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Spectrum:AJournalofMultidisciplinaryResearch Vol.2Issue1,January2013,ISSN22780637

SUSTAINABILITY OF CORPORATE SOCIAL RESPONSIBILITY IN INDIA (A STUDY OF ITCS INITIATIVE E-CHOUPAL)


DR. AMANDEEP BATRA*
*Assistant Professor, Department of Commerce, Guru Nanak Girls College, Yamuna Nagar, India.

ABSTRACT Corporate Social Responsibility (CSR) which was earlier synonyms to the voluntary donations or charity by the corporate houses has found its comprehensive compulsory place in the circles of trade and Industry globally. The adherence to CSR has not only knocked the doors of corporate houses of developed countries but of the developing country like India too! Due to the growing awareness among the society regarding the lawful rights of masses, the corporate world-wide are bound to do something concrete and result-oriented regarding CSR obligations. The present research paper work has been done to diagnose the present scenario and prevalence of CSR practices in the Indian corporate in general and in the ITC in particular. This paper highlights the prime features of ITCs ambitious CSR project e-Choupal and finds that really this project is pioneering in the field of CSR in general and for the up liftment of rural farmers in particular. Further, it was observed that these kinds of CSR initiatives may become the role-model in the achievement of CSR objectives world-wide. KEYWORDS: Corporate Social Responsibility, ITC, e-Choupal, Sustainability, Socially Responsible Investing, Chronological Evolution. ___________________________________________________________________________ PinnacleResearchJournals26 http://www.pinnaclejournals.com 1. INTRODUCTION OF CSR

Since the early 1990s, corporate responsibility issues have attained prominence in the political and business agenda. The need for a more pro-active role by states, companies and communities in a development process aimed at balancing economic growth with environmental sustainability and social cohesion has motivated the following three interlinked business movements: Corporate social responsibility (CSR). Corporate sustainability. Worldwide reforms on corporate governance.

CSR and corporate sustainability involve assessment of the companys economic, social and environmental impact, taking steps to improve it in line with stakeholder requirements and reporting on relevant measurements. Corporate governance reflects the way companies address

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Spectrum:A AJournalofMultidisciplinaryResearch Vol.2Issue1,January2013 3,ISSN2278063 37

legal res sponsibilities and theref s fore provide the found es dations upon which CS and corp n SR porate sustainab bility practices can be bu to enhanc responsib business o uilt ce ble operations. The T CSR and corporate s d sustainability movement are buildin an impressive mome y ts ng entum with sup pport from governments and the in g s nvestment c community t through soc cially respon nsible investing (SRI) and associated co g a orporate sust tainability in ndexes. Ther is no doub that busin re bt nesses are doing far more than ever be g t efore to tack the susta kle ainability ch hallenge by r recognizing their social r responsibiliti ies, reducin their environmenta impacts, guarding against et ng al thical comprom mises, creati ing governa ance transpa arency and becoming more acco ountable to their stakehold ders. The fig gure given be elow present the compr ts rehensive fie of CSR. eld FIGURE 1 AREAS OF CORPORATE SO E OCIAL RES SPONSIBIL LITY

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Source: Research Capsule: The Status of CSR in Ind e dia-a Note, Environmen Manage ntal ement May Centre, M 2005

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Spectrum:A AJournalofMultidisciplinaryResearch Vol.2Issue1,January2013 3,ISSN2278063 37

2.

CHR RONOLOG GICAL EVO OLUTION O THE CS IN INDI 1 OF SR IA FIGU URE 2 MOD DELS OF CS IN INDI SR IA
Ethical Model (1930 1950)

Stakehol ld erMode el (1990 Present t)

Chronological C Evolutionof E CSR

Stati ist Mod del (195 50 1970 0)

Liberal Model (1970 1990)

As A per the sur rvey conduc by the T Energy Research Institute in 200 the Evol cted Tata 01, lution of CSR in India has followed a chronologica evolution t n f al thinking app proaches nam mely; 1. E ETHICAL MODEL (19 M 930-1950): T model i among the initial and pioneering i the This is e in fi ield of CSR which was based on the philosop of trus R s phy steeship pro opounded by the y Father of th Nation he Mahatma G Gandhi Ji. In this model busine houses were ess en ncouraged th business in the very interest of the society a large. Tata group has done heir s y at so omething ve appreciab under thi model in th time peri ery ble is his iod. 2. STATIST MODEL (1950-1970): T M This model came in to existence un nder the aeg of gis J Jawahar Lal Nehru Ji a after indepen ndence. The prime char e racteristic of this model was f l th influence and domin he e nation in the determinat e tion of corp porate respon nsibilities by the y st ownersh and legal requiremen tate hip l nts. 3. L LIBERAL MODEL (1 M 1970-1990): This mode was the brain child of the M el d Milton Friedman, wh hich says th it is suf hat fficient for business to obey the law and gen nerate wealth, which through ta w h axation and private char ritable choic can be d ces directed to s social en nds. 4. STAKEHOL LDER MOD DEL (1990-T TILL NOW This mod came in to existence after W): del 1990; the model expec compani to perfo m cts ies orm accordi ing to trip bottom line ple

