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Corporate Social Responsibility Practices during Post Mandate Period in India–a Study Dr. Swapan Sarkar1 & Priyadarshini Chatterjee2 1Assistant Professor, Department of Commerce, University of Calcutta. Email: [email protected] 2Assistant Professor, Adamas University. Email: [email protected] Abstract Companies Act 2013 has completely changed the way corporate social responsibility (CSR) was viewed in India traditionally. It has implemented a comprehensive framework on CSR policy formulation, execution, monitoring and review to guide the corporate organizations. As a result, there is has been a clear shift in the CSR practices of the eligible companies during the post mandate period (since 2014-15). In this backdrop, our study is a humble attempt to analyse the trend in CSR practices among the BSE SENSEX companies during this post mandate period. Based on an in depth analysis of Annual CSR Reports of BSE SENSEX companies, the study has found that not only the companies are more inclined to meet the quantitative threshold but also they have put serious effort towards building a CSR culture within the company. The degree of compliance by the sample companies with the legislation, as measured by an indigenous CSR Compliance Index, is also quite impressive. All of these strongly prove the commencement of a new era in corporate social responsibility in India. Keywords: Corporate social responsibility, companies Act 2013, BSE Sensex.

1. Introduction

Business entities operate in a societal framework. They use various social resources in their effort to produce goods or provide services. As a result they cannot deny their responsibility towards maintaining societal wellbeing. This social responsibility is more relevant for corporate entities as, across the world, they are the highest consumers of societal resources. Keeping this in mind, regulators in different countries introduced well structured legislations to guide as well as monitor the corporate social responsibility (CSR) practices of corporate organizations. For example in United Kingdom, CSR is guided by UK Corporate Governance Code, Turnbull Guidance and Companies Act 2006. In USA, legislations such as SOX Act 2002 covers CSR partially. Additionally, international organizations such as OECD, International Labour Organisation (ILO) also provide ample guidelines targeting CSR. Unfortunately such a requirement was largely ignored by Indian regulators and hence recognizing and adhering to their social responsibilities were traditionally a voluntary exercise by even the goliaths of Indian corporate sector.

However, the introduction of the new Companies Act 2013, which contains a well defined framework in this regard, seems to change the scenario completely. In this backdrop, our study is a humble attempt to analyse the trend in CSR practices among the leading corporate firms in India.

The BESC Journal of Commerce and Management (Print ISSN: 2395-4639, Volume 5, July 2019) Online issue URL: http://bjcm.bescollege.net/vol5

Online version: http://bjcm.bescollege.net/v5/v501.pdf

4 The BESC Journal of Commerce and Management, Volume 5, July 2019

2. The Idea of CSR in India -A Historical Overview:

The idea of social responsibilities of business organizations may be traced back to thousand years which developed over time. This is because, a sense of ethical practice and respect towards social principles was deep rooted in Indian culture historically. There are ample examples of ethical and charitable practices by businessmen in our ancient literature. In Rig Veda, the ancient Hindu scripture, the need for the wealthy to plant trees and build tanks for the community is advocated (Ref: Rig Veda in www.aryamanthavya.in). Atharva Veda says that one must procure wealth with one hundred hands and distribute it with one thousand hands (Ref: www.sacred-texts.com). Manu Smriti also emphasizes following the righteous path in earning wealth (Kuhumita, 2016).

The idea of CSR during the British colonization in India was also the same. CSR was conceived more as a charitable or philanthropic practice and therefore was largely influenced by family values, tradition and religion. Things started changing after 1850s when business pioneers like Tatas, Birlas not only put their indigenous effort to make a strong footprint in industrialization process but also set up charitable foundations, healthcare and educational institutions and trusts for community development. Sir Ratan Tata Trust was established in 1919. The idea got further acceptance from the larger section of the businessmen during the independence movement. Following the Gandhian concept of ‘trusteeship’ in building a new India, many business organizations across India came forward to establish trusts for educational and research institutes, for rural development and women empowerment (Choudhury, 2016). Post independence up to 1980s, Indian economy was largely influenced by mixed economic policies with public sector dominance. Accordingly, suitable legislations were enacted on corporate conduct, labour and environment related issues with an overall objective to protect those who are vulnerable and marginalized and to ensure equitable distribution of social wealth. However, very soon the expectations shifted to the private sector due to their miserable success rate and high political interference. The idea got further changed in 1990s with the wave of LPG (liberalization, privatization and globalization) which led to intense competitive threat, even from the global peers. As a result business organizations started adhering to their ethical and social responsibilities in an attempt to build reputational capital. This, along with a sincere effort on the part of the regulators to develop a socially responsible and ethically transparent corporate citizenship, has shaped the present idea of CSR being an important business strategy to ensure long term sustainability through maintaining societal and environmental stability and adhering to the rights of the stakeholders.

