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Corporate Social Responsibility and Social Welfare Provision:

The Case of India

Dragana Bodruzic1

1.0 Introduction:

In August 2013, India passed a new Companies Act, replacing its outdated Companies Act 1956.

While establishing new concepts and revamping company regulations, the Act introduces

provisions guiding companies on their Corporate Social Responsibility (CSR) practices. More

specifically, it includes provisions requiring companies of a certain size to spend two percent of

their profits on CSR projects. While CSR is not strictly defined, companies are asked to

contribute to a series of developmental goals, including poverty alleviation, the eradication of

hunger, education, the empowerment of women, and environmental sustainability. The CSR

provisions of the Act represent a clear state effort to shift some of the burden of welfare

provision onto corporate actors, while still granting companies significant freedom over the

nature of their involvement.

Globally, CSR is generally understood to have a strong voluntary component (Carroll, 1999;

Dahlsrud, 2008), making the Indian CSR provisions unique in the world, and the subject of

notable discussion in the run-up to the passage of the Act. Yet viewed from another perspective,

this shift is not entirely surprising: while in the post-World War II period there was an

assumption that welfare states would emerge throughout the global south, in recent decades

numerous non-state actors have taken on roles typically associated with the state. In fact, as

Cammett and MacLean (2014: 1) argue: “non-state actors supply basic social services to

ordinary people even more extensively than states in many countries around the world.” Indeed,

there have been numerous global efforts to further promote the involvement of corporate actors

in development, particularly through the United Nations Global Compact, which seeks to

encourage companies to find ways to contribute to the Sustainable Development Goals.

Nonetheless, such global efforts seek to retain the voluntariness component of corporate social

responsibility, which is ostensibly removed through efforts to legislate CSR practices.

This naturally leads to the question of why the Indian government chose to legislate CSR

spending within the Companies Act. It also encourages us to consider the broader implications

such legislation may hold for social welfare provision in India. The paper begins by placing the

discussion of India within the wider context of debates on welfare provision, as well as the

relationship between CSR and development. It then goes on to analyze how the concept of CSR

is understood in the Indian context, before discussing the CSR provisions of Companies Act

2013, as well as the institutional architecture the Indian state has sought to put in place to

implement those provisions.

1 PhD Candidate, Department of Political Science, University of Toronto

Contact: dragana.bodruzic@mail.utoronto.ca

Prepared for the 2017 meeting of the Canadian Political Science Association.

This paper is a work in progress, please do not cite without permission of the author.

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The paper then seeks to explain the emergence of this legislation, focusing on two primary

considerations: first, the increasing difficulty the Indian state faces in sufficiently providing

social welfare; and second, the historical involvement of Indian companies in development,

initially under the guise of trusteeship, which has led to a wider acceptance within both Indian

companies and society of the expectation that companies have a role to play in welfare provision.

Finally, the paper argues that though the passage of the Act does suggest a concrete government

effort to promote the involvement of corporate actors in social welfare provision, the nature of

the CSR clause, and the accompanying institutional architecture, are likely to promote mixed

developmental results.

2.0 Understanding Corporate Involvement in Social Welfare Provision:

Following the Second World War, during the heyday of modernization theory within development

studies, there was an assumption that countries of the global south would follow similar

development paths to those already taken by the industrialized countries of the global north. This

included the development of systems of welfare provision, or in other words, of some form of

welfare state. Some countries in the global south did indeed begin to put such systems into place,

however starting in the 1980s, as these countries moved away from state-led models of

development towards opening their economies and focusing on market-led development, some of

the existing systems of state welfare provision began to erode.

At the same time, myriad non-state actors began to engage in social welfare provision, including

non-governmental organizations (both secular and faith-based), community organizations, and

even corporate actors. In the case of corporate actors, the nature of company engagement varies:

companies can be service providers contracted by government, they can develop public-private

partnerships with government agencies, or they can develop CSR programs. In the first two cases,

companies receive some form of direct payment for their engagement, while in the case of CSR,

the only payment is presumably reputational in form.

CSR projects in the global south adopt broadly developmental goals: for instance, poverty

alleviation, investment in education and healthcare, and the provision of public goods such as

access to clean water. Increasingly, companies are also participating in multi-stakeholder

partnerships with non-governmental organizations (NGOs) and governmental and multilateral

organizations. The United Nations (UN) has played a key role in promoting these types of

partnerships, and indeed, in promoting the idea that business should play a role in development.

The perfect example is the creation of the UN Global Compact, which emphasizes the role of

business as an active agent for promoting social and economic development (Blowfield, 2007;

Edward & Tallontire, 2009; Frynas, 2009; Visser, 2008). In tracing the progression of the discourse

on CSR and development, Utting and Marques (2010: 2) note: “The expectation was that

companies and business associations would become developmental agents, often assuming

functions typically associated with the state.”

