1
Corporate Social Responsibility and Social Welfare Provision:
The Case of India
Dragana Bodruzic1
1.0 Introduction:
In August 2013, India passed a new Companies Act, replacing its outdated Companies Act 1956.
While establishing new concepts and revamping company regulations, the Act introduces
provisions guiding companies on their Corporate Social Responsibility (CSR) practices. More
specifically, it includes provisions requiring companies of a certain size to spend two percent of
their profits on CSR projects. While CSR is not strictly defined, companies are asked to
contribute to a series of developmental goals, including poverty alleviation, the eradication of
hunger, education, the empowerment of women, and environmental sustainability. The CSR
provisions of the Act represent a clear state effort to shift some of the burden of welfare
provision onto corporate actors, while still granting companies significant freedom over the
nature of their involvement.
Globally, CSR is generally understood to have a strong voluntary component (Carroll, 1999;
Dahlsrud, 2008), making the Indian CSR provisions unique in the world, and the subject of
notable discussion in the run-up to the passage of the Act. Yet viewed from another perspective,
this shift is not entirely surprising: while in the post-World War II period there was an
assumption that welfare states would emerge throughout the global south, in recent decades
numerous non-state actors have taken on roles typically associated with the state. In fact, as
Cammett and MacLean (2014: 1) argue: “non-state actors supply basic social services to
ordinary people even more extensively than states in many countries around the world.” Indeed,
there have been numerous global efforts to further promote the involvement of corporate actors
in development, particularly through the United Nations Global Compact, which seeks to
encourage companies to find ways to contribute to the Sustainable Development Goals.
Nonetheless, such global efforts seek to retain the voluntariness component of corporate social
responsibility, which is ostensibly removed through efforts to legislate CSR practices.
This naturally leads to the question of why the Indian government chose to legislate CSR
spending within the Companies Act. It also encourages us to consider the broader implications
such legislation may hold for social welfare provision in India. The paper begins by placing the
discussion of India within the wider context of debates on welfare provision, as well as the
relationship between CSR and development. It then goes on to analyze how the concept of CSR
is understood in the Indian context, before discussing the CSR provisions of Companies Act
2013, as well as the institutional architecture the Indian state has sought to put in place to
implement those provisions.
1 PhD Candidate, Department of Political Science, University of Toronto
Contact: [email protected]
Prepared for the 2017 meeting of the Canadian Political Science Association.
This paper is a work in progress, please do not cite without permission of the author.
2
The paper then seeks to explain the emergence of this legislation, focusing on two primary
considerations: first, the increasing difficulty the Indian state faces in sufficiently providing
social welfare; and second, the historical involvement of Indian companies in development,
initially under the guise of trusteeship, which has led to a wider acceptance within both Indian
companies and society of the expectation that companies have a role to play in welfare provision.
Finally, the paper argues that though the passage of the Act does suggest a concrete government
effort to promote the involvement of corporate actors in social welfare provision, the nature of
the CSR clause, and the accompanying institutional architecture, are likely to promote mixed
developmental results.
2.0 Understanding Corporate Involvement in Social Welfare Provision:
Following the Second World War, during the heyday of modernization theory within development
studies, there was an assumption that countries of the global south would follow similar
development paths to those already taken by the industrialized countries of the global north. This
included the development of systems of welfare provision, or in other words, of some form of
welfare state. Some countries in the global south did indeed begin to put such systems into place,
however starting in the 1980s, as these countries moved away from state-led models of
development towards opening their economies and focusing on market-led development, some of
the existing systems of state welfare provision began to erode.
At the same time, myriad non-state actors began to engage in social welfare provision, including
non-governmental organizations (both secular and faith-based), community organizations, and
even corporate actors. In the case of corporate actors, the nature of company engagement varies:
companies can be service providers contracted by government, they can develop public-private
partnerships with government agencies, or they can develop CSR programs. In the first two cases,
companies receive some form of direct payment for their engagement, while in the case of CSR,
the only payment is presumably reputational in form.
CSR projects in the global south adopt broadly developmental goals: for instance, poverty
alleviation, investment in education and healthcare, and the provision of public goods such as
access to clean water. Increasingly, companies are also participating in multi-stakeholder
partnerships with non-governmental organizations (NGOs) and governmental and multilateral
organizations. The United Nations (UN) has played a key role in promoting these types of
partnerships, and indeed, in promoting the idea that business should play a role in development.
The perfect example is the creation of the UN Global Compact, which emphasizes the role of
business as an active agent for promoting social and economic development (Blowfield, 2007;
Edward & Tallontire, 2009; Frynas, 2009; Visser, 2008). In tracing the progression of the discourse
on CSR and development, Utting and Marques (2010: 2) note: “The expectation was that
companies and business associations would become developmental agents, often assuming
functions typically associated with the state.”
Our theoretical tools to understand the political implications of non-state actors engaging in social
welfare provision have not kept sufficient pace with these developments (Cammett & MacLean,
3
2014). While the literature on welfare states has sought to pay greater attention to the role of
politics, and the relationship between the state, the market, and family, in explaining welfare
outcomes (see Korpi (1983); Esping-Andersen (1990; 1999); Orloff (1993)), it largely addresses
welfare state regimes found in the global north. As noted, however, these are yet to emerge in
many countries in the global south (Gough, 2004). This is not to say that certain countries in what
has traditionally been viewed as the global south have not managed to reduce poverty and
inequality through social policy (for instance, see Teichman (2012) on South Korea). Nonetheless,
throughout the global south, personal and family-level security arrangements, and the work of both
non-profit and for-profit non-state entities, remain central to ensuring social welfare provision,
while formal institutional frameworks of social provision remain fragile.
According to Gough and Wood (2004), social policy in the global north is rooted in two main
assumptions: a legitimized state and a pervasive labour market. These assumptions are not always
met throughout the global south. They therefore propose the adoption of a new terminology of
‘welfare regimes,’ which refer to the “entire set of institutional arrangements, policies and
practices affecting welfare outcomes and stratification effects in diverse social and cultural
contexts” (Gough, 2004: 26). Welfare states are therefore but one type of welfare regime.
