India’s Corporate Social Responsibility Law

India recently became the first country in the world to mandate corporate social responsibility (CSR), passing legislation that demanded that 2% of a company’s profits must be spent on development work.  I want to take a look at that from two angles, first let’s look at the thinking and political philosophies that inform that legal requirement and then consider the real, on the ground experiences of NGOs in India and their opinion on the progress (or lack of it) this offers.

The intellectual underpinning to this is intriguing.  On the one hand it could be considered the ultimate in government intervention – not just trusting corporations to act in a socially responsible and productive manner but actually making it a legal obligation.  This could be viewed through the prism of the enforced social justice that some in the developed world have been demanding their own governments implement for decades.  It implies an inherent mistrust of corporations to act in anything but their own self interest unless there are explicit measures preventing them from doing to.

Conversely, though, by allowing the corporations themselves to control the spending we could see this as an entirely different move.  It’s possible to see this as an experiment in increasing corporation tax but, crucially, in removing government from that equation as much as possible and seeing if efficiency can be improved by removing the middleman between taxation and spending.  Cast in this light, the legislation might be admired by the libertarian wing of the American political spectrum.

Certainly there are criticisms from all angles.  I work with a number of NGOs operating in India and I wrote to each of them asking for their views on the legislation and how it had affected their work.  The feedback was scathing.

One director of an NGO working in Tamil Nadu said that when the law came into effect there was lot of expectation that money would flow to NGOs and their work under the new law but lamented that, to the best of their knowledge this was not the case.  Further feedback from more than one professional spoke of how the firms treated the tax as they would any other and therefore sought to avoid or evade it as effectively as possible, setting up their own charitable foundations in order to make the spending less transparent and accountable.  One NGO in Bihar state reported that the impact of CSR had actually been reduced since the time when contributions were voluntary.

Of course these experiences are anecdotal and are unlikely to be shared uniformly nationwide, but they do give an insight, perhaps, to some of the ground level experiences of India’s development organisations.  Interestingly, the sentiment didn’t seem to alter based on whether organisations had received funding through the scheme or not.

It remains to be seen if this move can fund India’s development work in a way that overseas donors are less and less willing to do.  When DfID announced their funding shift away from the country a couple of years ago justifications included the promotion of India to a middle income country and the state’s investment in, amongst other things, a national space programme.  Some have accused this reasoning of being flawed given the incredible need that remains in India.  The world’s second biggest population, extreme economic inequality and a noticeable development divide between rural and urban areas mean there is still more poverty in India than any other country on earth.

Of course, given the unique and original design of this CSR law it is, by its very nature, an experiment.  As such it’s impossible for critics or supporters to really pre judge its success or failure until the results are in and after only two years there really isn’t enough data.  If it does manage to succeed, despite early criticism it could provide a model to be replicated throughout the world.  Equally, though, we may look back on a failed experiment that did little to benefit the grassroots development India desperately needs to reduce poverty as it continues to grow.

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