Our theoretical tools to understand the political implications of non-state actors engaging in social

welfare provision have not kept sufficient pace with these developments (Cammett & MacLean,

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2014). While the literature on welfare states has sought to pay greater attention to the role of

politics, and the relationship between the state, the market, and family, in explaining welfare

outcomes (see Korpi (1983); Esping-Andersen (1990; 1999); Orloff (1993)), it largely addresses

welfare state regimes found in the global north. As noted, however, these are yet to emerge in

many countries in the global south (Gough, 2004). This is not to say that certain countries in what

has traditionally been viewed as the global south have not managed to reduce poverty and

inequality through social policy (for instance, see Teichman (2012) on South Korea). Nonetheless,

throughout the global south, personal and family-level security arrangements, and the work of both

non-profit and for-profit non-state entities, remain central to ensuring social welfare provision,

while formal institutional frameworks of social provision remain fragile.

According to Gough and Wood (2004), social policy in the global north is rooted in two main

assumptions: a legitimized state and a pervasive labour market. These assumptions are not always

met throughout the global south. They therefore propose the adoption of a new terminology of

‘welfare regimes,’ which refer to the “entire set of institutional arrangements, policies and

practices affecting welfare outcomes and stratification effects in diverse social and cultural

contexts” (Gough, 2004: 26). Welfare states are therefore but one type of welfare regime.

However, while the categories they provide are useful in thinking about different forms of welfare

arrangements, they do not consider different types of non-state providers, nor the political

implications of non-state social welfare provision.

At the same time, there has been an emerging literature (mostly outside political science), which

addresses the role of corporations in promoting human development, not simply through their

economic contributions, but also through their CSR programs. There is great disagreement about

why corporations are doing this, and there is also disagreement about the normative implications

of businesses engaging in what has traditionally been the purview of states. Development studies

as a field has yet to adequately engage with these trends. A preliminary search of leading

development studies journals reveals a comparatively small number of articles even mentioning

CSR. While critical development theory has yet to more deeply engage with CSR, this has not

meant that development studies has in no way influenced writings on CSR. For instance, the work

of Peter Utting (1997; 2003; Utting & Marques, 2010), Uwafiokun Idemudia (2007; 2011; 2010),

Michael Blowfield (2005; 2007; Blowfield & Frynas, 2005), J.G. Frynas (2009), and several other

authors who have worked on developing a more interdisciplinary analysis of the relationship

between CSR and development, have taken some insights from development studies. However,

this literature is still insufficiently developed, nor are the political implications of the relationship

between CSR and development adequately considered. In particular, the role of the state in shaping

the institutionalization of CSR, and CSR practices, needs to be better understood.

The case of India provides exciting opportunities to study the involvement of corporate actors in

social welfare provision, the state’s role in shaping CSR, and the CSR-development relationship

more broadly. The country’s recent decision to legislate CSR spending, and to directly relate it to

developmental goals, poses interesting questions about both reasoning for this decision as well as

its developmental and political implications.

The research presented in this paper was collected during fieldwork conducted in India in 2014

and 2015. The research included the collection of relevant documents, as well as more than fifty

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semi-structured interviews with CSR practitioners, CSR experts working within key business

associations, government representatives, and members of civil society.

3.0 What does Corporate Social Responsibility mean in India?

Though there is a significant literature on how corporate social responsibility should be defined

(Carroll, 1999; Dahlsrud, 2008), much of this literature is primarily concerned with the global

north.1 When the term CSR is applied to countries in the global south, the term is often adopted

uncritically, without sufficient consideration for whether, and if so how, the term may be

understood differently in other contexts.

An important point of reference in any discussion of CSR is the highly influential work of Archie

Carroll, who first defined the term in 1979, writing that: “the social responsibility of business

encompasses the economic, legal, ethical, and discretionary expectations that society has of

organizations at a given point in time” (Carroll, 1979: 500). He subsequently developed a CSR

pyramid, with the economic category at the base, building up to the legal, ethical, and

philanthropic activities at the top (his subsequent work reformulated the discretionary category

into philanthropic activities) (Carroll, 1991). In other words, a company’s most important

societal role is to be economically profitable (since this serves the interests of its shareholders),

followed by its remaining responsibilities. Carroll’s work, however, is once again reflective of

the global north, and Visser (2008) shows that the research that is available on countries in the

global south shows that parts of the pyramid are inverted in this context. Visser argues that while

economic priorities are again placed highest, this is followed by philanthropy, before legal and

ethical responsibilities.

This seems to be borne out by the Indian case, though decoding the meaning of CSR in India is

complicated by the large number of terms used by practitioners, including business

responsibility, responsible business, sustainability, and sustainable development. The prevailing

agreement suggests that CSR refers to community development. This in turn is perceived to be a

subset of responsible business (which is then associated with sustainable development).

