On April 1, 2014, India took a groundbreaking step by becoming the first nation to mandate Corporate Social Responsibility (CSR) through Section 135 of the Companies Act, 2013. This legislation was born from a noble vision: to harness the financial strength and strategic capabilities of private sector to tackle the country’s pressing socio-economic and environmental challenges. Now, a decade later, we must evaluate its impact. While the mandate has indeed spurred corporate spending and cultivated a culture of organised giving back to the society, it has also faced significant hurdles with mere financial obligations lacking focus to achieve meaningful and sustainable impact.
The Mandate and Its Mechanisms
Under the Companies Act, 2013, companies that meet specific financial criteria—net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more—are required to allocate at least 2% of their average net profits from the preceding three financial years to CSR initiatives. These initiatives, outlined in Schedule VII of the Act, encompass vital areas such as education, healthcare, environmental sustainability, rural development, poverty alleviation, and gender equality. Companies can implement these activities directly, through their foundations, or via registered trusts and NGOs, supported by robust reporting mechanisms like annual CSR reports and the CSR-2 Form to ensure transparency and accountability. The mandate was also marked with multiple changes in the in the last one decade focusing on providing clarification to the legal provisions.
A Decade of Increased Spending and Compliance
One of the most notable successes of the mandatory CSR framework has been the dramatic rise in corporate spending on social sector in India. In FY 2023-24, CSR expenditure by listed Indian companies soared by an impressive 16% to nearly ₹18,000 crore, reflecting enhanced profitability across sectors. This upward trajectory underscores a growing commitment among corporations to meet their obligations, with approximately 80% of eligible companies fulfilling their CSR requirements in FY 2023-24—nearly half exceeding the mandated spending.
The increased allocation of funds has translated into tangible contributions across key sectors impacting the lives of approximately six crore people across India. Education consistently garners the largest share of CSR funds, followed closely by healthcare. Environmental sustainability has also experienced a significant boost, with a 54% increase in spending in FY 2023-24. This steady flow of corporate capital has undeniably provided a vital impetus for development initiatives nationwide, fostering partnerships between businesses, government, NGOs, and local communities.
Challenges and the Nuances of "Over-Compliance"
The past decade has also revealed several challenges and a tendency towards “over-compliance” that can overshadow genuine impact.
- Focus on Spending over Impact: While the mandate ensures funds are allocated, the emphasis often lies on merely meeting the 2% target rather than achieving measurable and sustainable social outcomes. Many companies opt for “safe,” repetitive projects that are easy to implement and report, avoiding innovative or long-term initiatives that could yield deeper societal change. This transactional mindset prioritizes financial outflow over meaningful impact for beneficiaries.
- Unequal Distribution of Funds and Regional Disparities: CSR spending remains disproportionately concentrated in industrially developed states like Maharashtra, Rajasthan, Gujarat, Karnataka, and Tamil Nadu. In contrast, Northeastern states and union territories receive significantly less funding, exacerbating existing regional imbalances. Companies often invest in areas where they operate or where established implementing agencies are readily available, neglecting regions with greater developmental needs.
- Lack of Strategic Alignment and Sustainable Approach: Many CSR initiatives are still perceived as standalone activities, disconnected from the company’s core business strategy and long-term sustainability goals. Although there is a growing trend towards integrating ESG (Environmental, Social, and Governance) considerations, a truly strategic approach that leverages core competencies and creates shared value remains a work in progress for many. This can result in short-term projects lacking sustainability beyond the immediate funding cycle.
- Capacity Building and Transparency Issues with Implementing Agencies: The availability of qualified and effective NGOs, particularly in remote and rural areas, poses a challenge. Companies often struggle to find reliable partners with the necessary expertise and transparency to execute projects effectively. Concerns about proper fund utilization, impact assessments, and audit issues, especially among smaller implementing agencies, persist.
- Declining Support for Crucial but Less Glamorous Areas: Recent data reveals a sharp decline in support for critical areas such as slum development (-72%), rural development (-59%), and the welfare of armed forces veterans (-52%) in FY 2023-24. This shift suggests that certain areas, perhaps perceived as less visible or impactful for corporate image, are losing out, even as overall spending increases.
- The Cost of Compliance for Companies: While the intention behind mandatory CSR is commendable, it has also introduced a compliance burden for companies, particularly smaller enterprises. Most of the large corporations have hired external consultants and outsourced the CSR function to them. Further, due to recent change in the process and involvement of various internal stakeholders, the process of CSR planning and implementation itself have become cumbersome.
Looking Ahead: Towards Deeper Impact and Strategic CSR
As India embarks on the second decade of mandatory CSR, and the CSR funds set to grow to a whopping 25,000 to 30,000 Cr a year, the focus must shift from mere compliance to achieving genuine and sustainable impact. This requires:
- Impact-Oriented Approach: Encouraging companies to prioritize measurable outcomes and long-term societal benefits over simply meeting the mandated spending. This necessitates rigorous baseline, midlife and endline impact assessments and a focus on fewer, more strategic projects.
- Capacity Building of NGOs: Investing in strengthening the capacity of grassroots NGOs, particularly in underserved regions, to ensure effective project implementation and transparent reporting. The ground level NGO professionals are mostly untrained on social issues, project management, reporting parameters and corporate requirements. To ensure long-term project impact and success, it would be advisable to provide them opportunities to upskilling them.
- Geographic Equity: Incentivizing companies to allocate a portion of their CSR funds towards underdeveloped regions and areas with critical needs. The focus should be Northeast India and aspirational districts across India to ensure equitable development and deployment of CSR funds.
- Strategic Integration with International and national Goals: Promoting deeper integration of CSR with international and national development goals such as SDGs, and ESG frameworks leading to initiatives that leverage corporate expertise and create shared value, rather than being seen as isolated development endeavours.
- Collaborative Ecosystem: Fostering greater collaboration between corporations, government bodies, academic institutions, and civil society organizations to tackle complex developmental challenges.
- Integration of technology in CSR: Companies must prioritize the integration of technology into their Corporate Social Responsibility (CSR) initiatives. By harnessing the power of technology, organizations can significantly enhance their outreach and create meaningful, lasting impacts on communities across India. This strategic approach not only amplifies the effectiveness of CSR programs but also fosters deeper connections with target groups, driving sustainable change and empowering those in need
To me, the most important aspect is to ensure the integrity of Corporate Social Responsibility (CSR) initiatives, it is imperative that companies implement robust measures and safeguards to combat corruption in CSR implementation. The evidence of malpractices—ranging from commission-based project funding to conflicts of interest—highlights the urgent need for action. Companies must prioritize transparency and accountability in their CSR activities, establishing clear guidelines and rigorous oversight mechanisms. By fostering a culture of ethical conduct and vigilance, organizations can not only protect their reputations but also ensure that their contributions genuinely benefit the communities they aim to serve.
Conclusion
The journey of mandatory CSR in India has been a significant experiment, establishing a baseline for corporate engagement in social development. The next decade must refine this framework, moving beyond a ‘check-the-box’ mentality to ensure that the noble intentions of the law translate into transformative and equitable development across the nation. The goal should not merely be over-compliance in spending, but an unwavering commitment to generating lasting social value.