According to a report by CRISIL Foundation, the CSR arm of credit rating agency CRISIL, Indian corporations spent over Rs 50,000 crore towards corporate social responsibility (CSR) between FY15 and FY18. The report estimated the total CSR expenditure by Indian corporates in FY18 at Rs 15,010 crore, with listed companies spending Rs 10,000 crore and unlisted companies spending Rs 5,010 crore on CSR.
Indian companies above a certain threshold are required to spend at least 2% of their net profit on social expenditure every year under the Companies Act of 2013. The Companies Act 2013 expects businesses to spend 2% of their three-year average profits on social initiatives. Even before the Act was put in place, companies recognized they need to think about more than just profits – and did so. But since CSR has become mandatory, companies have embraced social causes with a fervour. They now apply the same rigour to causes as diverse – as hunger, poverty, healthcare, education, cleanliness environmental sustainability, and rural development, as they bring
Some of the key findings of the study are that companies have spent Rs. 74.6 bn, an increase of 5.8% compared to the previous year. In FY18, companies spent 1.9% of their three-year average profits. The aggregate spends by MNC’s and institutionally owned entities were 2.0%, while it was 1.9% for promoter owned entities and 1.8% for PSUs. The number of companies meeting the 2% spend target has increased from 46 in FY16, 59 in FY 17 to 68 this year. The top ten companies contribute ~48 to the overall spend on CSR; in FY17, this was 47. Education continues to be the focus area for companies ~30% of the aggregate FY18 spend was made towards education projects. Other areas were rural development (13.3%), hunger, poverty and healthcare projects (20.6 percent).
Corporate Social Responsibility
Before enactment of Companies Act, 2013 Corporate Social Responsibility (CSR) expenditure is at the discretion of the corporate however after enactment of Section 135 of CSR Companies Act 2013 such expenditure is made mandatory for certain corporate
India is the only country so far, where CSR has been made mandatory.
Applicability to which CSR provisions applicable:
- Following below mention companies are required to constitute CSR Committee, If Company having following during Immediate Preceding financial year
Provisions of CSR apply to foreign branch/project office of foreign company:-
The Provisions of CSR are applicable to Foreign Company having Branch office or project in India if it fulfil the above given criteria. The criteria of Net Profit etc. apply only to business operations in India in case of foreign Company/ Project Office.
♦ When companies get ceases to comply with the provisions of CSR?
Every company which ceases to be a company covered above three conditions for Immediate preceding financial years shall not be required to:
- a) Constitute a CSR Committee; and
- b) Comply with the provisions contained in sub-sections (2) to (5) of the said section (to spent amount on CSR Activities).
Once company again fall within the limit provisions of CSR will be applicable on Company.
- CSR Committee
◊ Constitutions of CSR Committee: Company to which CSR is mandatory should constitute a CSR Committee to undertake and monitor CSR activities:
The CSR Committee shall consist of 3 (Three) or more Director, out of which at least one director shall be an Independent Director.
- An Unlisted Public Company:This is covered under CSR provisions, but need not to have Independent Director on the CSR Committee.
- Private Limited Company:which is covered under CSR provisions
√ Need not have Independent director on the CSR Committee
√ Can have CSR committee with only Two Directors.
- In case of Foreign Company: The CSR committee should have at least Two person, out of which
- One person shall be specified under section 380(1)(d) of the 2013 Act and
- Another person nominated by the Foreign Company.
◊ CSR Committee Meeting:
- Law is silent w.r.t. number of CSR Committee meetings in a year. But as per Secretarial Standard 1 clause no. 2.2 “Committees shall meet as often as necessarysubject to the minimum number and frequency stipulated by the Board or as prescribed by any law or authority.”
- CSR Committee meeting can conduct business by passing of resolution by circulation.
Question for prelims
- Arrange the sectors in descending order as per their share of receipts from corporate social responsibility expenditure in India.
- How much the companies are required to spend on corporate social responsibility according to the Companies Act 2013?
- What is the ceiling above which it is mandatory for the companies to spend for corporate social responsibility?