Associate Professor Umakanth Varottil

Analysing the CSR Spending Requirements Under Indian Company Law

The concept of social responsibility of corporations is not novel, and has been part of the indigenous thinking in India for over a century. After much debate, corporate social responsibility (CSR) found its place in the Companies Act, 2013 whereby every company of a certain size is to announce a CSR policy. More importantly, India is one of the earliest countries to require large companies to spend at least two percent of its average net profits made during the three immediately preceding financial years in pursuance of its CSR policy towards specified activities. During the legislative process, there was an intense debate as to whether the spending requirements must be made mandatory, but in the end due to a compromise the position resulted in a “comply-or-explain” approach although the wording of the statutory provision largely operates as a mandate. While there is strident criticism against such a broad and overarching CSR policy on various counts, the requirements are here to stay.

This paper analyses the merits and disadvantages of imposing CSR obligations through regulation as opposed to considering it as a voluntary mechanism to be adopted by companies as part of their business activity. The manner in which CSR is being implemented in India tends to equate CSR with corporate philanthropy. After discussing the evolution of CSR norms in India, the underlying rationale for their introduction, and the manner in which they are being implemented, the paper offers a critique of the Indian approach and suggestions for the future.