Rich states - Mah, TN, Guj - corner most CSR spend; NE gets less than 1%

Corporate Social Responsibility (CSR) spending in India is highest in states which are rich and which have the maximum number of companies or factories, says a latest study by India CSR, an NGO which monitors implementation of CSR in the country.

The top ten beneficiary states include eight of the largest state economies by FY21 GDP - Maharashtra, Tamil Nadu, Gujarat, Andhra Pradesh, Karnataka, Uttar Pradesh, Rajasthan, and Madhya Pradesh. These states are the financial and industrial bases and are major hubs for technology companies and startups, which is why they are known for their business-friendly environment.

“In contrast, the north-eastern states of Assam, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura received a mere 0.91% of the funds in financial year 2020-21. Other reasons could be the lack of infrastructure and resources for implementing CSR projects in the region, the lack of awareness about the importance of CSR among companies operating in the regions receiving lower funds,” says the study.

“This is concerning, as the smaller regions are the most socio-economically and culturally diverse in the country and have a high incidence of poverty and underdevelopment. It is imperative that there is a balance of local area preference with national priorities to avoid any concentration of CSR funds in specific regions,” the study says.

The boards of the corporations, on their own initiative, may be required to take measures needed to augment the CSR funds for areas where development is needed, said the study.

Analysing the reason, the study said the potential reason for such disproportion could be that, Section 135(5) of CA13 provides that the companies shall give preference to the local area and areas around it where it operates. However, it’s not mandatory to do so as the world has become too intricately interconnected with the advent of digitalisation and it is difficult to define what the local areas of operations are.

Another reason for local areas attracting a significant amount of CSR funds is that companies tend to spend the CSR funds in the areas where they operate to gain the confidence and goodwill of the local community given that the support of the local community is just as important for the smooth running of their business. Maharashtra, Gujarat and Karnataka, received the largest share of CSR funds, with Maharashtra alone receiving 13.21% of the total during the FY21.

The top three development sectors receiving the CSR funds are education, healthcare, and rural development.

“Since the enactment of the CSR provisions, these three sectors have always attracted major CSR funds given their importance and potential impact on society. Looking at the numbers from the last seven years, i.e FY15 till FY21, based on the filings made by the companies in the MCA21 registry, the education sector received nearly ₹47,187.68 crore (including education, livelihood enhancement projects, special education and vocational skills), which amounts to approximately 37% of the total CSR expenditure,” said the study.

The health sector (including health care, poverty, eradicating hunger, malnutrition, sanitation and Swachh Bharat Kosh) comes next with 30% of the CSR expenditure amounting to ₹38,011.49 crore. More than ₹12,300 crores were spent on rural development projects which accounted for 9.6% of the total CSR expenditure.

The three sectors together accounted for nearly 76.6% of the total CSR expenditure incurred in the country in seven years. One of the reasons behind the focus on these sectors could be their alignment with the country’s sustainable development goals.

However, for the country’s overall development, it would be better if the companies incur CSR expenditure over all the development sectors.

The nature of CSR being dynamic, the expenditure can vary each year based on multiple factors. However, what is commonly understood from the data of MCA21 registry is that some states in India have received significantly more portion of CSR funds due to various factors such as the presence of major corporations, industrial development, and social development needs.

“This disparity, however, is common in other aspects also, such as state-wise distribution of net proceeds of union taxes and duties as well. Data shows that in FY 2020-21, over 44% of the CSR funds went to ten states,” said the study.

In the increasingly uncertain global business environment, both public and private organisations are rethinking their operational strategies, placing more emphasis on sustainability and corporate social responsibility (CSR).

In FY21 the CSR spent was ₹26,210 crore which is almost twice in comparison with FY17 where ₹14,542 crores were spent, which indicates an upward trend in CSR expenditure. “However, the impact of the CSR funds is not widely felt and there is a need to enhance the visibility as well as impact of these invested funds. To ensure that the impact of CSR is deeply felt, it is imperative that the companies take a long-term comprehensive approach to yield productive results,” said the stud.

For increased effectiveness and efficiency, it is important to execute CSR efforts strategically with the right balance of capital investments and operational expenses. Moreover, it is also essential to ensure that the initiatives undertaken are self-sustaining, so that the programmes run seamlessly and efficiently, without them being a burden on the company.

Doing business in an unpredictable world can get problematic and cumbersome as climate change, dwindling natural resources, and ever-increasing demands on energy and food supply, disrupt business operations and supply chains in unexpected ways. It has become necessary for private and public organisations to fundamentally rethink the way they function. Transforming into a successful sustainable business requires new levels of resilience and agility, rooted in responsible practices.

In the present times, CSR has shifted from traditional philanthropic activities to community development through various projects. It has evolved from a peripheral aspect of business to a strategic imperative.

The emphasis should be on creating an appropriate structure for CSR, ensuring that the funds go towards the well-being of the community. Further, the highest quality of risk management framework needs to be adopted, so as to make the CSR projects sustainable, said the study.

For yielding high results of CSR initiatives, the entire chain involved in the execution should be in consensus. “One of the recurring issues for companies has been the identification of suitable Implementing Agencies (IAs). The introduction of the National CSR Exchange Portal in 2022 is a step towards answering this obstacle. The National CSR Exchange Portal serves as an e-marketplace hosting PAN India social welfare projects where stakeholders such as Implementing agencies can put up their ongoing projects and companies can select projects for CSR Spending as per their preferences and vice versa,” said the study.

India’s philanthropic landscape has undergone major changes over the past years. Mandating CSR helped the corporate sector transition from a voluntary and unsystematic approach to a structured way of contributing to social welfare. Although the law has infused capital into the social sector, the impact and effectiveness of the programs need to be measured to help identify gaps and solutions.

Lastly, instead of a narrow perception of CSR, one needs to understand the holistic view of it. The government of India is willing to take measures to facilitate ease of doing business by making an effective and receptive CSR legal framework. This will inculcate social consciousness in a company. This way, CSR expenditure can even more meaningfully contribute towards achievement of Sustainable Development Goals.