3. Present Legislation on CSR in India

Introducing a well defined regulatory framework to motivate and guide the corporate sector was never on an agenda for Indian regulators. This is why the Companies Act 1956, though was operative over six long decades, never had a single provision on CSR. The present legislation is totally an outcome of the recent implementation of Companies Act 2013.

The Legal Framework: The present legal framework on CSR in India comprises of –

(a) Section 135 of Companies Act 2013 [Notified on 01.04.2014];

(b) Schedule VII of Companies Act 2013; and

(c) Companies (Corporate Social Responsibility Policy) Rules 2014 [Notified on 01.04.2014].

The salient features of these regulations are given below.

Formation and Composition of CSR Committee: Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees

5 Corporate Social Responsibility Practices during Post Mandate Period in India–a Study

five crore or more during the immediately preceding financial year (amendment effective from 19.09.2018) shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

Board’s Report and CSR Committee: The Board's report u/s 134(3) shall disclose the composition of the Corporate Social Responsibility Committee. [Section 135(2)].

Functions of CSR Committee: The Corporate Social Responsibility Committee shall — (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in Schedule VII.

(b) recommend the amount of expenditure to be incurred on the above activities; and (c) monitor the Corporate Social Responsibility Policy of the company from time to time.

[Section 135(3)]

Board’s Responsibility: The Board shall,—

(a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and

(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company. [Section 135(4)]

CSR Spending: The Board of every company shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. The company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities. If the company fails to spend such amount, the Board shall specify the reasons for not spending the amount. [Section 135(5)]

Modalities of Undertaking CSR Activities [Rule 4]:

(i) The CSR activities shall be undertaken by the company, as per its stated CSR Policy, as projects or programs or activities (either new or ongoing), excluding activities undertaken in pursuance of its normal course of business.

(ii) The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through

a company established under section 8 of the Act or a registered trust or a registered society, established by the company, either singly or along with any other company; or

a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature.

(iii) A company may also collaborate with other companies for undertaking projects or programs or CSR activities.

(iv) The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act.


(v) Companies may build CSR capacities of their own personnel as well as those of their Implementing agencies through Institutions with established track records of at least three financial years but such expenditure shall not exceed five percent of total CSR expenditure of the company in one financial year.

(vi) Contribution of any amount directly or indirectly to any political party shall not be considered as CSR activity.

CSR Policy [Rule 6]

The CSR Policy of the company shall, inter-alia, include the following namely:-

(a) a list of CSR projects or programs which a company plans to undertake in areas or subjects specified1 in of the Schedule VII of the Act, specifying modalities of execution of such project or programs and implementation schedules for the same; and

(b) monitoring process of such projects or programs:

CSR Report [Rule 8]

The Board’s Report shall include an annual report on CSR containing particulars specified in Annexure.

Areas of CSR Activities [Schedule VII]: The broad areas are:

(i) Eradicating hunger, poverty and malnutrition, promoting health care including preventinve health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.

(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.

(iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.

(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.

(v) protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts;

(vi) measures for the benefit of armed forces veterans, war widows and their dependents;

(vii) training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports

(viii) contribution to the prime minister's national relief fund or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;

(ix) contributions or funds provided to technology incubators located within academic institutions which are approved by the central govt.

1 Amendment effective from 19.09.2018.


(x) rural development projects

(xi) slum area development.

4. Problem Identification

The implementation of Section 135 and its recent amendments have changed the way CSR activities were previously undertaken by Indian companies. The disclosure requirements, in this context, have also made it possible to objectively assess the activities and their results. Thus, an investigation as to how the Indian corporate sector is obliging the CSR mandate has become imperative.