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Altered Images: The state of Corp d porate respons sibility in Indi Poll, A Su ia urvey, conduct by Tata E ted Energy Research Institute (TERI 2001. I),

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Spectrum:AJournalofMultidisciplinaryResearch Vol.2Issue1,January2013,ISSN22780637

approach. The businesses are also focussing on accountability and transparency through several mechanisms. 3. INTERNATIONAL TRENDS- CSR RATING AND ITS IMPACT ON INVESTORS Investors are today much aware about the social performance of the corporate. A socially responsible investor would like to invest in any company for any of the four motives or a combination of these motives as given below: THE FIRST TYPE OF INVESTORS: are called financial investors. The motive behind the investment may be financial aspect and these types of investors are concerned about the fulfilment of corporate social responsibility on the financial performance of the corporate in the future. These financial investors believe that by performing the social responsibilities a corporate may enhance its financial performance in future. Several benefits accrue to the corporate adhering to CSR like the corporate may get socially responsible consumers (Bangoli and Watts 2003), can reduce the interring of NGOs and other activist (Lyon and maxwell 2006). These types of investors are concerned about the performance of both the periods i.e. past as well as future of the corporate. They want to insure that the firm must have not committed any such anti environment activities which may entail penalty in the present and also the firm must not do anything against CSR so that in future better image, lower compliance of penalties and better confidence of consumer/investors may be created which ultimately would lead to higher future profits. SECOND TYPES OF INVESTORS: are called deontological investors who are concerned for the ethics followed by the corporate. These types of investors want clean profits from previous and present activities of the corporate sector. If they find any irresponsible management practices which may result in future corrupt profits then they can devoid from investment in these kind of companies CONSEQUENTIAL INVESTORS: they are the third type of investors who make available their funds to the companies which are socially responsible and stop making investment in those companies which misbehave socially. These type of investors diagnose the previous environmental record to punish or reward the firms and also reward those concerns which are making present investment for the long-run environmental performance. EXPRESSIVE INVESTORS: they are those investors who base their decision to invest in the companies which believe in CSR. In order to express their association with good social causes and make their identity that they route their investment in the companies which are widely perceived to be environmentally responsible.

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4. OBJECTIVES OF THE STUDY The study has been carried out while keeping the following objectives in mind; To know the progress pattern of CSR practices in India.

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Spectrum:AJournalofMultidisciplinaryResearch Vol.2Issue1,January2013,ISSN22780637

To enquire about the channels in which the Indian corporate are making their investment by way of CSR. To analyze the transitional journey from philanthropy to mandatory fulfilment of CSR. To critically evaluate the CSR initiative of ITCs e-Choupal.

5. STATUS OF CSR IN INDIA Over the years the concept of Corporate Social Responsibility (CSR) has gained unprecedented momentum in business and public debate and has become a strategic issue crossing the departmental boundaries, and affecting the way in which a company does business. It has become so important that many organizations in India have rebranded their core values to include social responsibility. Almost all corporate websites/ policies/reports talk about their endeavors for CSR which has become a way of ensuring that the organization is fulfilling all the obligations towards society and thus is eligible for the license to operate. It assures that the organization can grow on sustainable basis. These activities of CSR ranging from small donations to bigger projects for social welfare sustainable practices differ from organization to organization depending on the resources available to an organization for undertaking sustainable practices. Business practices of big and successful companies, with plenty of resources at their end, have set the trend for being committed to sustainable practices. Such business houses around the globe show their commitment to social responsibility. In India, the initiatives of Dabur India Limited, for example, which commenced Sundesh in 1993, a non-profit organization, with an aim to promote research and welfare activities in rural areas are appreciable. On the same track to fulfil its urge to do something for community, Bharat Petroleum Corporation Limited has adopted 37 villages as their responsibility to develop in all walks of life. It has made efforts to make them self-reliant, provided them fresh drinking water, sanitation facilities, medical facilities, vocational training and literacy camps. Around its industrial facilities, Tata Group has created towns and cities like Jamshedpur, Mithapur, Babrala for the benefit of its employees. Cadbury India, Glaxo and Richardson Hindustan are some of the companies which are helping farmers to grow crops which in turn shall serve as raw materials for them (Tripathi & Reddy, 2006). The practices of CSR has become the fashion of the day in the Indian corporate which is very much evident from the CSR initiatives being taken by these companies in the recent past. In order to highlight the growing trend of CSR practices in India, we have given few efforts made by Indian corporate regarding CSR recently (See Appendix -II)

