Shady tactics by India Inc to spend less on CSR

The Indian government is the first in the world to make corporate social responsibility (CSR) mandatory for the private sector. Executed in the right spirit, it would be a boon for Nation Building. Yet companies in India repeatedly find ways to sidestep the spending prescribed by law.

Tactics by India Inc to sidestep CSR

Various companies in India are using shady means and loopholes in the Companies Act to avoid disbursing large funds for CSR activities. One could marvel at the level of creativity involved in strategising this evasion. Rather than fulfilling their social obligation and doing public welfare, they are convoluting the meaning of sustainability to serve their own financial interests.

Raising awareness or profits?

One of the ways Indian companies are increasing their profit margin in the name of CSR is through awareness campaigns. As innocuous as they sound, these campaigns are actually profit-driven marketing strategies that do more for the brand than the beneficiaries.

Awareness campaigns usually encompass issues related to health and sanitation. Corporates categorise them as social outreach programmes for behaviour change. FMCG companies run these campaigns as part of their CSR in new markets to increase demand for their own products, like soaps, handwashing liquid, sanitizers, detergents and toiletries. This “CSR expenditure” would have otherwise fallen under the cost for business promotions. There is no room for shared value proposition in CSR, yet some conglomerates are getting away with it especially after COVID-19.

Excuses for non-compliance

The 2019 report of the High Level Committee on Corporate Social Responsibility includes a telling chapter on issues related to CSR compliance. Look through the major reasons Indian companies have listed for underspending in the last four years, and you will find excuses like “suitable projects not found” and “unable to find suitable implementation agencies”. While delays are an understandable reason, how can these companies not find suitable agencies and projects in a nation that has a thriving NGO ecosystem and millions of possible beneficiaries?

Considering the sheer number and quality of professionals and consultants in the social sector, these excuses for spending less than the prescribed amounts are totally unacceptable. Either the corporates did not put enough effort into finding NGOs at the grassroots level, or they simply did not want to spend the stipulated amount.

Laundering of CSR funds

Staffers at PSU (Public Sector Undertaking) companies have come under the MCA’s scanner for misusing CSR money for political gain or their own benefit. This was more common before the CSR provision came into effect. Embezzlement is a serious offence, yet it’s done under the garb of redesigning rural development projects. Take the 2012 NALCO case for example. Former Rajya Sabha Member Beni Prasad Verma was accused of diverting crores of CSR funds by public company SAIL to a private university for his own gain. Ministers have reportedly used the CSR funds from public sector companies to hire choppers and run ads for their political parties.

Untrustworthy charitable trusts

Another tactic is for politicians or business tycoons to form their own charitable trust or foundation. They funnel the money donated back to the company. How it works is that in the name of CSR compliance, a company will issue a cheque in favour of the trust working in the focus areas that fall under CSR law. The trust deducts its commission and credits the rest back to the company promoter or directors. This tactic works in favour of the businessmen and politicians who are escaping scrutiny. This channel is not as closely monitored by the government as other ways to evade corporate social responsibility spending, so it is the most popular among corporates in India.

Although the Ministry of Corporate Affairs has become stricter with non-compliance, a large amount of money that should be poured into public welfare is going into the pockets of a few. Unless companies come forward with full disclosure and comply with the norms, the corporate social responsibility domain will be riddled with these shady tactics by India Inc.