CSR Evolution - Part 1: The Indian way

 The history of CSR in India runs parallel to the historical development of India. India has the world’s richesttradition of Corporate Social Responsibility (CSR). The term CSR may be relatively new to India, but the concept dates back to Mauryan history, where philosophers like Kautilya emphasized on ethical practices and principles while conducting business. CSR has been informally practiced in ancient times in form of charity to the poor and disadvantaged. Indian scriptures have at several places mentioned the importance of sharing one’s earning with the deprived section of society. We have a deep rooted culture of sharing and caring.

 

In the Indian context, the origin of CSR can be traced fromthe Vedic literatures such as the Valmiki Ramayana, the Mahabharata (includes the Bhagavad-Gita) and the Puranas. These literatures were written more than 5,000 years ago in Sanskrit language. The Kautilya's Arthasastra provides an inside-out approach to CSR, which is development of the individual leader's self conscience, contrary to the western approach that takes an outside-in perspective. The leaders and the role they play in corporations are crucial in ensuring transparency, good conduct and governance towards the ultimate aim of achieving CSR

 Followings indicate the existence of Corporate Social Responsibility in India much before the entry of Britishers or any other external forces.

• Vedas – There are four Vedas. Rig-Veda, Yajur-Veda, Sama-Veda, and Atharva -Veda. The prime component of these Vedas is the understanding of the concept of the universe. An attempt to help achieve one’s goals and objective – i.e. union of self (atman) and the world (Brahma) . Vedas further advocate application of “Samasta Janaanaam Sukhino Bhavantu” (Maximum welfare of the maximum people).
• Upanishads – Upanishads form the hardcore soul of the individual, laying a path to connect individual self to the supreme power, the God, and rise over and above the desire and liking from the materialistic pleasure. 
• Bhagavad Gita – Krishna Gathas, the rhymes and preaching‘s Are the fundamental pillars establishing a sound base for spirituality and ethics, pronounced through a dialogue between Lord Krishna and the warrior Arjuna who is at a great crisis of his life? The karma yoga, Bhakti yoga and the notion of three Gunas (sattwa, Rajas, Tamas) have eminent implications in the context of ethical leadership, decision making, and management, the area of concern where the concepts of CSR Corporate Governance and ethics are expected to be practiced. 
• Ramayana – It depicts the duties of relationships, portraying ideal characters like the ideal father, ideal servant, the ideal brother, the ideal wife and the ideal king. Apart from this, the Ramayana also teaches how the temptation for lust can bring a powerful and well-established man‘s doomsday.
• The famous, Kural, the great book of Tiru Valluvar’s verses is a treatise par excellence on the art of living. It stipulates moral verses for discharge of social responsibilities.

Religion also played a major role in promoting the concept of CSR. Islam had a law called Zakaat, which rules that a portion of one’s earning must be shared with the poor in form of donations. Merchants belonging to Hindu religion gave alms, got temples and night shelters made for the poorer class. Hindus followed Dharmada where the manufacturer or seller charged a specific amount from the purchaser, which was used for charity. The amount was known as charity amount or Dharmada. In the same fashion, Sikhs followed Daashaant.

Lord Gautam Buddha after whom Buddhism is known gave the world with four fundamental noble truths. They are (i) Suffering exists; (ii) There is a cause of the suffering; (iii) Suffering can be eradicated; (iv) There is a means for the eradication of that suffering. His practice establishes the fact that everything on earth is non–permanent and everything on earth has an – “anatta”. Buddha also gave the world the eightfold path to liberation from all suffering.  

 

Religious traditions of daan, seva, and zakat operated in India for centuries helping to shape the relationship between the privileged and the dispossessed.  The vast majority of philanthropy in India has always been to religious institutions and that continues to be the case.  The earliest industrialists of the 19^th Century launched the practices of corporate giving via trusts, and endowed institutions controlled by members of business families.

 Religion has been a very influentialfactor for encouraging people for conducting activities that are helpful for society but this factor has lost its tight grip on impact with the passage of time hence people started looking for other motivations for the encouragement of people engaged in corporate affairs for social activities.

 CSR has evolved in phases like community engagement, socially responsible production, and socially responsible employee relations. Therefore, the history of Corporate Social responsibility in India can be broadly divided into four phases:

The first phase of CSR was driven by noble deeds of philanthropists and charity. It was influenced by family values, traditions, culture and religion along with industrialization. Till 1850, the wealthy businessmen shared their riches with the society by either setting up temples or religious institutions. In times of famines, they opened their granaries for the poor and hungry. The approach towards CSR changed with the arrival of colonial rule in 1850. In the Pre-independence era, the pioneers or propagators of industrialization also supported the concept of CSR. In 1900s, the industrialist families like Tatas, Birlas, Modis, Godrej, Bajajs and Singhanias promoted this concept by setting up charitable foundations, educational and healthcare institutions, and trusts for community development. It may also be interesting to note that their efforts for social benefit were also driven by political motives.

The second phase was the period of independence struggle when the industrialists were pressurized to show their dedication towards the benefit of the society.

After the First World War, a new phase of corporate philanthropy arose that drew business leaders into the political fight for independence. The close relationship between M.K. Gandhi and leading industrialists is well-known.  He proposed a model of trusteeship for business in which tycoons should understand their position as fiduciaries of society’s wealth.