However, while the categories they provide are useful in thinking about different forms of welfare
arrangements, they do not consider different types of non-state providers, nor the political
implications of non-state social welfare provision.
At the same time, there has been an emerging literature (mostly outside political science), which
addresses the role of corporations in promoting human development, not simply through their
economic contributions, but also through their CSR programs. There is great disagreement about
why corporations are doing this, and there is also disagreement about the normative implications
of businesses engaging in what has traditionally been the purview of states. Development studies
as a field has yet to adequately engage with these trends. A preliminary search of leading
development studies journals reveals a comparatively small number of articles even mentioning
CSR. While critical development theory has yet to more deeply engage with CSR, this has not
meant that development studies has in no way influenced writings on CSR. For instance, the work
of Peter Utting (1997; 2003; Utting & Marques, 2010), Uwafiokun Idemudia (2007; 2011; 2010),
Michael Blowfield (2005; 2007; Blowfield & Frynas, 2005), J.G. Frynas (2009), and several other
authors who have worked on developing a more interdisciplinary analysis of the relationship
between CSR and development, have taken some insights from development studies. However,
this literature is still insufficiently developed, nor are the political implications of the relationship
between CSR and development adequately considered. In particular, the role of the state in shaping
the institutionalization of CSR, and CSR practices, needs to be better understood.
The case of India provides exciting opportunities to study the involvement of corporate actors in
social welfare provision, the state’s role in shaping CSR, and the CSR-development relationship
more broadly. The country’s recent decision to legislate CSR spending, and to directly relate it to
developmental goals, poses interesting questions about both reasoning for this decision as well as
its developmental and political implications.
The research presented in this paper was collected during fieldwork conducted in India in 2014
and 2015. The research included the collection of relevant documents, as well as more than fifty
4
semi-structured interviews with CSR practitioners, CSR experts working within key business
associations, government representatives, and members of civil society.
3.0 What does Corporate Social Responsibility mean in India?
Though there is a significant literature on how corporate social responsibility should be defined
(Carroll, 1999; Dahlsrud, 2008), much of this literature is primarily concerned with the global
north.1 When the term CSR is applied to countries in the global south, the term is often adopted
uncritically, without sufficient consideration for whether, and if so how, the term may be
understood differently in other contexts.
An important point of reference in any discussion of CSR is the highly influential work of Archie
Carroll, who first defined the term in 1979, writing that: “the social responsibility of business
encompasses the economic, legal, ethical, and discretionary expectations that society has of
organizations at a given point in time” (Carroll, 1979: 500). He subsequently developed a CSR
pyramid, with the economic category at the base, building up to the legal, ethical, and
philanthropic activities at the top (his subsequent work reformulated the discretionary category
into philanthropic activities) (Carroll, 1991). In other words, a company’s most important
societal role is to be economically profitable (since this serves the interests of its shareholders),
followed by its remaining responsibilities. Carroll’s work, however, is once again reflective of
the global north, and Visser (2008) shows that the research that is available on countries in the
global south shows that parts of the pyramid are inverted in this context. Visser argues that while
economic priorities are again placed highest, this is followed by philanthropy, before legal and
ethical responsibilities.
This seems to be borne out by the Indian case, though decoding the meaning of CSR in India is
complicated by the large number of terms used by practitioners, including business
responsibility, responsible business, sustainability, and sustainable development. The prevailing
agreement suggests that CSR refers to community development. This in turn is perceived to be a
subset of responsible business (which is then associated with sustainable development).
Nonetheless, defining CSR has been a matter of contestation. As the understanding of CSR as
community development became solidified, certain organizations working to promote CSR
sought to redefine it, or to at least adopt alternative conceptualizations that would bring focus to
how companies operate more broadly. According to one prominent CSR practitioner: “In 2008,
we began with the ‘Death of CSR’, just to say that corporate philanthropy is part of it, but it is
not how we should define corporate responsibility. So we came up with the guidelines which are
the National Voluntary Guidelines” (Interview INA15).2
The National Voluntary Guidelines on Social, Environmental, and Economic Responsibilities of
Business (2011) (NVGs) establish nine principles that seek to guide the ethical behavior of
companies. The Guidelines, however, also represent an effort to move away from the language
of CSR, and instead adopt the terms ‘responsible business’ and ‘business responsibility’. In
addition to business responsibility, the word sustainability has become increasingly popular. As a
result, confusion can, and does, occur, particularly between the terms ‘responsible business’ and
5
‘sustainability’.
CSR has nonetheless remained a subject of contestation, as became clear in the debates
surrounding the Companies Act 2013. While early drafts of the bill sought to define CSR, noting
that: “CSR is the process by which an organization thinks about and evolves its relationships
with stakeholders for the common good… CSR is not charity or mere donations. CSR is a way of
conducting business, by which corporate entities visibly contribute to the social good” (Proposed
Draft Corporate Social Responsibility Rules under Section 135 of the Companies Act, 2013,
2013). This definition of CSR was heavily debated behind closed doors, with many corporate
actors and business associations expressing disapproval (Interview INA6). Any attempts to
provide an outright definition were dropped from the final version of the bill. Instead, the
legislation closely connects CSR with social welfare provision by requiring two percent of
profits to be spent on activities which are drawn directly from the Millennium Development
Goals (MDGs). This reinforces the perception that CSR is primarily to be associated with
community development, rather than the wider question of how companies conduct their
business practices.
4.0 Legislating CSR—Companies Act 2013:
Before considering how we can explain the decision of the Indian state to promote the
involvement of corporate actors in social welfare provision, it is useful to consider how the
current legal framework guiding CSR was established.