Nonetheless, defining CSR has been a matter of contestation. As the understanding of CSR as

community development became solidified, certain organizations working to promote CSR

sought to redefine it, or to at least adopt alternative conceptualizations that would bring focus to

how companies operate more broadly. According to one prominent CSR practitioner: “In 2008,

we began with the ‘Death of CSR’, just to say that corporate philanthropy is part of it, but it is

not how we should define corporate responsibility. So we came up with the guidelines which are

the National Voluntary Guidelines” (Interview INA15).2

The National Voluntary Guidelines on Social, Environmental, and Economic Responsibilities of

Business (2011) (NVGs) establish nine principles that seek to guide the ethical behavior of

companies. The Guidelines, however, also represent an effort to move away from the language

of CSR, and instead adopt the terms ‘responsible business’ and ‘business responsibility’. In

addition to business responsibility, the word sustainability has become increasingly popular. As a

result, confusion can, and does, occur, particularly between the terms ‘responsible business’ and

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‘sustainability’.

CSR has nonetheless remained a subject of contestation, as became clear in the debates

surrounding the Companies Act 2013. While early drafts of the bill sought to define CSR, noting

that: “CSR is the process by which an organization thinks about and evolves its relationships

with stakeholders for the common good… CSR is not charity or mere donations. CSR is a way of

conducting business, by which corporate entities visibly contribute to the social good” (Proposed

Draft Corporate Social Responsibility Rules under Section 135 of the Companies Act, 2013,

2013). This definition of CSR was heavily debated behind closed doors, with many corporate

actors and business associations expressing disapproval (Interview INA6). Any attempts to

provide an outright definition were dropped from the final version of the bill. Instead, the

legislation closely connects CSR with social welfare provision by requiring two percent of

profits to be spent on activities which are drawn directly from the Millennium Development

Goals (MDGs). This reinforces the perception that CSR is primarily to be associated with

community development, rather than the wider question of how companies conduct their

business practices.

4.0 Legislating CSR—Companies Act 2013:

Before considering how we can explain the decision of the Indian state to promote the

involvement of corporate actors in social welfare provision, it is useful to consider how the

current legal framework guiding CSR was established.

The concept of requiring companies to spend a certain portion of profits on their CSR practices

was not entirely new at the time the Companies Bill 2012 was introduced (i.e. the present

Companies Act 2013). In 2010, India’s Department of Public Sector Enterprises (DPE)

introduced a set of CSR Guidelines for public sector enterprises, which emphasized that public

companies should: spend between 0.5% and 5% of profits on CSR; run these in project mode,

preferably in areas where the company conducts business; and should link these projects to the

goals of sustainable development. Once adopted, the DPE Guidelines went through a series of

amendments, including changes in 2014, which reconciled the Guidelines with the requirements

of the new Companies Act.

At the same time, India was operating with an outdated Companies Act, which dated back to

1956. As calls for rewriting the Act arose, so did discussion about including legislation relating

directly to CSR. As was noted above, an initial draft resolution sought to define CSR with

reference to the ‘social good’, before establishing a list of activities in which companies should

engage drawn from the MDGs, and focused on community development.

When the Companies Bill 2012 was publically debated, there was general agreement on many of

the CSR provisions, with most members of the Lok Sabha expressing praise for the proposal

(Lok Sabha Debates, 2012). For its part, the incumbent government (a coalition headed by the

Congress Party) represented the provisions as revolutionary, and as central to addressing the

growing divide between the rich and poor in the country.

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Section 135 of Companies Act 2013 sets out its CSR provisions, which apply to companies

having a net worth of five hundred crore or more, or a turnover of one thousand crore or more, or

a net profit of five crore or more (in rupees) during any financial year.3 Any company which

meets these requirements must create a CSR Committee of the Board, and make available a

report which discloses the composition of that Committee. The company must also ensure that

the Committee will develop and monitor a CSR Policy, in line with Schedule VII (discussed

next). The company must also ensure that the Board will consider recommendations made by the

CSR committee, approve a CSR Policy, and disclose the Policy on the company’s website.

Finally, the Act’s most famous provision states that the company must spend, in any financial

year, at least two percent of its average net profits on CSR (Companies Act 2013, 2013). If a

company cannot meet that spending obligation, it must provide a report explaining its failure to

comply. Section 135 also notes that companies should seek, where possible, to focus their efforts

on communities where they operate.

Attached to Section 135 is Schedule VII, which details the types of activities in which companies

are expected to engage. This includes: (i) eradicating hunger, poverty and malnutrition,

promoting preventive healthcare and sanitation and making available safe drinking water; (ii)

promoting education; (iii) promoting gender equality, empowering women, and protecting the

elderly; (iv) ensuring environmental sustainability, and the conservation of natural resources and

the quality of soil, air and water; (v) protecting national heritage, art and culture; (vi) helping

armed forces veterans, war widows and their dependents; (vii) training to promote sports; (viii)

contribution to the Prime Minister's National Relief Fund4 or any other fund set up by the Central

Government for socio-economic development; (ix) contributions or funds provided to technology

incubators located within academic institutions which are approved by the Central government;

and (x) rural development projects.5

Amendments passed by the BJP government in October 2014 added a number of further

provisions: contributions to the Swach Bharat Kosh set-up by the Central Government for the

promotion of sanitation were added to item (i); while contributions to the Clean Ganga Fund

setup by the government to clean the Ganges were added to item (iv). Both programs are

considered flagship policies of the current BJP government.

