Corporate Social Responsibility is a significant term in today’s world of growing industrialisation, increasing privatisation and emergence of a more socially conscious consumer class. It can be seen as a paradigm shift in the roles and responsibilities of corporations from being mere profit-making entities to directing their resources for the development and growth of the society at large.
The gradual evolution of society, the emergence of social movements, the influence of NGOs and change in the attitude of the government have led to the growth of higher consumer consciousness and awareness, all over the world. This, together with an increased inclination of corporations to contribute to the process of development, led them to instigate the practice of Corporate Social Responsibility
The scope of Corporate Social Responsibility extends to a corporation’s duties towards four social groups, namely, the shareholders or investors, the employees or workers, the consumers or customers and the community at large. These groups are the four domains of social responsibility of business. The main concern of a corporate entity is to fulfil its obligations towards these four social groups.
A corporation must see to the fact that the investors are rewarded with returns upon their investments. It also has a moral and legal obligation towards its employees and workers. Corporations and organisations have specific responsibilities towards their customers in terms of production and marketing of functional, safe and value for money products. An organisation has an indirect duty towards local traders who may be affected by its operations. According to several social scientists, a corporation has a direct impact on the natural environment and may significantly affect future generations. Thus, a corporation has a multi-faceted effect on society.
India, at present, is booming with industries both national and multi-national. But social evils like poverty, population explosion, illiteracy, corruption, environmental pollution pose as real threats to the companies which are looking forward to establishing an equitable partnership between civil society and business. Hence, it is more mandatory for Indian companies to be sensitized to the ideals of Corporate Social Responsibility. The enactment of Section 135 of the Companies Act, 1956 (as amended up-to-date) is a major step taken by the government to sow the seeds of Corporate Social Responsibility.
The Ministry of Corporate Affairs, in India, has released a Circular on Frequently Asked Questions (FAQs) to look after the proper implementation of Corporate Social Responsibility. The Circular is with regards to Section 135 of the Companies Act, 2013 and has come upon the heels of a report submitted by the High-Level Committee which had been set up by the Ministry to suggest measures for revamping the monitoring of the Corporate Social Responsibility policies.
According to Section 135 of the Companies Act, 2013, every company having a net worth of rupees five hundred crores or more, or turnover of rupees one thousand crores or more or a net profit of rupees five crores or more during any financial year, shall constitute a Corporate Social Responsibility of the Board. The Circular emphasises the fact that the government does not have an active role in monitoring activities related to Corporate Social Responsibility.
It makes it obligatory on the Board to ensure the quality and effectiveness of Corporate Social Responsibility projects. The Circular also clarifies that neither does the government have a role in the appointment and removal of appropriate authorities for approving and improving Corporate Social Responsibility programmes nor can it recruit external experts to look into the efficacy of Social Responsibility expenditures of corporations.
No particular tax exemptions are applicable to the Social Responsibility expenditures of companies, though certain activities such as contribution to the Prime Minister’s National Relief Fund, scientific research, rural and skill development projects etc. pertaining to Schedule VII, already enjoy exemptions under different provisions of the Income Tax Act, 1961. The Finance Act, 2014 elucidates that an expenditure incurred by a company to fulfil its social obligations does not fall under business expenditure.
Business houses today recognise the importance of being socially and environmentally conscious and often advertise charitable initiatives such as annual fundraisers for a cause, or a volunteer project started by their staff, etc. But, companies that incorporate social responsibility into their business model prove a sense of dedication to these initiatives, both for the cause and their reputation.
According to a recent study, many Indian companies or companies incorporated in India have scaled up operations in Corporate Social Responsibility and are considering it to be of utmost priority. Mahindra & Mahindra leads the pack. Four Tata group companies have secured their places in the top 10 list, and GAIL has replaced SAIL in the public sector. Bharat Petroleum has also joined the list.