The concept of requiring companies to spend a certain portion of profits on their CSR practices
was not entirely new at the time the Companies Bill 2012 was introduced (i.e. the present
Companies Act 2013). In 2010, India’s Department of Public Sector Enterprises (DPE)
introduced a set of CSR Guidelines for public sector enterprises, which emphasized that public
companies should: spend between 0.5% and 5% of profits on CSR; run these in project mode,
preferably in areas where the company conducts business; and should link these projects to the
goals of sustainable development. Once adopted, the DPE Guidelines went through a series of
amendments, including changes in 2014, which reconciled the Guidelines with the requirements
of the new Companies Act.
At the same time, India was operating with an outdated Companies Act, which dated back to
1956. As calls for rewriting the Act arose, so did discussion about including legislation relating
directly to CSR. As was noted above, an initial draft resolution sought to define CSR with
reference to the ‘social good’, before establishing a list of activities in which companies should
engage drawn from the MDGs, and focused on community development.
When the Companies Bill 2012 was publically debated, there was general agreement on many of
the CSR provisions, with most members of the Lok Sabha expressing praise for the proposal
(Lok Sabha Debates, 2012). For its part, the incumbent government (a coalition headed by the
Congress Party) represented the provisions as revolutionary, and as central to addressing the
growing divide between the rich and poor in the country.
6
Section 135 of Companies Act 2013 sets out its CSR provisions, which apply to companies
having a net worth of five hundred crore or more, or a turnover of one thousand crore or more, or
a net profit of five crore or more (in rupees) during any financial year.3 Any company which
meets these requirements must create a CSR Committee of the Board, and make available a
report which discloses the composition of that Committee. The company must also ensure that
the Committee will develop and monitor a CSR Policy, in line with Schedule VII (discussed
next). The company must also ensure that the Board will consider recommendations made by the
CSR committee, approve a CSR Policy, and disclose the Policy on the company’s website.
Finally, the Act’s most famous provision states that the company must spend, in any financial
year, at least two percent of its average net profits on CSR (Companies Act 2013, 2013). If a
company cannot meet that spending obligation, it must provide a report explaining its failure to
comply. Section 135 also notes that companies should seek, where possible, to focus their efforts
on communities where they operate.
Attached to Section 135 is Schedule VII, which details the types of activities in which companies
are expected to engage. This includes: (i) eradicating hunger, poverty and malnutrition,
promoting preventive healthcare and sanitation and making available safe drinking water; (ii)
promoting education; (iii) promoting gender equality, empowering women, and protecting the
elderly; (iv) ensuring environmental sustainability, and the conservation of natural resources and
the quality of soil, air and water; (v) protecting national heritage, art and culture; (vi) helping
armed forces veterans, war widows and their dependents; (vii) training to promote sports; (viii)
contribution to the Prime Minister's National Relief Fund4 or any other fund set up by the Central
Government for socio-economic development; (ix) contributions or funds provided to technology
incubators located within academic institutions which are approved by the Central government;
and (x) rural development projects.5
Amendments passed by the BJP government in October 2014 added a number of further
provisions: contributions to the Swach Bharat Kosh set-up by the Central Government for the
promotion of sanitation were added to item (i); while contributions to the Clean Ganga Fund
setup by the government to clean the Ganges were added to item (iv). Both programs are
considered flagship policies of the current BJP government.
In sum, the legislation includes administrative provisions, which require the creation of a CSR
committee, which reports to the Board of Directors, as well as spending provisions. The
spending provisions, in tying CSR to the Millennium Development Goals, indirectly support an
understanding of CSR as community development.
In addition to the legislation itself, the government of India has also sought to develop
institutional infrastructure to help companies design and implement CSR projects. In particular,
the government has tasked the Indian Institute of Corporate Affairs (IICA), which was initially
created by the Ministry of Corporate Affairs in 2008, with implementing Section 135. The IICA
is registered as a society, and is described by one of its senior consultants as being “a think tank
for the government.” (Interview INA16)
The IICA includes a core staff of consultants, but has also created its own campus, where it
offers a series of courses relating to CSR, sustainability, and corporate governance. Its staff state
7
that their main mission is to create an enabling environment for companies to develop and run
their CSR projects. They note that since many companies have historically engaged in purely
philanthropic activities, asking them to run more developed CSR projects can bring up
challenges. As a result, they seek to aid companies in building the capacity necessary to run
successful CSR programs.
The IICA also aims to help companies find implementing partners. Many companies lack the
capacity to implement development projects on their own, and need to develop partnerships with
civil society organizations. This is particularly the case for smaller companies, whose CSR
departments are also working with smaller CSR budgets, making it more difficult to develop
internal implementation capacity. However, relationships between companies and civil society
are often fraught with difficulties. A lack of trust persists on both sides, and companies tend to
doubt the credibility of NGOs.
As a result, the IICA is creating a database of ‘reliable’ implementing agencies (though it is not
clear what characteristics are necessary to qualify in practice) and developing NGO training
workshops. One of the individuals working on these programs noted that since NGOs generally
work on a grant-based approach, they “need to change” and adopt a market-based approach
(Interview INB4). In particular, he noted that NGOs and companies tend to speak a ‘different
language’, making it difficult to build partnerships. The IICA is therefore positioning itself to
enable the creation of such partnerships.
5.0 Explaining the Indian Case:
Interviews with individuals involved in debates surrounding the legislation of CSR revealed that,
overall, there was a high degree of support for this legislation. Even amongst companies, though
some did see this as the imposition of a new form of tax, many were open to the idea that
companies should do more to contribute to socioeconomic development in the country. The CSR
head of a large steel company, for instance, noted: “The 2% is not that important. It goes much
beyond that. That is the reason I feel that there was a guideline of what must be done, to
encourage and make sure that this be done right.” (Interview INA7) This was echoed by many
CSR practitioners, with one concluding: “I personally feel this is a great opportunity to do
something good.” (Interview INA9)
This high degree of support for legislating CSR requires explanation, particularly since CSR is
generally understood to be underlined by voluntarism. Firstly, from the perspective of the state,
why promote the involvement of corporate actors in welfare provision through legislating CSR
spending? Related to this is the broader question of why companies would, in turn, also support
this legislation.
