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Introduction

India is the only country in the world to legally mandate Corporate Social Responsibility (CSR) under Section 135 of the Companies Act, 2013, requiring eligible companies to spend at least 2% of their average net profits of the previous three years on social development. Introduced against the backdrop of corporate excesses and scandals such as Vedanta’s mining controversy, SEZ land disputes, and the Satyam fraud, the mandate was framed as a policy corrective to restore corporate legitimacy and align business with national socio-economic priorities.

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Effectiveness of Legally Mandated CSR Spending

• Increased Funding for Social Sectors: CSR has channelled large funds into education, healthcare, and skills, reducing gaps in access to basic services.
  Eg: In FY24, CSR spending rose 16% to ₹17,967 crore (Prime Database).
• High Compliance Rate: With most companies adhering, CSR ensures a steady flow of resources to social causes, benefitting weaker sections.
  Eg: 98% of companies met CSR obligations in FY24, with half exceeding the 2% norm.
• Support for NGOs and Grassroots: CSR sustains NGOs working in rural and tribal belts, reaching communities often left out of welfare schemes.
  Eg: Domestic CSR is now a key funding source for thousands of grassroots NGOs.
• Corporate Exposure to Ground Realities: Engagement in underdeveloped areas has drawn corporate attention to issues like sanitation, nutrition, and education for the poor.
  Eg: CSR has taken business leaders into districts representing “real Bharat”.
• Boost to High-Impact Sectors: Investment in health and education disproportionately benefits underprivileged groups, narrowing human capital gaps.
  Eg: Reliance Foundation’s education projects and Tata Trusts’ healthcare programmes uplift weaker sections.

Challenges in Addressing Socio-Economic Disparities

• Regional imbalance: CSR funding tends to cluster in relatively prosperous states, bypassing the poorest regions.
  Eg: Maharashtra, Rajasthan and Tamil Nadu receive the largest CSR inflows, while aspirational districts in Jharkhand, Chhattisgarh, Bihar, Odisha, MP and the Northeast get less than 20% of total funds.
• Sectoral skew: Most CSR money flows into high-profile sectors, sidelining others of equal importance.
  Eg: Education and healthcare dominate, while slum development, livelihood enhancement and environment remain underfunded.
• Grassroots funding gap: Despite NGOs being supported, regional imbalances persist in high-deprivation areas.
• Compliance-driven over outcome-driven: Legal obligations often push firms towards fulfilling requirements rather than ensuring transformative outcomes.
  Eg: In 2018, the government issued notices to 272 firms for CSR non-compliance.
• Risk of PR orientation: Firms choose projects that maximise visibility rather than equity.
  Eg: Companies invest in causes with “maximum PR bang for the buck” rather than underserved themes.
• Reputational paradox: Despite mandated CSR, public trust in corporations remains low in India and globally, regardless of spending levels. 

Potential Reforms in CSR in India

• Geographic equity incentives: CSR spending is clustered in developed states, so policy nudges are needed for backward districts.
  Eg: Government could incentivise CSR in aspirational districts to avoid region-wise mandates.
• Outcome-based frameworks: Shifting focus from mere compliance to tangible outcomes is critical.
  Eg: Presently law measures “how much and where”, but not impact — reforms could link CSR credits to results.
• Tax rationalisation: Lack of inheritance tax and limited deductions restrict the growth of philanthropic endowments.
  Eg: Unlike the West, India scrapped inheritance tax in 1985, limiting endowment culture; tax incentives could spur deeper CSR.
• Streamlined regulation, less intrusion: Over-regulation risks reducing corporate flexibility and innovation in CSR.
  Eg: Already, law dictates %age spend and themes; mandating region-wise quotas may worsen intrusion.
• Transparency & audits: Weak monitoring allows compliance gaps and box-ticking approaches.
• Collaborative CSR pools: While not stated directly, pooling is implied as a solution to address skewed distribution.
  Eg: Since prosperous states dominate funding, a pooled mechanism could channel resources into tribal and backward regions.
• Encouraging philanthropy culture: India’s CSR law mandates giving, but philanthropy culture remains weak.
  Eg: In the West, inheritance taxes spurred Gates/Soros-like foundations; India lacks similar triggers.

Conclusion

India’s CSR law has succeeded in institutionalising corporate accountability and mobilising significant private resources, but its impact on reducing socio-economic disparities remains limited due to geographic and sectoral skew. A forward-looking approach must combine incentive-based reforms, transparency, pooled efforts, and outcome-linked frameworks to redirect CSR flows towards the most deprived regions and issues. Only then can mandated CSR evolve from corporate compliance into a genuine driver of inclusive and sustainable development.

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