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Nearly 60% of India’s funds for corporate social responsibility are spent on education and healthcare

Dilsher Dhillon | Apr 16, 2018, 05.10PM IST

  • The CII analysed the annual reports of 1,522 companies and determined that ₹89 billion worth of funds were disbursed for the purposes of CSR in fiscal 2017.
  • Education and healthcare accounted for a bulk of the spending, with nearly 33.5% of funds going towards education and skill development programs, while 25.2% of funds were allocated to health and sanitation projects.
  • The report found that 420 companies did not meet the 2% spending requirement.
A report released by the Confederation of Indian Industry (CII), last week, shows that the expenditure by Indian companies on corporate social responsibility (CSR) increased by 9% in fiscal 2017, despite a slowdown in earnings growth. This marked a decline from fiscal 2016, when CSR spending was 27% higher as more companies started following the law in its second year of implementation.

The CII’s Annual CSR Tracker analysed the annual reports of 1,522 companies that are traded on the Bombay Stock Exchange and determined that ₹89 billion worth of funds were disbursed for the purposes of CSR. This equates to 92% of the amount that should have been spent based on these companies’ cumulative profits. This is a significant improvement from fiscal 2015, when only 80% of CSR funds were spent.

Education and healthcare accounted for a bulk of the spending, with nearly 33.5% of funds going towards education and skill development programs, while 25.2% of funds were allocated to health and sanitation projects. In fact, 75% of all companies assessed in the report invested in education and skill development. Further down the list, 11.2% of the funds were spent on rural development, while 9.7% was spent on environmental preservation activities.

India is one of the few countries in the world that mandates a minimum spending requirement for CSR activities. Under Section 135 of the Companies Act, which was enforced on April 1st, 2014, a company has to allocate 2% of its average annual net profit in the preceding three years to CSR. However, the policy only applies to companies of a certain size - those with a net worth of ₹5 billion or more, those with an annual turnover of ₹10 billion or more or those with an annual net profit of at least ₹50 million.

The CII was only able to assess the companies that published their annual reports by early December 2017. As a result, around 80 other companies, including India’s public sector banks, on the BSE were left out. Public-sector banks, which are governed by the RBI, are exempt from the requirement since their actions don’t fall under the purview of the Companies Act.

Rather unsurprisingly, the tracker showed that a bulk of the total amount spent on CSR came from a few large firms. While 49 public-sector enterprises accounted for 28% of all the funds spent (₹24.9 billion), almost 90% of this figure came from 13 firms. Meanwhile, 50% of the total funds spent by the private sector (₹64.1 billion) was accounted for by 16 firms.

Here are some other key findings from the report:-

  • Sports development and national heritage are fast-rising segments: The report showed that the funds allocated towards sports development activities surged 192% to ₹1.7 billion, while spending on the preservation of national monuments and gender equality projects went up by 153% and 115% to ₹2 billion and ₹2.4 billion, respectively. More notably, among the larger segments, CSR funds for environmental activities went up by 66% to ₹8.6 billion.
  • Few takers for slum development and the Prime Minister’s Relief Fund: Less than ₹10 million was invested in slum development while 45 companies allocated a cumulative total of only ₹230 million to the Prime Minister’s Relief Fund. The fund received four times as many contributions in fiscal 2016.
  • As a state, Maharashtra was the most popular CSR destination: Almost 40% of the companies analysed invested in CSR projects in Maharashtra, India’s richest state. Gujarat,Tamil Nadu and Karnataka also proved to be popular draws, with 23%, 19.9% and 19.4% of companies allocating CSR funds to these states. Only 135 companies had CSR projects all over India. Unfortunately, very few companies invested in projects in the the Northeast of India.
  • Energy and software companies proved to be the major contributors: An industry-wise breakdown showed that oil and gas companies accounted for 19.4% of total CSR funds spent, or ₹17.2 billion, in 2016-17, while software and services firms contributed 12.2%. Rounding up the top five were metals and mining, with 7.4%, the banking sector, with 7.33%, and automobile industry, with 6.3%.

The CII noted that companies were beginning to disclose information regarding the impact of their CSR activities, something that is not currently mandated under the existing law. In fiscal 2017, 189 of the 1,522 companies assessed disclosed the results of their activities. In the education and skill development segment, 35,129 school structures and facilities were built or renovated, based on the reports of 161 companies, and more than 4 million people directly benefited from such activities. In the health and sanitation segment, data from 135 companies showed that 169,041 infrastructures (toilets, health camps, drinking water facilities, mobile vans, hospitals) were created or upgraded, which impacted the lives of 14.3 million people.

On a more sobering note, the report found that 420 companies did not meet the 2% spending requirement. While 118 companies said that they “did not find the right project”, 95 companies did not mention a reason while 58 said that they required more to time to plan.

While the CII report highlights the progress made by companies in increasing their CSR spending ever since the law took effect, there still remains a lot more work to be done in terms of compliance and demonstrating the effectiveness of such spending.

In order to make sure that there are less violations of the CSR law, the Ministry of Corporate Affairs is setting up a 12-member committee to assess and improve the enforcement of its provisions. The panel will also formulate a mechanism for monitoring the CSR activities of companies and sanctioning the ones that do not fulfill their spending requirements. While this is a step in the right direction, it’s hard to see why the government has waited four years after the implementation of the law to do this.
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