My interviews reveal that one practical explanation draws on electoral considerations. Indians
have historically tended to distrust private businesses, with one prominent political economist
noting that, historically, “most of business was seen as moneylenders and profiteers” (Interview
INA1). While the push for liberalization following 1991 was meant to alleviate some of the
corruption and inefficiencies of the previous License Raj, numerous corruption scandals have
8
emerged in the late 1990s and early 2000s. Within the general public, these scandals reaffirmed
the impression that business was not behaving ethically. Since some of these scandals also
involved government actors, many of my interviewees noted that the Congress government
needed to show that it was doing something to address corporate malfeasance prior to the 2014
election. This suggests that the CSR provisions are an electoral ploy, designed to give the
appearance of addressing people’s dissatisfaction with corporate India. While this explanation
certainly has merit, it does not capture the entire story—the CSR clause of the Companies Bill
was supported from many political sides.6 As a result, another explanation is needed, one which
can account for the general willingness of the state to pass on some of its welfare burden onto
private actors.
Many of the individuals I spoke to in India suggest that they interpret the CSR provision as the
state’s attempt to abdicate some of its responsibility for social welfare provision.
Understandably, views on this matter differ amongst various actors. Amongst corporate actors,
some acknowledge the shift as an abdication of state responsibility, while others conclude that
the state is simply ‘confused’, suggesting that the state is not sure how best to bring corporate
actors into welfare provision. Academics and civil society actors are more uniform in their
perspective, noting that the Indian state lacks the capacity to implement social welfare programs
and is therefore turning to non-state actors.
Government actors, on the other hand, tend to present the argument as follows: the state is
holding corporate actors accountable for their actions, not abdicating its responsibilities.
Nonetheless, as one senior bureaucrat noted, the legislation also suggests that the “welfare
burden has been slightly shifted” (Interview INB24). This is indirectly supported by comments
made when the Companies Bill was first introduced, with Sachin Pilot, then Minister of
Corporate Affairs, stating in Parliament that:
Sir, growth is important for the country and to my mind growth should be long term,
sustainable, equitable but more importantly, growth should also be responsible.
Therefore, the responsibility of taking this country forward certainly lies with the
Government of the day and the State Governments but increasingly I think the corporate
entities of this country, the private players, the enterprises, the entrepreneurs also have an
increasingly larger role to share in making this country prosperous, functional forward
looking nation. (Discussion on the motion for consideration of the Companies Bill, 2011,
2012)
Pilot further argued that the CSR provision should contribute to reducing inequality in India.
This suggests that state actors in India increasingly see the private sector as having a role to play
in the socioeconomic development of the country.
Nonetheless, even if we accept the conclusion that the state is choosing to abdicate some of its
responsibility, this does not entirely explain the state’s reasoning. The fact that many state actors
disagree that the state is abdicating its responsibilities suggests that ideological considerations
may be less important in explaining this shift than practical ones. As my interviews revealed, the
push to involve corporate actors in social welfare provision flows directly from the state’s own
inability to adequately promote socioeconomic development. As one of my informants, a senior
9
bureaucrat within a development ministry, quipped: a theory worth exploring is whether “CSR in
a country is inversely proportional to good governance in a state” (Interview INB15).
India has been growing steadily in recent years: between 2006 and 2010, it grew at an average of
8.4%, with the rate declining somewhat to 6.5% for the period between 2011 and 2014 (Riley,
2015). At the same time, the government has passed legislation that seeks to address poverty and
promote social welfare. This includes the passage of the National Food Security Act (2013), the
Right to Education Act (2009), and the National Rural Employment Guarantee Act (NREGA,
2005). Despite this, challenges remain. A large number of Indians remain extremely
impoverished,7 and the country’s Human Development Index (HDI) has been stagnant: though it
grew from 0.428 to 0.609 between 1990 and 2014, as of 2016, India still ranks poorly (131 out of
188 countries (UNDP, Human Development Index and its components, 2016)). The country’s
economic growth has not been evenly distributed, and inequality has increased from 0.319 in
1988 to 0.339 in 2010 (World Bank, 2013).
Several factors hold the potential to explain why India has not achieved very good outcomes in
the provision of social welfare, and open up the possibility of also explaining why the Indian
state chose to promote the involvement of corporate actors. These include the low formalization
of labour markets, insufficient state capacity, and a political leadership which has prioritized
economic growth, as well as the serving of personal ends, over the improvement of social
welfare.
Rough estimates generally conclude that some 80 to 90 percent of the Indian economy is
informal. According to data from the International Labour Organization, some 84 percent of all
Indians engaged in non-agricultural work remain outside formal employment (Department of
Statistics, ILO, 2012). Those who are engaged in agricultural work face high rates of poverty, a
problem exacerbated by the continuing problem of landlessness. However, this also has broader
implications for state capacity, since low formalization implies that the state has less ability to
collect taxes, or to exert regulatory control over the economy.