In sum, the legislation includes administrative provisions, which require the creation of a CSR

committee, which reports to the Board of Directors, as well as spending provisions. The

spending provisions, in tying CSR to the Millennium Development Goals, indirectly support an

understanding of CSR as community development.

In addition to the legislation itself, the government of India has also sought to develop

institutional infrastructure to help companies design and implement CSR projects. In particular,

the government has tasked the Indian Institute of Corporate Affairs (IICA), which was initially

created by the Ministry of Corporate Affairs in 2008, with implementing Section 135. The IICA

is registered as a society, and is described by one of its senior consultants as being “a think tank

for the government.” (Interview INA16)

The IICA includes a core staff of consultants, but has also created its own campus, where it

offers a series of courses relating to CSR, sustainability, and corporate governance. Its staff state

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that their main mission is to create an enabling environment for companies to develop and run

their CSR projects. They note that since many companies have historically engaged in purely

philanthropic activities, asking them to run more developed CSR projects can bring up

challenges. As a result, they seek to aid companies in building the capacity necessary to run

successful CSR programs.

The IICA also aims to help companies find implementing partners. Many companies lack the

capacity to implement development projects on their own, and need to develop partnerships with

civil society organizations. This is particularly the case for smaller companies, whose CSR

departments are also working with smaller CSR budgets, making it more difficult to develop

internal implementation capacity. However, relationships between companies and civil society

are often fraught with difficulties. A lack of trust persists on both sides, and companies tend to

doubt the credibility of NGOs.

As a result, the IICA is creating a database of ‘reliable’ implementing agencies (though it is not

clear what characteristics are necessary to qualify in practice) and developing NGO training

workshops. One of the individuals working on these programs noted that since NGOs generally

work on a grant-based approach, they “need to change” and adopt a market-based approach

(Interview INB4). In particular, he noted that NGOs and companies tend to speak a ‘different

language’, making it difficult to build partnerships. The IICA is therefore positioning itself to

enable the creation of such partnerships.

5.0 Explaining the Indian Case:

Interviews with individuals involved in debates surrounding the legislation of CSR revealed that,

overall, there was a high degree of support for this legislation. Even amongst companies, though

some did see this as the imposition of a new form of tax, many were open to the idea that

companies should do more to contribute to socioeconomic development in the country. The CSR

head of a large steel company, for instance, noted: “The 2% is not that important. It goes much

beyond that. That is the reason I feel that there was a guideline of what must be done, to

encourage and make sure that this be done right.” (Interview INA7) This was echoed by many

CSR practitioners, with one concluding: “I personally feel this is a great opportunity to do

something good.” (Interview INA9)

This high degree of support for legislating CSR requires explanation, particularly since CSR is

generally understood to be underlined by voluntarism. Firstly, from the perspective of the state,

why promote the involvement of corporate actors in welfare provision through legislating CSR

spending? Related to this is the broader question of why companies would, in turn, also support

this legislation.

My interviews reveal that one practical explanation draws on electoral considerations. Indians

have historically tended to distrust private businesses, with one prominent political economist

noting that, historically, “most of business was seen as moneylenders and profiteers” (Interview

INA1). While the push for liberalization following 1991 was meant to alleviate some of the

corruption and inefficiencies of the previous License Raj, numerous corruption scandals have

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emerged in the late 1990s and early 2000s. Within the general public, these scandals reaffirmed

the impression that business was not behaving ethically. Since some of these scandals also

involved government actors, many of my interviewees noted that the Congress government

needed to show that it was doing something to address corporate malfeasance prior to the 2014

election. This suggests that the CSR provisions are an electoral ploy, designed to give the

appearance of addressing people’s dissatisfaction with corporate India. While this explanation

certainly has merit, it does not capture the entire story—the CSR clause of the Companies Bill

was supported from many political sides.6 As a result, another explanation is needed, one which

can account for the general willingness of the state to pass on some of its welfare burden onto

private actors.

Many of the individuals I spoke to in India suggest that they interpret the CSR provision as the

state’s attempt to abdicate some of its responsibility for social welfare provision.

Understandably, views on this matter differ amongst various actors. Amongst corporate actors,

some acknowledge the shift as an abdication of state responsibility, while others conclude that

the state is simply ‘confused’, suggesting that the state is not sure how best to bring corporate

actors into welfare provision. Academics and civil society actors are more uniform in their

perspective, noting that the Indian state lacks the capacity to implement social welfare programs

and is therefore turning to non-state actors.

Government actors, on the other hand, tend to present the argument as follows: the state is

holding corporate actors accountable for their actions, not abdicating its responsibilities.

Nonetheless, as one senior bureaucrat noted, the legislation also suggests that the “welfare

burden has been slightly shifted” (Interview INB24). This is indirectly supported by comments

made when the Companies Bill was first introduced, with Sachin Pilot, then Minister of

Corporate Affairs, stating in Parliament that:

Sir, growth is important for the country and to my mind growth should be long term,

sustainable, equitable but more importantly, growth should also be responsible.

