MCA pains India Inc. today so that India gains tomorrow

By Lehar Tawde, Co-founder, ConnectEd Technologies

On 1st April 2014, India became the first country in the world to make it mandatory for certain companies to undertake specified philanthropic efforts towards social, environmental and human development concerns that plagued the country. As part of newly introduced Section 135 of the Companies Act, every company with a net worth of ₹500 crore or more, or turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more during the preceding financial year, shall spend 2% of the average net profit of the preceding three years on CSR activities.

Recognizing the contribution of local communities in organizational success, doyens of Indian industry had been undertaking developmental efforts in regions that mattered to them since decades – often, well-beyond the 2% mandate, issued by the CSR policy. However, a substantial number of Indian companies failed to develop this understanding, which meant the initial reaction to the CSR Policy was that of shock and disbelief. Several organizations even believed the policy would be repealed shortly.

In the initial years of the CSR Policy, several organizations that were mandated to undertake CSR expenditure were either non-compliant or only partially compliant. However, companies that were complying with the policy were lending their funds, innovative mind-sets, and professional approaches to execute path-breaking developmental programmes that brought unprecedented structural reforms to India’s Development sector. Some of these programmes went on to become model projects that were scaled further by the government.

Covid-19 and CSR

Positive results produced by CSR programmes that were actioned by compliant organizations motivated the Indian government to make the CSR Policy more stringent for non-compliant companies. Before the Covid-19 pandemic struck India, the CSR Policy had been toughened to a point where a non-compliant company could delay its social responsibility, but never evade it. However, during Covid-19, the government needed complete compliance and cooperation from India Inc. to bring the country’s core systems back on its feet.

In 2021, the government amended the CSR Policy to prohibit companies from using any unspent CSR funds for business purposes, claiming donations to state schemes as CSR expense, or setting-off past CSR spends against future obligations. The revision capped administrative overheads and the involvement of international organizations in executing CSR projects to ensure CSR programmes were beneficiary-centric. Additionally, the government mandated registration of implementing agencies and impact assessment of CSR programmes.

Even with respect to concepts covered in the original CSR Policy from 2014 – such as the meaning of CSR, CSR Policy and CSR Implementation – the provisions in the 2021 amendment appeared to be more detailed and structured. This amendment reduced the excessive discretion in the hands of corporates, enhanced clarity, and introduced uniformity by stating the procedures to be followed in certain aspects. As a result, companies that were earlier non-complaint or partially compliant were pushed towards being compliant.

New focus

The impact of Covid-19 on India Inc. during FY 2020-21 disallowed amendments from 2021 to show immediate impact on CSR compliance and efficiency. However, now that it has plugged basic loopholes in the policy pertaining to CSR compliance and efficient deployment of CSR funds, the government’s focus has now moved to capturing, analyzing, maximizing and leveraging the effectiveness of CSR programmes, or ‘Impact’, as commonly addressed in the Development sector.

Through a recent notification issued by the Ministry of Corporate Affairs (MCA) on 11th February 2022, the government mandated India Inc. to furnish a detailed report on Corporate Social Responsibility (CSR) activities, through a 11-page form (CSR-2).

The process is designed to give the government a comprehensive picture of the funds spent, programmes executed, and impact produced by eligible companies across India. The regulation comes into immediate effect and information related FY 2020-21 has to be submitted by end of March 2022 itself.

CSR form-2

Similar to the introduction of CSR Policy in 2014 – the issuance of this notification has evoked mixed reaction from corporates across the country. While some CSR leaders look at the increased reporting as an additional burden, as some of the information sought by the government is already a part of annual reports; some feel that capturing CSR data through a standardized approach could allow the government to analyze this information and leverage insights to enhance its own policies and developmental efforts.

As someone whose EdTech social enterprise (named ConnectEd Technologies) has been working with some of India’s largest socially-responsible corporates to make quality education accessible to government school students, my focus has always been on the impact of our efforts on learning outcomes and academic performance. Since our inception, we have been collecting data-points from thousands of beneficiary students, and their analysis has not only provided valuable insights to our clients and us, but also government authorities.

Even if the CSR-2 Form seems like duplication of efforts to some today, I am happy to see this added layer of compliance as it will make implementing agencies accountable towards the CSR programmes they plan and execute, as corporates will seek more information – particularly regarding impact.

Reporting of key insights from across the country, with a focus on programs that have produced exponential impact, will increase knowledge and promote healthy competition among corporates and implementing agencies; weeding out ineffectiveness.

Most importantly, governmental analysis of this information will enable sound policy formation at senior levels of the government, which will naturally translate to quick, effective and efficient decision-making at the grassroots. Needless to say, such an eco-system will be able to produce rapid and exponential impact on audiences that have been in the dark for longer than anyone deserves – paving way for them and future generations to contribute to and benefit from the India growth story.

Views of the author are personal and do not necessarily represent the website’s views.

The author Lehar Tawde is the Co-founder of ConnectEd Technologies, which is an edtech social enterprise that specialises in creating tailor-made technologies and deploying large-scale developmental programmes that make quality education accessible to government schools and the children studying therein. Under his leadership, the company has been able to forge partnerships with various State Governments, and have projects rendered to over 2 lakh government school students for socially-responsible companies such as Hindustan Unilever, Reliance Industries, Tata Motors – ACGL amongst others.