India's business houses increasingly rely on NGOs for spending corporate social responsibility funds: Crisil
India’s top consultants, Crisil, in its latest “CSR Yearbook”, have said that Indian companies’ attitude towards corporate social responsibility (CSR) “seems to be changing ever so slowly” even though they are “realising that businesses can sustain and thrive only if the communities they serve also endure and flourish.”
Noting that in fiscal 2016, India Inc “inched closer to the 2% CSR spending mandated by the Companies Act, 2013”, Crisil, which has based its analysis of 4,887 companies listed on the Bombay Stock Exchange, says, only “1,505 of them, or 30%, met the criteria stipulated in the Companies Act for mandatory spending and reporting on CSR in fiscal 2016.”
“Of this lot, 77% reported their CSR spend”, says Crisil, adding, 7% of the eligible companies “did not disclose such details.” Crisil does not include unlisted companies in its analysis “for want of data”.
The Companies Act, 2013, requires corporates to spend at least 2% of their average net profit of the past three years on CSR activities. Fiscal 2016 was the second year of implementation of the CSR obligation.
Pointing out that the companies’ CSR spending “edged up to 1.64% in fiscal 2016, compared with 1.35%”, in fiscal 2015, Crisil says, “The absolute money spent by them was over Rs 8,300 crore compared with Rs 6,800 crore in fiscal 2015.”
However, it underlines, “To reach the mandated 2% mark, these companies would have had to spend another Rs 1,835 crore”, adding, “There were 133 companies that either didn’t spend a dime, or were still freezing their CSR agenda.”
“The spending profile of larger companies improved significantly, with more than half of them adhering to the 2% mandate versus roughly a third last year”, Crisil says, emphasizing, a major reason why there was 22 percentage point jump in adherence by the larger companies is “they are using implementing agencies, mainly non-governmental organisations (NGOs), for execution.”
Noting that “partnership with NGOs helps boost compliance”, Crisil says, “Interestingly, over 84% of the large companies – with sales of Rs 10,000 crore or more – use implementing agencies”, though regretting, “Somewhat counterintuitively, many smaller ones prefer going solo.”
“In fiscal 2016, more than half of the companies spent 2% or more, except those from telecoms and IT”, says Crisil adding, “Commodities and diversified industries stood out, with 60.2% and 59.2%, respectively, of companies in the sector spending 2% or more. Telecoms performed poorly with nearly half of the companies spending less than 1%.”
“What’s good to see is education and healthcare getting the bulk of CSR spend”, says Crisil, adding, “That’s heartening given that, as a percentage of total government expenditure, the money set aside in the Union Budget for 2015-16 – Rs 68,306 crore for education and Rs 44,516 crore for healthcare – is well below what other BRICS nations commit normatively.”
It recommends, “Something similar can be done in sports, where a minuscule Rs 1,592 crore was budgeted last fiscal so that India can harvest a better medals tally at the next Olympics in Tokyo.”
“Fiscal 2016 saw some companies announcing that they were joining hands for CSR activity, even as Prime Minister Narendra Modi himself weighed in on its many virtues on several occasions”, Crisil says, though adding, “Yet, actual instances of collaboration have been hard to come by.”
Under the earlier CSR provision in the Companies Act, 2013, a company could conduct activities only on its own or through a holding, subsidiary or associate company. But this changed with a February 2014 notification, which allowed two companies to undertake CSR activities jointly through a separate legal entity that could be a trust, society, or a third company.
“This is particularly beneficial to smaller firms that find it hard to spend on CSR projects directly given their relatively modest corpus”, Crisil notes, adding, “However, large corporates stand to gain no less since collaboration is the greatest force multiplier when it comes to making an impact.”
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