Therefore, the responsibility of taking this country forward certainly lies with the

Government of the day and the State Governments but increasingly I think the corporate

entities of this country, the private players, the enterprises, the entrepreneurs also have an

increasingly larger role to share in making this country prosperous, functional forward

looking nation. (Discussion on the motion for consideration of the Companies Bill, 2011,

2012)

Pilot further argued that the CSR provision should contribute to reducing inequality in India.

This suggests that state actors in India increasingly see the private sector as having a role to play

in the socioeconomic development of the country.

Nonetheless, even if we accept the conclusion that the state is choosing to abdicate some of its

responsibility, this does not entirely explain the state’s reasoning. The fact that many state actors

disagree that the state is abdicating its responsibilities suggests that ideological considerations

may be less important in explaining this shift than practical ones. As my interviews revealed, the

push to involve corporate actors in social welfare provision flows directly from the state’s own

inability to adequately promote socioeconomic development. As one of my informants, a senior

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bureaucrat within a development ministry, quipped: a theory worth exploring is whether “CSR in

a country is inversely proportional to good governance in a state” (Interview INB15).

India has been growing steadily in recent years: between 2006 and 2010, it grew at an average of

8.4%, with the rate declining somewhat to 6.5% for the period between 2011 and 2014 (Riley,

2015). At the same time, the government has passed legislation that seeks to address poverty and

promote social welfare. This includes the passage of the National Food Security Act (2013), the

Right to Education Act (2009), and the National Rural Employment Guarantee Act (NREGA,

2005). Despite this, challenges remain. A large number of Indians remain extremely

impoverished,7 and the country’s Human Development Index (HDI) has been stagnant: though it

grew from 0.428 to 0.609 between 1990 and 2014, as of 2016, India still ranks poorly (131 out of

188 countries (UNDP, Human Development Index and its components, 2016)). The country’s

economic growth has not been evenly distributed, and inequality has increased from 0.319 in

1988 to 0.339 in 2010 (World Bank, 2013).

Several factors hold the potential to explain why India has not achieved very good outcomes in

the provision of social welfare, and open up the possibility of also explaining why the Indian

state chose to promote the involvement of corporate actors. These include the low formalization

of labour markets, insufficient state capacity, and a political leadership which has prioritized

economic growth, as well as the serving of personal ends, over the improvement of social

welfare.

Rough estimates generally conclude that some 80 to 90 percent of the Indian economy is

informal. According to data from the International Labour Organization, some 84 percent of all

Indians engaged in non-agricultural work remain outside formal employment (Department of

Statistics, ILO, 2012). Those who are engaged in agricultural work face high rates of poverty, a

problem exacerbated by the continuing problem of landlessness. However, this also has broader

implications for state capacity, since low formalization implies that the state has less ability to

collect taxes, or to exert regulatory control over the economy.

While many of the country’s top level institutions work well, its lower institutions often falter

(Pritchett, 2009), and appear to be declining (Saxena, 2012). The country’s fiscal capacity,

though it has been increasing, remains limited, and the percentage of Indians who pay income

tax is low (it is estimated at less than three percent of the population).8 However, the question of

implementation capacity has been far more central. For instance, N.C. Saxena (2012), in a

prominent report on the Indian bureaucracy, notes that the amount that individuals receive in

terms of goods and services is a far cry from the amount set aside by the federal government. His

report concludes that the primary problems of the Indian bureaucracy include a lack of

professionalism, the creation of redundant posts, an inability to adequately deliver services, and a

problematic system of reward and punishment. Saxena even notes that these problems have been

recognized by the government of India:

The state apparatus is generally perceived to be largely inefficient with most

functionaries serving no useful purpose. The bureaucracy is generally seen to be tardy,

inefficient and unresponsive. Corruption is all-pervasive… Criminalization of politics

continues unchecked, with money and muscle power playing a large role in elections. In

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general, there is a high degree of volatility in society on account of unfulfilled

expectations and poor delivery. Abuse of authority at all levels in all organs of state has

become the bane of our democracy. (Second Administrative Reforms Commission, cited

in Saxena, 2012: 3)

These conclusions were supported by many interviewees, with one government civil servant

noting:

After thirty-two years in government, I am much more conscious of state failure. I am

also equally conscious of rapidly depleting state capacity in age-old activities of the state,

such as providing clean drinking water, basic public safety—activities for which the state

was created. We are failing miserably. (Interview INB15)

These quotes also relate to what is perceived as a larger problem of Indian democracy: a lack of

political interest to genuinely address poverty and social welfare. One interviewee summarized

this by arguing that the Indian ‘political class’ is limited, and that “they think that power is in the

system, and power has to be used for their own gain” (Interview INB3). This is execerbated by

high levels of corruption, which further erode the state’s ability to fulfill its role (Pritchett, 2009),

with Saxena (2012) noting that the blatant corruption at the higher levels of the bureucracy also

emboldens lower level bureaucrats to treat people with impunity.

These arguments therefore suggest that the Indian state’s ability to adequately deliver social

welfare is lacking. In this context, the government’s decision to share some of the burden for

social welfare and socioeconomic development becomes easier to understand. However, this

does not entirely explain why the state would turn towards corporate actors, and would seek to

bring them onboard as partners in sharing this burden, nor why many corporate actors appeared

willing to embrace this role.