While many of the country’s top level institutions work well, its lower institutions often falter
(Pritchett, 2009), and appear to be declining (Saxena, 2012). The country’s fiscal capacity,
though it has been increasing, remains limited, and the percentage of Indians who pay income
tax is low (it is estimated at less than three percent of the population).8 However, the question of
implementation capacity has been far more central. For instance, N.C. Saxena (2012), in a
prominent report on the Indian bureaucracy, notes that the amount that individuals receive in
terms of goods and services is a far cry from the amount set aside by the federal government. His
report concludes that the primary problems of the Indian bureaucracy include a lack of
professionalism, the creation of redundant posts, an inability to adequately deliver services, and a
problematic system of reward and punishment. Saxena even notes that these problems have been
recognized by the government of India:
The state apparatus is generally perceived to be largely inefficient with most
functionaries serving no useful purpose. The bureaucracy is generally seen to be tardy,
inefficient and unresponsive. Corruption is all-pervasive… Criminalization of politics
continues unchecked, with money and muscle power playing a large role in elections. In
10
general, there is a high degree of volatility in society on account of unfulfilled
expectations and poor delivery. Abuse of authority at all levels in all organs of state has
become the bane of our democracy. (Second Administrative Reforms Commission, cited
in Saxena, 2012: 3)
These conclusions were supported by many interviewees, with one government civil servant
noting:
After thirty-two years in government, I am much more conscious of state failure. I am
also equally conscious of rapidly depleting state capacity in age-old activities of the state,
such as providing clean drinking water, basic public safety—activities for which the state
was created. We are failing miserably. (Interview INB15)
These quotes also relate to what is perceived as a larger problem of Indian democracy: a lack of
political interest to genuinely address poverty and social welfare. One interviewee summarized
this by arguing that the Indian ‘political class’ is limited, and that “they think that power is in the
system, and power has to be used for their own gain” (Interview INB3). This is execerbated by
high levels of corruption, which further erode the state’s ability to fulfill its role (Pritchett, 2009),
with Saxena (2012) noting that the blatant corruption at the higher levels of the bureucracy also
emboldens lower level bureaucrats to treat people with impunity.
These arguments therefore suggest that the Indian state’s ability to adequately deliver social
welfare is lacking. In this context, the government’s decision to share some of the burden for
social welfare and socioeconomic development becomes easier to understand. However, this
does not entirely explain why the state would turn towards corporate actors, and would seek to
bring them onboard as partners in sharing this burden, nor why many corporate actors appeared
willing to embrace this role.
The explanation lies in the historical relationship between business and the state in India, and in
particular, in the role that certain indigenous business houses have played in the socioeconomic
development of the country since independence. In other words, there is a strong relationship
between how CSR has developed historically in India, and the state’s decision to legislate CSR
spending within the Companies Act 2013.
There is a historic linkage between philanthropy and corporate social responsibility in India
(Sundar, 2013), which in turn has consequences for how the term CSR is understood today. At
the root of present-day understandings of CSR in India is the notion of trusteeship, as espoused
by Gandhi during the independence struggle. According to Sood and Arora:
The concept of ‘trusteeship’ asserts the right of the capitalist to accumulate and
maintain wealth and use it to benefit society (Narayan 1966). Gandhi argued that the
wealthy should be trustees of their wealth, using only what was necessary for personal
use and distributing the surplus among the needy. (2006: 6)
In other words, the wealthy should not be forced to give up their wealth, but should want to do so
voluntarily. In developing the concept, Gandhi drew on religious traditions (one’s religious duty
11
or dharma includes the charitable distribution of wealth) (Rolnick, 1962), however, he was also
influenced by Western thought, including the work of John Ruskin and Andrew Carnegie
(Chakrabarty, 2015). However, Gandhi did not believe in dispossessing the wealthy—rather, he
defended the right of capitalists to accumulate wealth, as long as they also chose to use it to
benefit society.
Gandhi saw his notion of trusteeship as “India’s gift to the world” (Chakrabarty, 2015: 579),
arguing that it presented a different relationship between business and society. This
understanding of trusteeship, then, was rooted in traditions of philanthropy and emphasized the
sharing of wealth. However, Gandhi, who often spoke against the appropriation of wealth, did
not entirely rule out this possibility in case the wealthy failed to behave as good trustees.
However, while Gandhi may have argued that in theory, the state should be able to force the
wealthy to part with some of that wealth if they choose not to do so voluntarily, he did not
support this in practice. This reflects shrewd, practical political thinking (Chakrabarty, 2015;
Rolnick, 1962; Sood & Arora, 2006). Gandhi developed a strong relationship with many of
India’s large industrialists, who often financially supported the independence struggle. Writing
about his relationship with Gandhi, G.D. Birla quotes a letter from Gandhi:
[M]y thrust for money is simply unquenchable. I need at least Rs. 2,00,000/- for khadi,
untouchability and education. The diary work makes another Rs. 50,000/-. Then there is
the Ashram expenditure. No work remains unfinished for want of funds, but God gives
after severe trials. (quoted in Chakrabarty, 2015: 595).
During this time, several business houses, included those belonging to the TATA and Birla
families, became involved in spreading education, especially elementary education, and in the
building of healthcare facilities. G.D. Birla, who even wrote a book about his relationship with
Gandhi, In the Shadow of the Mahatma, took on the role of trustee very seriously. Several Indian
industrialists therefore began to improve social welfare, and though many of their efforts were
initially targeted at their employees, they tended to serve local communities as well.
In turn, Gandhi tended to side with industrialists rather than labour whenever disagreements
arose. Chakrabarty (2015) highlights that Gandhi never visited any Birla factories, despite
workers inviting him to come and see the appalling working conditions they faced. Gandhi had
apparently been convinced by Birla that the workers had lied.
Trusteeship, therefore, as espoused by Gandhi, highlighted the philanthropic role of companies,
while sidelining the question of how companies conduct their everyday business. As a result, the
ethical behavior of companies was sidelined in favour of philanthropic contributions, which by
and large came to be formulated in programs which contributed to the socioeconomic
development of the country.
While Nehru was initially critical of the concept, as Rolnick (1962) notes, following
independence, many of trusteeship’s former detractors seemed to accept, if not fully embrace, the
concept. Nehru came to argue that while the class struggle is always there, trusteeship and
Gandhi’s approach can somehow remove it. She also notes that other prominent socialists came
to accept the concept. Her explanation centres on the importance of the propertied classes and
industrialists in forming a base of support for the Congress Party. A second reason also arose:
12
from a practical perspective, the country could only deal with some of its problems at any given
time, and the goal of industrializing and growing the economy was chosen over the goal of
greater redistribution. Trusteeship, therefore, continued to play an important ideological role.
The concept of corporate social responsibility was then introduced from abroad starting in the
late 1990s. However, once the concept of CSR entered discourse in India, it became fused with
trusteeship. According to a long-time CSR practitioner, “CSR was something that came to India
from overseas, but the moment it came to India, we transformed it into what we thought it should
mean” (Interview INB13). Similar to trusteeship, then, CSR has come to be more strongly
focused on company contributions to socioeconomic development, rather than the ethical
behavior of companies more broadly.