5. Literature Review:

A considerable number of research studies have been undertaken on different aspects of CSR in India during the post mandate period. Findings of some of these studies are really noteworthy in this context. For example -

Narwal and Sharma (2016) used factor analysis while inspecting the perception of CSR in India. They found that in a market driven economy, society does value CSR positively but at the same time is skeptic about its real impact. However, it always expects a responsible and ethical conduct on the part of the corporate firms.

Krishnan (2018) found that firms engaged in the manufacturing industry allocate more of their CSR spending towards environmental sustainability as compared to the firms engaged in the service industry.

Reddy et al. (2017) conducted a study on the areas chosen by companies for their CSR spending. He found that selected IT companies prefer environmental sustainability to all other areas of CSR. Community development was found to be the least preferable to these companies.

Bansal and Rai (2014) found that over the years CSR spending by companies have increased considerably even in the absence of any mandate. However, the pattern of spending was largely different across industries.

Sawant and Patil (2017) found that actual CSR expenditure differs significantly from the mandated 2% for the sample companies over the sample period. Companies from industries such as Pharma, Auto, Oil and Gas, FMCG and Chemical failed the most in this regard.

Maqbool and Zameer (2017) applied a panel data analysis on a sample of 28 Indian commercial banks over a 10 years period. He concluded that CSR can really be helpful to create competitive advantage for any corporate organisation.

Mitra et al. (2015) conducted an in depth factor analysis on select companies. They came to the conclusion that CSR is positively associated with firm performance.

Susruth (2017) studied the level of CSR initiatives taken by the Indian companies and its influence on the performance of the companies. Based on suitable statistical measures, he concluded that there exists a positive relationship between CSR and firm performance.

6. Research Gap

Our extensive survey of existing literature reveals the following important observations:


A considerable number of studies conducted during the post mandate period are descriptive or theoretical in nature and concentrated more on identifying the possible impact of change in legislation on Indian corporate sector.

A good number of studies have also attempted to analyse the CSR spending pattern of Indian firms during the post mandate period. Additionally, a few studies have undertaken an investigation into the association between CSR spending and firm value.

Attempts have also been made in a few studies to identify the role of CSR in improving the profitability of a firm, though it is highly doubtful whether a causal relationship can at all exist in this front.

Unfortunately, none of the studies considered the other aspects of CSR practices like constituting a CSR committee, composition of the committee, reviewing the CSR policy regularly, mode of spending, CSR disclosure etc. as mandated in the legislation.

Recent studies also lag behind in analysing the trend in CSR practices by Indian firms, both on quantitative and qualitative front.

Not a single study has attempted to investigate the degree of overall compliance with CSR regulations by companies.

7. Objectives of the Study

Keeping the above research gap in mind, the study sets the following research objectives:

To analyze the trends in CSR practices of leading Indian companies on both quantitative and qualitative front.

To measure the degree of overall compliance (with CSR regulations) by the leading Indian companies.

8. Research Methodology

Our study is exclusively empirical in nature as it aims to conduct an analysis of the CSR practices across leading Indian companies and to measure the degree of compliance with Section 135 by such companies.

The primary sample comprises 30 companies belonging to BSE SENSEX as on 30.06.2018 (though as on 30.06.2018, BSE SENSEX comprises of 31 stocks, Tata Motors DVR shares represents not a separate company than Tata Motors). The selection may be justified by the fact that they are the 30 most valued companies (in terms of market capitalization) to the investors and hence are expected to take a prime role in the Indian corporate sector by adhering every single regulation while discharging their social responsibilities. Of the 30 companies 25 are private sector companies and only 5 are public sector companies. However, as per govt. notification, SBI (a public sector company) is not required to comply with Section 135. Thus our final sample consists of 29 companies of which 4 are public sector companies and 25 are private sector companies.

The study is entirely based on secondary data in form of information provided by the sample companies in their Annual Reports. Accordingly, the relevant information on CSR practices has been collected from the Annual CSR Report provided as an Annexure to the Director’s Report of the sample companies. In


order to analyse the trend in CSR practices and degree of CSR compliance, data for 4 (four) post mandate financial years i.e. 2014-15 to 2017-18 are used.