The explanation lies in the historical relationship between business and the state in India, and in

particular, in the role that certain indigenous business houses have played in the socioeconomic

development of the country since independence. In other words, there is a strong relationship

between how CSR has developed historically in India, and the state’s decision to legislate CSR

spending within the Companies Act 2013.

There is a historic linkage between philanthropy and corporate social responsibility in India

(Sundar, 2013), which in turn has consequences for how the term CSR is understood today. At

the root of present-day understandings of CSR in India is the notion of trusteeship, as espoused

by Gandhi during the independence struggle. According to Sood and Arora:

The concept of ‘trusteeship’ asserts the right of the capitalist to accumulate and

maintain wealth and use it to benefit society (Narayan 1966). Gandhi argued that the

wealthy should be trustees of their wealth, using only what was necessary for personal

use and distributing the surplus among the needy. (2006: 6)

In other words, the wealthy should not be forced to give up their wealth, but should want to do so

voluntarily. In developing the concept, Gandhi drew on religious traditions (one’s religious duty

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or dharma includes the charitable distribution of wealth) (Rolnick, 1962), however, he was also

influenced by Western thought, including the work of John Ruskin and Andrew Carnegie

(Chakrabarty, 2015). However, Gandhi did not believe in dispossessing the wealthy—rather, he

defended the right of capitalists to accumulate wealth, as long as they also chose to use it to

benefit society.

Gandhi saw his notion of trusteeship as “India’s gift to the world” (Chakrabarty, 2015: 579),

arguing that it presented a different relationship between business and society. This

understanding of trusteeship, then, was rooted in traditions of philanthropy and emphasized the

sharing of wealth. However, Gandhi, who often spoke against the appropriation of wealth, did

not entirely rule out this possibility in case the wealthy failed to behave as good trustees.

However, while Gandhi may have argued that in theory, the state should be able to force the

wealthy to part with some of that wealth if they choose not to do so voluntarily, he did not

support this in practice. This reflects shrewd, practical political thinking (Chakrabarty, 2015;

Rolnick, 1962; Sood & Arora, 2006). Gandhi developed a strong relationship with many of

India’s large industrialists, who often financially supported the independence struggle. Writing

about his relationship with Gandhi, G.D. Birla quotes a letter from Gandhi:

[M]y thrust for money is simply unquenchable. I need at least Rs. 2,00,000/- for khadi,

untouchability and education. The diary work makes another Rs. 50,000/-. Then there is

the Ashram expenditure. No work remains unfinished for want of funds, but God gives

after severe trials. (quoted in Chakrabarty, 2015: 595).

During this time, several business houses, included those belonging to the TATA and Birla

families, became involved in spreading education, especially elementary education, and in the

building of healthcare facilities. G.D. Birla, who even wrote a book about his relationship with

Gandhi, In the Shadow of the Mahatma, took on the role of trustee very seriously. Several Indian

industrialists therefore began to improve social welfare, and though many of their efforts were

initially targeted at their employees, they tended to serve local communities as well.

In turn, Gandhi tended to side with industrialists rather than labour whenever disagreements

arose. Chakrabarty (2015) highlights that Gandhi never visited any Birla factories, despite

workers inviting him to come and see the appalling working conditions they faced. Gandhi had

apparently been convinced by Birla that the workers had lied.

Trusteeship, therefore, as espoused by Gandhi, highlighted the philanthropic role of companies,

while sidelining the question of how companies conduct their everyday business. As a result, the

ethical behavior of companies was sidelined in favour of philanthropic contributions, which by

and large came to be formulated in programs which contributed to the socioeconomic

development of the country.

While Nehru was initially critical of the concept, as Rolnick (1962) notes, following

independence, many of trusteeship’s former detractors seemed to accept, if not fully embrace, the

concept. Nehru came to argue that while the class struggle is always there, trusteeship and

Gandhi’s approach can somehow remove it. She also notes that other prominent socialists came

to accept the concept. Her explanation centres on the importance of the propertied classes and

industrialists in forming a base of support for the Congress Party. A second reason also arose:

12

from a practical perspective, the country could only deal with some of its problems at any given

time, and the goal of industrializing and growing the economy was chosen over the goal of

greater redistribution. Trusteeship, therefore, continued to play an important ideological role.

The concept of corporate social responsibility was then introduced from abroad starting in the

late 1990s. However, once the concept of CSR entered discourse in India, it became fused with

trusteeship. According to a long-time CSR practitioner, “CSR was something that came to India

from overseas, but the moment it came to India, we transformed it into what we thought it should

mean” (Interview INB13). Similar to trusteeship, then, CSR has come to be more strongly

focused on company contributions to socioeconomic development, rather than the ethical

behavior of companies more broadly.

One important shift, nevertheless, has been the greater institutionalization of CSR. In recent

decades, there has been a more significant move away from purely philanthropic contributions to

more developed CSR programs, though, as my informants note, the number of companies that

have successfully moved away from a purely checkbook approach to CSR is still small. By also

focusing on how CSR departments are organized within companies, it is hoped that the new

Companies Act 2013 will help to further institutionalize CSR practices.

