Definition of CSR
- It is the integration of socially beneficially programmes into a company’s business model and culture.
- India is the first country in the world to make CSR a statutory obligation under the Companies Act, 2013. Section 135 (1) of the Act stipulated that companies that have a net worth of Rs. 500 crore or above, or have a turnover of Rs. 1000 crore or above, or have net profits of Rs. 5 crore and above in the preceding financial year must constitute a CSR Committee.
- The Act encourages companies to spend 2% of its average net profit in the previous three years on CSR activities.
- The businesses can invest profits in areas such as rural development, healthcare, sanitation, education, environment sustainability etc. these activities have been provided for in Schedule VII of the Act.
- The Act has provision for penalty in case of default between Rs. 50,000 to Rs. 25,00,000. Every officer in default is to be imprisoned for a term of up to 3 years.
Rationale Behind CSR
- If the company wishes to succeed in the long run, then it needs to have the license to operate from the social actors affected by the company’s operation.
- A healthy business can succeed in only a healthy society. CSR helps build that healthy society.
- It is said that it is a means by which the company can return the benefits that it has derived from the society.
- All stakeholders involved are made socially conscious.
- Boosts employee mandate.
- Businesses tend to gain competitive advantage over others.
The Effect of Making CSR Mandatory
- Charitable spending of the private sector increases.
- It has resulted in mainstreaming charity.
- It is looked at more as a legal obligation taking the essence of philanthropy and good will out of it.
- Inequalities in distribution of CSR funds – bigger charities tend to attract more funds than smaller ones.
- There is also a geographic bias in the distribution of these funds.