The study resorts to appropriate statistical tools including percentage distribution, bar chart and pie chart. Additionally, it calculates a CSR Compliance Index (CSRCI) to measure the degree of compliance with Section 135 and allied regulations. It uses Excel 2007/2013 and SPSS 19.0 for processing the data and conducting the analysis.

9. Empirical Results

The results of our analysis are summarized below:

Industry Classification of Sample Firms: Of the 29 index constituents, industry-wise participation is the highest in Finance (27.58%) followed by Transport (17.24%). Information and Technology firms and Metal, Metal Products and Mining firms contribute 10.34% each. The participation is, however, the minimum for telecom, capital goods, chemicals and healthcare industry, each contributing 3.44% to the total sample of 29 firms. Another interesting fact is that the participation of PSUs in the sample firms is restricted to three industries only viz. power (2), metal (1) and oil and gas (1).

Source: Compiled from SENSEX Constituents List

Fig. 1: Industry Classification of Sample Firms

Companies Eligible for Mandatory CSR Reporting u/s 135: As expected all the 29 companies in our sample are eligible for mandatory CSR reporting as per Section 135 by satisfying one or more of the eligibility criteria. More specifically, Sun Pharma failed to meet the profit criterion throughout the study period while Bharti Airtel and Tata Motors failed on two occasions each (Bharti Airtel in 2016-17 and 2017-18 and Tata Motors in 2014-15 and 2017-18). Coal India, on the other hand, failed to satisfy the turnover criterion in 2016-17 and 2017-18.

Table 1: Eligibility as per Alternative Criteria

Criterion Met No. of Sample Firms That Met The Criterion

Capital Goods4%

Chemical and Petrochemical

4%

Finance28%

FMCG7%Healthcare

3%

IT10%

Metal10%Oil and Gas

7%

Power7%

Telecom3%

Transport 17%

Industry Classification of Sample Firms


2014-15 2015-16 2016-17 2017-18

Net Worth (≥ 500 Cr.) 29 29 29 29

Revenue (≥ 1000 Cr.) 29 29 28 28

Profit (≥ 5 Cr.) 27 28 27 26

Source: Compiled from Annual Reports

CSR Committee:

(a) Total no. of directors: All the 29 companies which are eligible u/s 135 have constituted a CSR committee in all the four financial years under study. Moreover, all of them have complied with the desired composition of at least 3 directors (Fig.2) in the CSR committee during each of the years under

study. Consider the following figures.

Fig. 2: Actual no. of firms appointing directors Fig. 3 Percentage Distribution of firms


An interesting fact observed in this context is that increasingly the companies are appointing more no. of directors in the CSR committee rather than obliging the bare minimum (Fig.3). For example, the number of companies appointing 6 or more directors in the CSR committee has grown to 7 in 2017-18 from 4 in 2014-15. This shows that companies are taking the CSR issues seriously and trying to develop a more comprehensive CSR policy of their own by accommodating more directors. This is because more number of directors can possibly introduce newer dimensions in the CSR policy framework to be suggested by the CSR committee.

0

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8 Directors

7 Directors

6 Directors

5 Directors

4 Directors

3 Directors

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2014-15 2015-16 2016-17 2017-18

3 Directors

4 Directors

5 Directors

6 Directors

7 Directors

8 Directors


(b) No. of Independent Directors: As per the Companies Act, a CSR committee must have at least 1 independent director. Though all the companies met the requirement (Fig.4), they varied widely in terms of accommodating more number of independent directors in the CSR committee. Consider the following two figures:

Fig. 4: Actual no. of firms appointing directors Fig. 5: Percentage Distribution of firms


Just like the total number of directors, here also we observe a similar trend. Increasingly more companies are found to appoint higher no. of independent directors in the CSR committee than the bare minimum (Fig.5). For example the number of companies appointing 2 or more directors in the CSR committee has grown to 17 in 2017-18 from 13 in 2014-15. Since induction of more independent directors is considered as an indication of higher transparency in dealings, this trend confirms that companies are more likely to ensure that CSR policies are framed in a transparent manner and activities are conducted accordingly.