At the same time, this historical involvement of corporate actors also ensured that the legislation

itself was easier to pass. As one commentator noted: “Companies will say, this is just another

tax, we have already been doing this, we just didn’t call it this necessarily. So, again, those who

are doing something will keep on doing. Others who want to do, but don’t know how, will still

be at a loss.” (Interview INA15). In other words, many larger and more politically powerful

companies were more ambivalent towards the legislation, in part because they were already

committed to CSR spending. This includes large conglomerates such as various Tata companies,

and the Tata Trusts, which have been involved in social welfare provision for decades.9

In sum, the historical relationship between business and the state in India, with respect to

corporate involvement in social welfare provision, as well as the challenges the Indian state faces

in delivering social welfare, help explain the decision to legislate for corporate social

responsibility, as well as the apparent willingness of many companies to embrace this legislation.

Nevertheless, the tension inherent in the original notion of trusteeship between philanthropic

roles and the broader behaviour of industrialists remains, albeit in a different form. In indirectly

defining CSR as corporate contributions to socioeconomic development, the Companies Act

2013 does very little to assuage concerns about the ethical behaviour of companies. As a result,

the broader implications stemming from this legislation, and from corporate involvement in

social welfare provision, need to be considered.

6.0 Conclusion: Possible Implications of Section 135 of the Companies Act 2013:

The passage of the Companies Act 2013 signals a concrete government effort to promote the

involvement of corporate actors in social welfare provision. The way the CSR provisions have

been written, however, as well as the support architecture that has been established to help

companies meet CSR requirements, suggests that the developmental impact that can be expected

13

is at best mixed.

Many government representatives, particularly those associated with the Indian Institute of

Corporate Affairs (IICA) expressed hope that the CSR provisions of the Companies Act will

enable businesses to bring revolutionary changes to how social welfare is delivered in India. This

developmental vision was presented by one government actor as follows: let us imagine that

there is a government education program, where 100 rupees is spent per child to achieve a

certain set of desired results. Given significant leakage within government welfare schemes, 20

rupees (out of the initial 100) reach intended beneficiaries. Now imagine that a company

develops a CSR project that seeks to promote the same goals as that government program. The

company may choose to partner with government, or to separately develop a pilot project, which

it can offer to the government as an implementation model if it is successful. The company’s

involvement (which would be equal to, for instance, two rupees per child) is hoped to have the

ultimate result of ensuring that the final amount reaching the intended beneficiary increases from

20 rupees to 40 or 50, rather than the initial twenty plus the two spent by the company. The

expectation, therefore, is that corporate involvement can lead to a multiplier effect, and that CSR

funds can have far-reaching consequences.

However, it is not clear what this process would be, and the chains of accountability remain

opaque. The Companies Act only requires that companies spend two percent of profits, and if

they do not, to report the reasons for their failure. Thus, companies would not be held

accountable for the success of their projects to the government. Rather, companies presumably

remain primarily answerable to shareholders, while the government is, in theory, accountable to

the beneficiaries. Since this latter chain of accountability has not ensured the success of

government programs thus far, it is not clear how the proposed changes would be an

improvement.

One representative of IICA who was interviewed for this project, when pressed on the question

of accountability, concluded that it would be up to NGOs to ensure that the voice of the people is

heard. This answer is consistent with the expectation that civil society, through its advocacy

efforts, has an important role to play in holding companies accountable for their actions.

However, the current challenges facing civil society in India puts such expectations into doubt.

Decreasing international funding, and increasing state efforts to exert control over more activist

NGOs, are putting civil society into a precarious position. Many NGOs seeing reductions in their

funding are expected to turn towards company CSR funds as a means of financing their projects.

This will reduce their ability to act as watchdogs of companies.

Whether companies are partnering with civil society, or even government actors, another

important developmental concern is the question of coordination. This coordination can take

several forms, and is generally difficult to achieve. Many corporate actors in India are aware of

this challenge, and some express hope that the new Companies Act, and particularly the activities

of the IICA, can help to create such coordination. However, as with accountability, it is not clear

how that coordination is meant to come about, and in the words of a CSR practitioner at a large

public company: “the mechanisms by which this should take place are not clear to me, and it is

not clear that they know either” (Interview INB11).

14

For these reasons, my interviews revealed an overarching concern that the CSR clause of the

Companies Act 2013 will primarily serve to produce more ad hoc development projects, which

will co-exist with the myriad development efforts already being run by the Indian government.

As such, its potential developmental impact can at best be limited. However, the ultimate effects

of the Act are only likely to become apparent once it has been in force for some time.