One important shift, nevertheless, has been the greater institutionalization of CSR. In recent
decades, there has been a more significant move away from purely philanthropic contributions to
more developed CSR programs, though, as my informants note, the number of companies that
have successfully moved away from a purely checkbook approach to CSR is still small. By also
focusing on how CSR departments are organized within companies, it is hoped that the new
Companies Act 2013 will help to further institutionalize CSR practices.
At the same time, this historical involvement of corporate actors also ensured that the legislation
itself was easier to pass. As one commentator noted: “Companies will say, this is just another
tax, we have already been doing this, we just didn’t call it this necessarily. So, again, those who
are doing something will keep on doing. Others who want to do, but don’t know how, will still
be at a loss.” (Interview INA15). In other words, many larger and more politically powerful
companies were more ambivalent towards the legislation, in part because they were already
committed to CSR spending. This includes large conglomerates such as various Tata companies,
and the Tata Trusts, which have been involved in social welfare provision for decades.9
In sum, the historical relationship between business and the state in India, with respect to
corporate involvement in social welfare provision, as well as the challenges the Indian state faces
in delivering social welfare, help explain the decision to legislate for corporate social
responsibility, as well as the apparent willingness of many companies to embrace this legislation.
Nevertheless, the tension inherent in the original notion of trusteeship between philanthropic
roles and the broader behaviour of industrialists remains, albeit in a different form. In indirectly
defining CSR as corporate contributions to socioeconomic development, the Companies Act
2013 does very little to assuage concerns about the ethical behaviour of companies. As a result,
the broader implications stemming from this legislation, and from corporate involvement in
social welfare provision, need to be considered.
6.0 Conclusion: Possible Implications of Section 135 of the Companies Act 2013:
The passage of the Companies Act 2013 signals a concrete government effort to promote the
involvement of corporate actors in social welfare provision. The way the CSR provisions have
been written, however, as well as the support architecture that has been established to help
companies meet CSR requirements, suggests that the developmental impact that can be expected
13
is at best mixed.
Many government representatives, particularly those associated with the Indian Institute of
Corporate Affairs (IICA) expressed hope that the CSR provisions of the Companies Act will
enable businesses to bring revolutionary changes to how social welfare is delivered in India. This
developmental vision was presented by one government actor as follows: let us imagine that
there is a government education program, where 100 rupees is spent per child to achieve a
certain set of desired results. Given significant leakage within government welfare schemes, 20
rupees (out of the initial 100) reach intended beneficiaries. Now imagine that a company
develops a CSR project that seeks to promote the same goals as that government program. The
company may choose to partner with government, or to separately develop a pilot project, which
it can offer to the government as an implementation model if it is successful. The company’s
involvement (which would be equal to, for instance, two rupees per child) is hoped to have the
ultimate result of ensuring that the final amount reaching the intended beneficiary increases from
20 rupees to 40 or 50, rather than the initial twenty plus the two spent by the company. The
expectation, therefore, is that corporate involvement can lead to a multiplier effect, and that CSR
funds can have far-reaching consequences.
However, it is not clear what this process would be, and the chains of accountability remain
opaque. The Companies Act only requires that companies spend two percent of profits, and if
they do not, to report the reasons for their failure. Thus, companies would not be held
accountable for the success of their projects to the government. Rather, companies presumably
remain primarily answerable to shareholders, while the government is, in theory, accountable to
the beneficiaries. Since this latter chain of accountability has not ensured the success of
government programs thus far, it is not clear how the proposed changes would be an
improvement.
One representative of IICA who was interviewed for this project, when pressed on the question
of accountability, concluded that it would be up to NGOs to ensure that the voice of the people is
heard. This answer is consistent with the expectation that civil society, through its advocacy
efforts, has an important role to play in holding companies accountable for their actions.
However, the current challenges facing civil society in India puts such expectations into doubt.
Decreasing international funding, and increasing state efforts to exert control over more activist
NGOs, are putting civil society into a precarious position. Many NGOs seeing reductions in their
funding are expected to turn towards company CSR funds as a means of financing their projects.
This will reduce their ability to act as watchdogs of companies.
Whether companies are partnering with civil society, or even government actors, another
important developmental concern is the question of coordination. This coordination can take
several forms, and is generally difficult to achieve. Many corporate actors in India are aware of
this challenge, and some express hope that the new Companies Act, and particularly the activities
of the IICA, can help to create such coordination. However, as with accountability, it is not clear
how that coordination is meant to come about, and in the words of a CSR practitioner at a large
public company: “the mechanisms by which this should take place are not clear to me, and it is
not clear that they know either” (Interview INB11).
14
For these reasons, my interviews revealed an overarching concern that the CSR clause of the
Companies Act 2013 will primarily serve to produce more ad hoc development projects, which
will co-exist with the myriad development efforts already being run by the Indian government.
As such, its potential developmental impact can at best be limited. However, the ultimate effects
of the Act are only likely to become apparent once it has been in force for some time.
This is exacerbated by the fact that the question of how the success of a CSR project should be
defined and/or measured remains unclear. Companies have great difficulty conceptualizing what
makes for a successful project: while they note that they want to see an impact, many remain
confused regarding what that impact should be, and how it should be measured. This often
means that companies will seek to find some sort of quantifiable measure. For instance, one CSR
manager described the process as follows: “[we] look at the income aspect, whether there has
been a 40 or 50% increase in income. E.g. a farmer used to get 50 kg of rice, now he gets 90 kg”
(Interview INA9). Not all projects lend themselves to such forms of measurement, nor is it clear
that the considerations of communities affected are taken into account when deciding how
projects should be monitored. Instead, companies often focus on input-based parameters and
financial accounting. When working with NGOs, this usually translates into monitoring spending
rather than results, with one CSR manager noting: “We look at their budget and their utilization
every three months. Before we fund a program, we need to look at the plan… There are certain
challenges… There are not many people with expertise in these NGOs, they work well on the
ground, but not with paperwork.” (Interview INA9) Given that companies are accountable to
their shareholders, a certain financial focus is necessary, nonetheless, the continuing lack of
emphasis on outcomes is concerning. Unfortunately, the Companies Act 2013 does little to alter
that focus.
