normalising, although inefficiencies may persist.
Experts meanwhile believe that a stringent implementation could make CSR equivalent to a tax, as it is essentially based on the concept of benevolence.
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