Mandating CSR spending won't help

If CSR could substitute for state action, Gates Foundation would have transformed Bihar

The 75 per cent jump in spending on Corporate Social Responsibility (CSR) in 2014-15, the year declaration of such spending became mandatory for firms above a certain financial threshold, should be viewed with caution. For one, although the increase looks healthy, Institutional Investor Advisory Services (IiAS), the corporate governance consultancy that has compiled these numbers, points out that the figure, at Rs 5,240 crore, was actually 26 per cent lower than the amount indicated in the law. This underlines the largely pro forma approach to CSR spending, and its limited utility as a means of promoting awareness of social responsibility in the corporate world.

The inclusion of CSR spending in the Companies Act suggests a basic misunderstanding of the role of corporate activity in an economy. Corporate activity cannot be a substitute or proxy for the government in enhancing human development indicators. One obvious reason is scale: No company, no matter how large and open-handed, can match the spread or penetration of a government - particularly in India. Had this been the case, the Gates Foundation, for example, with its awesome financial outlays and admirable programmes, could well have transformed Bihar, its focus area for many years, into a model of health, hygiene and sanitation. That apart, few corporate groups, oriented by their nature to profit, are interested in social spending as an end in itself. For the most part, large manufacturing companies tend to confine their CSR activities to the ambit of their operations. Many others tend to view them from an amoral image-building perspective and shape their CSR programmes to a specific corporate message. There is nothing inherently wrong with that - but it limits CSR's power as an agent of transformation. It is also telling that many of India's largest corporate philanthropists have spent appreciably less on CSR in this year of slowdown, with the honourable exception of Azim Premji. By contrast, governments, especially democratically elected ones, cannot have the luxury of cutting development spending when the economy slows.

Mandating CSR spending is an inadequate answer to what are deeper structural problems concerning policy choices. In the long run, shaping constructive regulation, durable institutions and sensible policy frameworks are a far better way of improving India's social indicators than any amount of corporate spending.