At the same time, the legislation of CSR spending targets raises the possibility of new forms of
rent-seeking. Some companies interviewed expressed concerns that they will begin receiving
demands from government actors to spend CSR funds in specific ways, usually to fund pet
projects. There is also anecdotal evidence that some state actors do perceive CSR funds as a
mechanism to fund government projects. According to a senior bureaucrat within the Rural
Development Ministry, there is already discussion within sectors of the bureaucracy about
drawing on CSR funds. In 2014, the funding of numerous federal ministries was reduced, as
more funds were transferred to state governments. The response of many department heads,
according to my informant, is to draw on CSR funds. In his words:
So we sit in this meeting, and my secretary in charge of rural drinking water, [says] my
gap is x, the answer, we will tap CSR. The next guy, in charge of panchayati raj, his fund
is cut from 80,000 to 70 crores, [says] we will tap CSR. All say the same thing. This is
one department of [Government of India], and there are 66 departments. I am sure all of
them have drawn up a CSR plan which adds up to India’s GDP. The race will be
interesting to watch. We have in a sense removed the hard budget constraint of the
state… Corporates will be more than happy to be arm-twisted, so formally some
corporates will sign off… accountability will be diffused. (Interview INB15)
The Companies Act itself does not give government actors the right to legally pressure
companies to spend money in a specific manner. Companies officially retain a great deal of
15
leeway over how to spend their CSR funds. However, the legislation, by indirectly defining CSR
as companies contributing to development projects, retains the tension that also existed in the
concept of trusteeship. As long as companies spend their two percent, they can now potentially
receive a stamp of legitimacy from the state, without any consideration of their actual business
operations.
In practice, this means that a company could technically engage in behaviour that has negative
long-term consequences for the country’s development (e.g. environmental degradation), but still
be perceived as a good corporate citizen because of its CSR contributions. Summarizing this, one
sustainability expert noted: “I think we lost the opportunity and pushed ourselves ten years back”
(Interview INA6).
In sum, in including CSR provisions within the Companies Act 2013, the Indian government has
taken a unique step in identifying what role companies should play in social welfare provision.
This paper argues that a lack of state capacity helps explain the state’s decision to pass on some
of the responsibility for social welfare provision onto corporate actors, together with a
consideration of the historical relationship between business and the state. The tradition of
trusteeship also ensured that larger indigenous companies would be more open to engaging in
CSR development projects, since many had already done such work in some form in the past.
Nonetheless, the paper also argues that the way the CSR provisions have been legislated misses
the opportunity to also shed light on how companies operate more broadly, and may as a result
have a limited impact on wider socioeconomic development.
1 This literature suggests that there is very little agreement on how CSR should be defined.
Moreover, there are also disagreements over which methodology should be adopted in trying to
find a definition that can be widely accepted. 2 All interviewees have been kept anonymous, and the interviews are coded to maintain
anonymity. 3 One crore is equal to ten million. 4 It should be noted that the government does not release details on the PM’s National Relief
Fund, including how its money is spent, nor is the Fund covered by the Right to Information Act.
Therefore, there is no transparency regarding the use of the money placed in this fund. 5 The version of Schedule VII included in the Act was insufficiently specific, and the list above
is drawn from one of the first amendments to the Companies Act (dated the 27th of February
2014), which specified possible areas of focus in greater detail. 6 Moreover, it does not appear to have had any impact on Congress’ electoral chances: the BJP,
under Narendra Modi, swept to power easily in the 2014 election. 7 Kohli (2012: xi) notes that 450 million Indians still subsist on less than $1.25 per day. 8 While it has arisen, the tax as a percent of GDP ratio for 2014/15 stood at 17.38 percent,
suggesting a low tax base (Ministry of Finance, 2015). 9 For instance, the Tata Trusts (this includes the Sir Ratan Tata Trust, established in 1919, and
the Sir Dorabji Tata Trust, founded in 1932), own two-thirds of the stock of Tata Sons, which in
turn is the apex company of the various Tata companies (Tata Trusts, 2016). This means that, in
effect, two-thirds of profits earned by the Tata companies go into the trusts, to be reinvested back
into communities.
16
References:
Blowfield, M. 2005. “Corporate Social Responsibility: Reinventing the Meaning of
Development?” International Affairs 81(3): 515-524.
Blowfield, M. 2007. “Reasons to be Cheerful? What we Know about CSR's Impact.” Third
World Quarterly 28(4): 683-695.
Blowfield, M., & Frynas, J. G. 2005. “Setting New Agendas: Critical Perspectives on Corporate
Social Responsibility in the Developing World.” International Affairs 81(3): 499-513.
Cammett, M., & MacLean, L. M. 2014. “Introduction.” In The Politics of Non-state Social
Welfare, ed. M. Cammett & L. M. MacLean. Ithaca: Cornell University Press.
Carroll, A. 1991. “The Pyramid of Corporate Social Responsibility: Toward the Moral
Management of Organizational Stakeholders. Business Horizons 39-48.
Carroll, A. 1979. “A Three-dimensional Conceptual Model of Corporate Social Performance.
Academy of Management Review 4(4): 497-505.
Carroll, A. 1999. “Corporate Social Responsibility: Evolution of a Definitional Construct.”
Business and Society 38(3): 268-295.
Chakrabarty, B. 2015. “Universal Benefit: Gandhi’s Doctrine of Trusteeship: A Review Article.”
Modern Asian Studies 49(2): 572–608.
Companies Act 2013. 2013. Gazette of India. New Delhi: Government of India.