This is exacerbated by the fact that the question of how the success of a CSR project should be

defined and/or measured remains unclear. Companies have great difficulty conceptualizing what

makes for a successful project: while they note that they want to see an impact, many remain

confused regarding what that impact should be, and how it should be measured. This often

means that companies will seek to find some sort of quantifiable measure. For instance, one CSR

manager described the process as follows: “[we] look at the income aspect, whether there has

been a 40 or 50% increase in income. E.g. a farmer used to get 50 kg of rice, now he gets 90 kg”

(Interview INA9). Not all projects lend themselves to such forms of measurement, nor is it clear

that the considerations of communities affected are taken into account when deciding how

projects should be monitored. Instead, companies often focus on input-based parameters and

financial accounting. When working with NGOs, this usually translates into monitoring spending

rather than results, with one CSR manager noting: “We look at their budget and their utilization

every three months. Before we fund a program, we need to look at the plan… There are certain

challenges… There are not many people with expertise in these NGOs, they work well on the

ground, but not with paperwork.” (Interview INA9) Given that companies are accountable to

their shareholders, a certain financial focus is necessary, nonetheless, the continuing lack of

emphasis on outcomes is concerning. Unfortunately, the Companies Act 2013 does little to alter

that focus.

At the same time, the legislation of CSR spending targets raises the possibility of new forms of

rent-seeking. Some companies interviewed expressed concerns that they will begin receiving

demands from government actors to spend CSR funds in specific ways, usually to fund pet

projects. There is also anecdotal evidence that some state actors do perceive CSR funds as a

mechanism to fund government projects. According to a senior bureaucrat within the Rural

Development Ministry, there is already discussion within sectors of the bureaucracy about

drawing on CSR funds. In 2014, the funding of numerous federal ministries was reduced, as

more funds were transferred to state governments. The response of many department heads,

according to my informant, is to draw on CSR funds. In his words:

So we sit in this meeting, and my secretary in charge of rural drinking water, [says] my

gap is x, the answer, we will tap CSR. The next guy, in charge of panchayati raj, his fund

is cut from 80,000 to 70 crores, [says] we will tap CSR. All say the same thing. This is

one department of [Government of India], and there are 66 departments. I am sure all of

them have drawn up a CSR plan which adds up to India’s GDP. The race will be

interesting to watch. We have in a sense removed the hard budget constraint of the

state… Corporates will be more than happy to be arm-twisted, so formally some

corporates will sign off… accountability will be diffused. (Interview INB15)

The Companies Act itself does not give government actors the right to legally pressure

companies to spend money in a specific manner. Companies officially retain a great deal of

15

leeway over how to spend their CSR funds. However, the legislation, by indirectly defining CSR

as companies contributing to development projects, retains the tension that also existed in the

concept of trusteeship. As long as companies spend their two percent, they can now potentially

receive a stamp of legitimacy from the state, without any consideration of their actual business

operations.

In practice, this means that a company could technically engage in behaviour that has negative

long-term consequences for the country’s development (e.g. environmental degradation), but still

be perceived as a good corporate citizen because of its CSR contributions. Summarizing this, one

sustainability expert noted: “I think we lost the opportunity and pushed ourselves ten years back”

(Interview INA6).

In sum, in including CSR provisions within the Companies Act 2013, the Indian government has

taken a unique step in identifying what role companies should play in social welfare provision.

This paper argues that a lack of state capacity helps explain the state’s decision to pass on some

of the responsibility for social welfare provision onto corporate actors, together with a

consideration of the historical relationship between business and the state. The tradition of

trusteeship also ensured that larger indigenous companies would be more open to engaging in

CSR development projects, since many had already done such work in some form in the past.

Nonetheless, the paper also argues that the way the CSR provisions have been legislated misses

the opportunity to also shed light on how companies operate more broadly, and may as a result

have a limited impact on wider socioeconomic development.

1 This literature suggests that there is very little agreement on how CSR should be defined.

Moreover, there are also disagreements over which methodology should be adopted in trying to

find a definition that can be widely accepted. 2 All interviewees have been kept anonymous, and the interviews are coded to maintain

anonymity. 3 One crore is equal to ten million. 4 It should be noted that the government does not release details on the PM’s National Relief

Fund, including how its money is spent, nor is the Fund covered by the Right to Information Act.

Therefore, there is no transparency regarding the use of the money placed in this fund. 5 The version of Schedule VII included in the Act was insufficiently specific, and the list above

is drawn from one of the first amendments to the Companies Act (dated the 27th of February

2014), which specified possible areas of focus in greater detail. 6 Moreover, it does not appear to have had any impact on Congress’ electoral chances: the BJP,

under Narendra Modi, swept to power easily in the 2014 election. 7 Kohli (2012: xi) notes that 450 million Indians still subsist on less than $1.25 per day. 8 While it has arisen, the tax as a percent of GDP ratio for 2014/15 stood at 17.38 percent,

suggesting a low tax base (Ministry of Finance, 2015). 9 For instance, the Tata Trusts (this includes the Sir Ratan Tata Trust, established in 1919, and

the Sir Dorabji Tata Trust, founded in 1932), own two-thirds of the stock of Tata Sons, which in

turn is the apex company of the various Tata companies (Tata Trusts, 2016). This means that, in

effect, two-thirds of profits earned by the Tata companies go into the trusts, to be reinvested back

into communities.

16

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