(c) Chairman of the CSR Committee: Though not mandatory, appointment of an independent director as the chairman of the CSR committee may mean more transparency and stakeholder orientation. Our analysis reveals that among the 29 sample companies only 12 appointed an independent director the chairman of CSR committee in 2014-15. The figure slipped to 11 in 2015-16. However, during the last two years (2016-17 and 2017-18) the number steadily increased to 15 (Fig.6). This clearly indicates that corporate organizations are taking every step to ensure transparency in framing and maintaining their CSR policy.

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2014-15 2015-16 2016-17 2017-18

Only 1

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35

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2

Only 1


Fig. 6: No. of Companies Having an Independent Director as the Chairman


As per the requirement, composition of the CSR committee has been disclosed by all the sample companies in all the four years under study. However, instead of the Directors’ Report or the Annexure to it, some companies have included such information in the Corporate Governance Report with reference of the same in the Directors’ Report, just to avoid repetition of information in the Annual Report.

CSR Policy:

All the 29 companies in our sample do have a CSR policy. The content of the policy has been disclosed by a number of companies in the Annexure to the Directors’ Report. Other companies, however, preferred to provide a web link of the CSR policy in the Directors’ Report. All the sample companies claimed to have placed the policy document in its official website.

Though the legislation also requires the eligible companies to disclose in detail the modalities of executing their CSR policy, unfortunately, the same is far from adequate and hence should be of serious concern for the regulators. In order to judge how effectively the CSR policy is reviewed and monitored, we have calculated the number of CSR committee meetings held during the year as a yardstick. We have found that while the average number of meetings held during 2014-15 was 2.93 per year, the same increased to 3.24 in 2016-17 and 3.45 in 2017-18. Such an increase is a clear indication that the companies are increasingly putting more stress on reviewing and monitoring their CSR policy regularly.

CSR Spending:

(a) Quantum of CSR Spending: Out of the total sample of 29 companies, 26 companies each in 2014-15, 2015-16 and 2016-17 and 27 companies in 2017-18 were found to have positive average net profit. Tata Motors and Sun Pharma exhibited average net loss throughout the study period while Vedanta showed average net loss in all years except 2017-18. Accordingly, the CSR committees of all the firms having average net profit in the corresponding financial year recommended spending 2% of the average net profit of the respective companies for CSR purpose. We have analyzed the recommended and actual CSR spending (out of current year’s allocation i.e. excluding carry forwards) of these companies. The results are as follows:

02468

101214161820

2014-15 2015-16 2016-17 2017-18

Independent Director being the Chairman

Yes

No


Table 2: Summary Statistics of Percentage of CSR Spending by Sample Companies

Descriptive Statistics 2014-15 2015-16 2016-17 2017-18

Count 26 26 26 27

Minimum 0.107838 0.172244 0.053725 0.071381

Maximum 2.818148 14.18234 18.78254 9.55414

Mean 1.347682 2.441254 2.474758 2.312731

Standard Deviation 0.673634 2.717965 3.390108 1.900435

Source: Calculated by the authors

The results exhibit that the minimum and maximum percentage of profit spent in 2014-15 were 0.107838 (Hero Motocorp.) and 2.818148 (RIL). The mean percentage spending was 1.347682. In 2015-16 ONGC spent the most followed by Coal India (in terms of percentage of average profits). Coal India remained on top in 2016-17 while Vedanta spent the most in percentage term in 2017-18. The mean percentage spending declined slightly in 2017-18 after a steady increase in 2015-16 and 2016-17. In absolute term, however, Reliance Industries spent the highest amount on CSR throughout the study period.

We have also calculated the number of firms spending At least 2%, 1% to 2% and less than 1% of their average profits on CSR in each of the four years under study. The results are shown in the following figure.

Fig.7: No. of Firms with their CSR spending pattern


It can be observed that the number of firms complying with the mandate has increased steadily over time from mere 6 in 2014-15 to 20 firms in 2017-18. This shows compliance with the regulation in this respect has significantly improved over the last four years. However, the reporting for failure to spend the required amount on CSR is far from adequate.

0

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25

2014-15 2015-16 2016-17 2017-18

2% or More

1% to 2%

Less than 1%


(b) Areas of CSR Spending: The areas chosen by the sample companies to spend their recommended CSR expenditure vary widely. The study has analysed the areas selected by the companies over the study period by appropriately mapping the respective projects and/or programmes with the eleven CSR areas/ subjects mentioned in Schedule VII of the Act. The result of the analysis is given below.