Mahatma Gandhi urged to the powerful industrialists to share their wealth for the benefit of underprivileged section of the society. He gave the concept of trusteeship. This concept of trusteeship helped in the socio-economic growth of India. Gandhi regarded the Indian companies and industries as “Temples of Modern India”. He influenced the industrialists and business houses to build trusts for colleges, research and training institutes. These trusts also worked to enhance social reforms like rural development, women empowerment and education.

 

In the third phase from 1960-1980, CSR was influenced by the emergence of Public sector undertakings to ensure proper distribution of wealth. The policy of industrial licensing, high taxes and restrictions on the private sector resulted in corporate malpractices. This led to enactment of legislation regarding corporate governance, labor and environmental issues. Still the PSUs were not very successful. Therefore there was a natural shift of expectation from the public to the private sector and their active involvement in the socio-economic growth. In 1965, the academicians, politicians and businessmen set up a national workshop on CSR, where great stress was laid on social accountability and transparency.

In the fourth phase from 1980onwards, Indian companies integrated CSR into a sustainable business strategy. With globalization and economic liberalization in 1990s, and partial withdrawal of controls and licensing systems there was a boom in the economic growth of the country. This led to the increased momentum in industrial growth, making it possible for the companies to contribute more towards social responsibility. What started as charity is now understood and accepted as responsibility.

A detailed timeline delineating the economic currents and roleof State and Corporates are given below:

Historical Evolution of CSR in India
Time period	Economic currents	State role	Corporate CSR
1850-1914	Industrialisation	Colonial, extraction	Dynastic charity
1914-1947	Trade barriers for new industries	Colonial, exploitative	Support freedom struggle
1947-1960	Socialism, protectionism	Five year plans	Support new state; launch own rural initiatives
1960-1990	Heavy regulations	Licence raj; development failures	Corporate trusts
1991-2013	Liberalisation	Shrinking in production; expanding in social provision	Family trusts, private-public partnerships, NGO sponsorship
2013-present	Globalisation	Need to manage inequality; new reforms to liberalise further	Introduction of mandatory 2% rule

In the period immediately after Independence, the role of the Indian State expanded greatly and the corporate sector took a backseat in development efforts.  After some time, the failures of the State to end poverty and support economic growth led to dissatisfaction.  The liberalisation of the Indian economy in 1991 ushered in a new globalised economic environment, with rapid growth in overall wealth and also in inequality.

The rising gap between the wealthiest Indians and those at the bottom sparked innovation in efforts by the corporate sector to address social problems.  It also led the State to think about how to pull in more support from the booming business world.  In the context of a shrinking State, a more globalised economy, and great divisions in economic and social worlds, the landscape of Indian CSR is fascinating

Directions for CPSEs

CSR activities performed by the corporate giants lacked specific guidelines about their measuring yardstick, investment parameters, areas to be covered for CSR activities, etc. With the span of time India became an opened economy from a closed economy, all due to the LPG movement launched in India in the year 1991. Since time immemorial CSR as a term lacked a precise definition, structure, criteria‘s and transparency. All Central Public Sector Enterprises (CPSE) were following the CSR guidelines issued by the Director of the Ministry of Heavy Industries and Public Enterprises since 2010.

Directions for Companies under Compnaies Act 2013

The new bill replaces the Companies act 1956 and emphasizes carrying forward the agenda of Corporate Social Responsibility. India`s new Companies Act 2013 (Companies Act) has introduced the provision for Corporate Social Responsibility (CSR). The concept of CSR rests on the ideology of give and take. Companies take resources in the form of raw materials, human resources etc from the society. By performing the task of CSR activities, the companies are giving something back to the society.

In the current scenario in India, the new Companies Act amended in December 2012 mandates the corporate to spend 2% of their average net profits of the last three financial years towards CSR. This is applicable for companies with a turnover of 1000 Cr/ PAT of 5 Cr/ or net worth of 500 cr. 

Ministry of Corporate Affairs has notified Section 135 and Schedule VII of the Companies Act 2013 as well as the provisions of the Companies (Corporate Social Responsibility Policy) Rules, 2014 (CRS Rules) which has come into effect from 1 April 2014 and certain amendment in May 2016 and also on January 22nd, 2021 bringing more clarity about CSR spend and activities undertaken 

Directions for Listed Companies

Clause 49 of the SEBI guidelines on Corporate Governance as amended on 29 October 2004 has made major changes in the definition of independent directors, strengthening the responsibilities of audit committees, improving quality of financial disclosures, including those relating to related party transactions and proceeds from public/ rights/ preferential issues, requiring Boards to adopt formal code of conduct, requiring CEO/CFO certification of financial statements and for improving disclosures to shareholders. Certain non-mandatory clauses like whistle blower policy and restriction of the term of independent directors have also been included.

The term ‘Clause 49’ refers to clause number 49 of the Listing Agreement between a company and the stock exchanges on which it is listed (the Listing Agreement is identical for all Indian stock exchanges, including the NSE and BSE). This clause is a recent addition to the Listing Agreement and was inserted as late as 2000 consequent to the recommendations of the Kumarmangalam Birla Committee on Corporate Governance constituted by the Securities Exchange Board of India (SEBI) in 1999. 

Those who read this also read CSR Evolution- Part 2 : Legal Framework