Dahlsrud, A. 2008. “How Corporate Social Responsibility is Defined: an Analysis of 37
Definitions.” Corporate Social Responsibility and Environmental Management 15: 1-13.
Department of Public Sector Enterprises, GOI. 2010. Guidelines on Corporate Social
Responsibility for Central Public Sector Enterprises. Delhi: Government of India.
Department of Public Sector Enterprises, GOI. 2014. Guidelines on Corporate Social
Responsibility And Sustainability For Central Public Sector Enterprises. New Delhi:
Government of India.
Department of Statistics, ILO. 2012. Statistical Update on Employment in the Informal Economy.
Downloaded from: http://laborsta.ilo.org/applv8/data/INFORMAL_ECONOMY/2012-06-
Statistical%20update%20-%20v2.pdf
Discussion on the Motion for Donsideration of the Companies Bill, 2011. 2012. Retrieved Nov
24, 2014, from: http://164.100.47.132/LssNew/psearch/Result15.aspx?dbsl=8914
Edward, P., & Tallontire, A. 2009. “Business and Development: Towards Re-Politicisation.
Journal of International Development 21: 819-833.
17
Esping-Andersen, G. 1990. The Three Worlds of Welfare Capitalism. Cambridge: Polity Press.
Esping-Andersen, G. 1999. Social Foundations of Postindustrial Democracies. New York:
Oxford University Press.
Frynas, J. 2009. Beyond Corporate Social Responsibility: Oil Multinationals and Social
Challenges. Cambridge: Cambridge University Press.
Gough, I. 2004. “Welfare Regimes in Development Contexts: A Global and Regional Analysis.”
In Insecurity and Welfare Regimes in Asia, Africa and Latin America, ed. I. Gough, G. Wood, A.
Barrientos, P. Bevan, P. Davis, & G. Room. New York: Cambridge University Press.
Gough, I., & Wood, G. 2004. “Introduction.” In Insecurity and Welfare Regimes in Asia, Africa
and Latin America, ed. I. Gough, G. Wood, A. Barrientos, P. Bevan, P. Davis, & G. Room. New
York: Cambridge University Press.
Idemudia, U. 2007. “Community Perceptions and Expectations: Reinventing the Wheels of
Corporate Social Responsibility Practices in the Nigerian Oil Industry. Business and Society
Review 112(3): 369-405.
Idemudia, U. 2010. “Corporate Social Responsibility and the Rentier Nigerian State: Rethinking
the Role of Government and the Possibility of Corporate Social Development in the Niger
Delta.” Canadian Journal of Development Studies 30(1-2): 131-153.
Idemudia, U. 2011. “Corporate Social Responsibility and Developing Countries: Moving the
Critical CSR Research Agenda in Africa Forward.” Progress in Development Studies 11(1): 1-
18.
Kohli, A. 2012. Poverty Amid Plenty in the New India. New York: Cambridge University Press.
Korpi, W. 1983. The Democratic Class Struggle. Boston: Routledge.
Lok Sabha Debates. 2012, December 19. New Delhi.
Ministry of Corporate Affairs, GOI. 2011. National Voluntary Guidelines on Social,
Environmental, and Economic Responsibilities of Business. New Delhi: Government of India.
Ministry of Finance, GOI. 2015. Indian Public Finance Statistics 2014-15. Retrieved March 22,
2016, from http://finmin.nic.in/reports/IPFStat201415.pdf
Orloff, A. S. 1993. “Gender and the Social Rights of Citizenship: the Comparative Analysis of
Gender Relations and Welfare States.” American Sociological Review 58(3): 303-328.
Pritchett, L. 2009. “Is India a Flailing State? Detours on the Four Lane Highway to
Modernization.” Harvard Kennedy School Faculty Research Working Papers Series.
18
Proposed Draft Corporate Social Responsibility Rules under Section 135 of the Companies Act,
2013. 2013. Downloaded from: http://www.cuts-international.org/pdf/Draft-
CSR_Rules_2013.pdf
Riley, C. 2015. “India's Growth Numbers are a Total Mystery.” CNN Money, February 10.
Downloaded from: http://money.cnn.com/2015/02/09/news/economy/india-gdp-growth-mystery/
Rolnick, P. J. 1962. “Charity, Trusteeship, and Social Change in India: A Study of a Political
Ideology.” World Politics 14(3): 439-460.
Saxena, N. 2012. Administrative Reforms for Better Governance. Delhi: Daanish Books.
Sood, A., & Arora, B. 2006. The Political Economy of Corporate Responsibility in India.
UNRISD. Geneva: UNRISD.
Sundar, P. 2013. Business and Community: The Story of Corporate Social Responsibility in
India. New Delhi: SAGE.
Teichman, J. A. 2012. Social Forces and States: Poverty and Distributional Outcomes in South
Korea, Chile, and Mexico. Stanford: Stanford University Press.
Tata Trusts. 2016. About Tata Trusts. Downloaded from:
http://www.tatatrusts.org/article/inside/About-Tata-Trusts
United Nations Development Programme. 2016. Human Development Index and its
Components. Downloaded from: http://hdr.undp.org/en/composite/HDI
Utting, P. 1997. “CSR and Equality.” Third World Quarterly 28(4): 697-712.
Utting, P. 2003. “Promoting Development Through Corporate Social Responsibility-Prospect
and Limitations.” Global Futures (Third Quarter): 11-13.
Utting, P., & Marques, C., ed. 2010. Corporate Social Responsibility and Regulatory
Governance: Towards Inclusive Development? London: Palgrave Macmillan.
Visser, W. 2008. “Corporate Social Responsibility in Developing Countries.” In The Oxford
Handbook of Corporate Social Responsibility, ed. A. Crane, D. Matten, A. McWilliams, J.
Moon, & D. S. Siegel. New York: Oxford University Press.
World Bank. 2013. Gini Index. Retrieved August 18, 2013, from:
http://data.worldbank.org/indicator/SI.POV.GINI
Top Related