Table 3: Areas Selected by Sample Companies for CSR Spending

No. of Companies Selecting the Area (Year-wise)

CSR Area As per

Schedule VII

Percentage of Total Companies Selecting the Area (Year-wise)

2014-15 2015-16 2016-17 2017-18 2014-15 2015-16 2016-17 2017-18

29 29 28 29 i. 100 100 97 100

29 29 29 29 ii. 100 100 100 100

14 13 16 18 iii. 48 45 55 62

22 23 25 23 iv. 76 79 86 79

10 13 10 11 v. 34 45 34 38

1 3 4 4 vi. 3 10 14 14

8 10 11 10 vii. 28 34 38 34

7 7 0 2 viii. 24 24 0 7

2 0 1 1 ix. 7 0 3 3

16 20 19 17 x. 55 69 66 59

1 0 0 1 xi. 3 0 0 3

Source: Compiled by the authors

The above table shows that eradicating hunger, poverty and malnutrition (area no. i) and promoting education (area no. ii) have been the most preferred areas over the year with almost 100% participation. This has been followed by environmental sustainability (area no. iv) with around 80% participation from the sample firms. Companies have also shown interest in rural development (area no. x), promoting gender equality and women empowerment (area no. iii) and protecting national heritage (area no. v). However, they can be found less interested in promoting sports, contributing to designated funds, technology incubation and slum area development. The trend has remained more or less similar across the study period. A detail analysis of area wise CSR spending could not, however, be done due to non-uniformity in the reporting format. Amount spent on capacity building was also not shown separately by many companies.

(c) Mode of Spending: Except for a very few companies, direct spending of CSR amount has been found to be significant for sample firms over the entire study period. Another important fact revealed in this respect is that most of the private companies have preferred to spend for CSR through the trusts


established by them. These include Infosys Foundation, Reliance Foundation, Fair and Lovely Foundation (HUL), HCL Foundation, Sun Foundation, Bharti Foundation etc. Though allowed in the Act, none of the companies have collaborated with another company to conduct CSR activities. It shows that the companies are not yet interested to share the social connect and credit that they achieve through CSR projects with another company.

Overall Compliance:

In order to judge the overall degree of compliance with Section 135 and allied regulations, the study has devised a CSR Compliance Index (CSRCI) based on 14 compliance requirements (assigning 1 and 0 for the status ‘Complied’ and ‘Not Complied’ respectively) as follows:

CSRCIj = . .

100.

The 14 areas for compliance have been identified based on Section 135 of the Act, related Rules and Schedule VII as follows:

Table 4: Components of CSRCI construction Methodology

Questions (Possible Response and Scores Allotted)

Has the company constituted the CSR Committee? (C = 1, NC = 0)

Does the company have minimum required number of directors in the committee? (C = 1, NC = 0)

Does the company have minimum required number of independent directors? (C = 1, NC = 0)

Does the BOD report disclose the composition of CSR Committee? (C = 1, NC = 0)

Does the company have a CSR policy duly recommended by the CSR Committee and approved by the Board? (C = 1, NC = 0)

Does the above CSR Policy approve the activities that it plans to undertake? (there must be a list in the CSR policy) (C = 1, NC = 0)

Does the CSR policy specify the modalities of their execution? (C = 1, NC = 0)

Are the activities in line with Schedule VII of the Companies Act? (C = 1, NC = 0)

Has the CSR Committee recommended the amount of expenditure? (C = 1, NC = 0)

Does the CSR policy specify the monitoring process of such programmes? (C = 1, NC = 0)

Does the CSR Committee monitor the CSR policy regularly? (C = 1, NC = 0)

Does the BOD report disclose the content of CSR Policy? (C = 1, NC = 0)

Has the company placed the report containing CSR Policy on its website? (C = 1, NC = 0)


Is the actual spent as per the recommendation of the CSR committee? (C = 1, NC = 0)

The trend in CSRCI over the four year study period has been shown in the following figure.

