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Limitations of The CSR Mandate

CSR in India

In 2013, the government of India mandated the companies that makes a net profit above a specified threshold level, to spend to per cent of it on CSR. The law came into effect in April 2014. The law has brought in a lot of participation from corporate India in national development. However, there are certain limitations to the law which has caused the country to not reach its potential development level.

Over exaggeration of facts

Since the CSR legislation, the corporates are required to report their CSR spending each year. The corporates who were spending less than the required 2 per cent, did start to spend more. However, because of an inability to allocate resources after a certain extent, the money started flowing in the government schemes such as ‘Swachh Bharat Abhiyan’. This negates the whole concept of CSR.

Also, since CSR needs to be reported, the organisations view it as an opportunity to claim a higher impact. They paint an unreal picture in the media generating a lot more goodwill and reputation than they deserve.

Reduction in Foreign Investments

The mandatory nature of the law can cause the corporates to view it as another tax. According to KPMG, an audit and consulting company, the corporate tax rate in India is one of the highest at 34.61 per cent, against the global average of 24.09 per cent. An addition to this can discourage foreign companies to invest in India.

Uneven distribution of resources among causes

The law sets a limit of minimum spending a corporate is required to spend. However, it does not define the exact cause that it needs to spend on. The spending has thus not been allocated to democratically determined priorities. For example, in the 2016-17, combating various diseases and education causes received about 45 per cent of total CSR expenditure. However, no funding was allocated for reducing the child mortality rate. Eradication of extreme hunger and poverty also received only 6 per cent of the total CSR expenditure.

Uneven distribution of resources among regions

According to a report generated by CSRBOX, Maharashtra received the biggest chunk of CSR spending in the last 2 years. Five states including Maharashtra. Gujarat, Andhra Pradesh, Rajasthan, and Tamil Nadu accounted for more than 25 per cent of all CSR spending. Whereas, the north-eastern states, that required lot more attention, were among the bottom 5 beneficiaries of the total funding.

The abstractness of the concept

CSR is too abstract a term to have a perfect legal action and definition. It is not possible to define an ‘excellent school’ that is required to be built by a corporate. The only thing that can be done to tackle illiteracy would be to spend money on promoting education and making it accessible.

There is always a limitation to a law. In the absence of voluntary actions, desire to do something good and determination to execute it, the mandate will have no meaning. The CSR law is not the answer, but the first step towards national development.

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The CSR Journal Team