Fig.8: CSRCI of Sample Companies

Source: Computed by the authors

In 2014-15 only 8 firms could achieve full compliance. Non-compliance could be observed the most in spending the required CSR expenditure, followed by non disclosure of CSR modalities in the CSR report. However, the situation really improved over the time and the number of firms achieving a full compliance increased steadily to 21 in 2017-18. Since non compliance of CSR requirements still don’t attract any monetary penalty and companies only need to mention a suitable justification for the same, an improvement in CSRCI surely indicates that the companies are increasingly being aware that better CSR practices can help them to build reputational capital which can contribute in their long term sustainability.

10. Conclusion

Implementation of Section 135 of Companies Act has made CSR a mandatory action rather than a philanthropic gesture. As a result, non compliance of the mandate may not only attract legal consequences, but can also hamper the reputational capital of the company. Thus, at least the premier corporate institutions are expected to take CSR requirements seriously. Our study was an attempt to explore this trend over the post mandate four years period.

Based on a comprehensive analysis of various aspects of CSR practices by the leading companies included in our sample, we find that the overall trend is really encouraging. Majority of the companies are putting every effort to build a transparent and effective CSR policy by ensuring greater participation and involvement of independent directors, they are reviewing the policy more regularly and executing the same with a professional approach. Even though monetary or other punishment is still absent, number of companies having CSR spending less than the recommended amount has declined significantly. Moreover, defining the CSR areas have appropriately directed the spending towards social cause and reduced any scope of manipulation by the companies. The overall compliance (as measured

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CSRCI = 100

CSRCI = 93

CSRCI = 86


by CSRCI) rate is also improving over the period. However, there is still some scope of improvement so far as the reporting of area wise CSR spending and reasons of unspent amount are concerned. All these clearly show that the objective behind introducing the CSR legislation has largely been successful in creating a CSR culture among the Indian corporate firms.

Hence, it will not be wrong to conclude that the CSR has got a makeover in India and in future we can surely expect a new era of increased corporate participation in economic as well as social development across the nation.

11. References

Articles Consulted:

Bala, M. (2014), ‘Empirical Study of the Components of CSR Practices in India: A Comparison of Private, Multinational and Public Sector Companies’, Pacific Business Review International, Volume 7, Issue 1, 2014, pp.61-72.

Bansal and Rai (2014), ‘An Analysis of Corporate Social Responsibility Expenditure in India’, Economic and Political Weekly, Volume 49, Issue 50, 2014.

Choudhury, A. (2016) Gandhi on Trusteeship; An Ethical Approach, Lambart Academic Publishing, 2016

Kuhumita, L. (2016), Corporate Social Responsibility in Ancient Indian Wisdom: An Analysis, International Journal of Legal Developments and Allied Issues, 2016, pp.17-22, available at ijldai.thelawbrigade.com/wp-content/uploads/2016/03/kuhumita.pdf.

Krishnan, A. (2018) Comparative Analysis Study on CSR Expenditure in India: The Case of Manufacturing and Service Industries, International Journal of Pure and Applied Mathematics, Volume 118, No. 9, 2018, pp. 421-443.

Maqbool, S. and Zameer, M.N. (2017), ‘Corporate social responsibility and financial performance: An empirical analysis of Indian banks’, Future Business Journal, Volume 4, 2018, pp. 84-93.

Narwal, M. & Sharma, T. (2016), Perceptions of Corporate Social Responsibility in India: an Empirical Study, Journal of Knowledge Globalisation Vol 1, No. 1, Spring, available at https://www.researchgate.net/profile/Tejinder_Sharma/publication/255586541.

Reddy et al. (2017), ‘Corporate Social Responsibility of Indian IT Companies- A Study on CSR Activities of Select Companies’ IJLTEMAS, Volume VI, Issue VI, June 2017, pp.18-21.

Susruth, M. (2017), A Study on Corporate Social Responsibility and Financial Performance in The Indian Context, International Journal of Commerce and Management Research, Volume 3, Issue 5, May 2017, pp. 07-12.

Sawant, P. D. and Patil, M. R. (2017), ‘Corporate Social Responsibility Performance of Select Manufacturing Companies in India: An Empirical Study’ International Journal of Engineering and Management Research, Volume 7, Issue 4, 2018, pp.216-223.

Web Resources/ Contents:

Official websites of sample companies

http://www.mca.gov.in

https://www.bseindia.com

http://www.aryamanthavya.in

http://www.sacred-texts.com

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