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Spectrum:AJournalofMultidisciplinaryResearch Vol.2Issue1,January2013,ISSN22780637

6. CSR INITIATIVE BY ITC2: ITC is one of India's foremost private sector companies with a market capitalization of US $ 35 billion and a turnover of US $ 7 billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine and among India's Most Valuable Companies by Business Today. ITC ranks among India's '10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week. ITC has a diversified presence in FMCG, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, and Information Technology. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. ITC is not only pioneering in the business and industries but also in the corporate social service arena, its CSR activities have won several Awards (Especially in the field of Agri based business). Recently ITC has been conferred the AIM Asian CSR Award by the Asian Forum on Corporate Social Responsibility (AFCSR), in recognition of its meaningful contribution to the creation of sustainable livelihoods and fostering economic growth in rural communities in India. ITC won the award in the Governance and Society category for adopting the Triple-Bottom-Line model, which focuses on augmenting economic, social and environmental capital. Recipients of the AIM Asian CSR Awards demonstrate leadership, sincerity, and commitment in incorporating ethical values, compliance with legal requirements, respect for individuals, involvement in communities, and protection of the environment into the way they do business, said Professor Felipe B. Alfonso, conference director of AFCSR 2012. He added, It is our belief that CSR can only be truly sustainable when it is integrated into the companys business model and is considered as fundamental to its business strategy, and we hope that through the Asian CSR Awards, we are providing the private sector across the region with examples of best practices. ITC's Agri-Business is one of India's largest exporters of agricultural products. The ITC group's contribution to foreign exchange earnings over the last ten years amounted to nearly US$ 4.9 billion, of which agri exports constituted 56%. The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach.

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2 http://www.itcportal.com

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Spectrum:AJournalofMultidisciplinaryResearch Vol.2Issue1,January2013,ISSN22780637

7.

E-CHOUPAL A CSR INITIATIVE OF ITC

Corporate and social responsibility is an integral part of ITCs philosophy, and ITC is widely recognized as dedicated to the cause of nation building. Chairman Y. C. Deveshwar calls this source of inspiration a commitment beyond the market. ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part. This view of social consciousness allowed ITC to recognize the unique opportunity of blending shareholder value creation with social development. The company has initiated an eChoupal effort that places computers with Internet access in rural farming villages; the eChoupals serve as both a social gathering place for exchange of information (choupal means gathering place in Hindi) and an e-commerce hub. What began as an effort to re-engineer the procurement process for soy, tobacco, wheat, shrimp, and other cropping systems in rural India has also created a highly profitable distribution and product design channel for the companyan e-commerce platform that is also a low-cost fulfilment system focused on the needs of rural India. The e-Choupal system has also catalyzed rural transformation that is helping to alleviate rural isolation, create more transparency for farmers, and improve their productivity and incomes. 7 (A). THE BUSINESS MODEL OF E-CHOUPAL The e-Choupal model has required that ITC make significant investments to create and maintain its own IT network in rural India and to identify and train a local farmer to manage each e-Choupal. The computer, typically housed in the farmers house, is linked to the Internet via phone lines or, increasingly, by a VSAT connection, and serves an average of 600 farmers in 10 surrounding villages within about a five kilometer radius. Each e-Choupal costs between US$3,000 and US$6,000 to set up and about US$100 per year to maintain. Using the system costs farmers nothing, but the host farmer, called a sanchalak, incurs some operating costs and is obligated by a public oath to serve the entire community; the sanchalak benefits from increased prestige and a commission paid him for all e-Choupal transactions. The farmers can use the computer to access daily closing prices on local mandis, as well as to track global price trends or find information about new farming techniqueseither directly or, because many farmers are illiterate, via the sanchalak. They also use the e-Choupal to order seed, fertilizer, and other products such as consumer goods from ITC or its partners, at prices lower than those available from village traders; the sanchalak typically aggregates the village demand for these products and transmits the order to an ITC representative.

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Spectrum:AJournalofMultidisciplinaryResearch Vol.2Issue1,January2013,ISSN22780637

FIGURE 3 THE E-CHOUPAL SYSTEM IN ACTION

Source: http://www.echoupal.com At harvest time, ITC offers to buy the crop directly from any farmer at the previous days closing price; the farmer then transports his crop to an ITC processing center, where the crop is weighed electronically and assessed for quality. The farmer is then paid for the crop and a transport fee. Bonus points, which are exchangeable for products that ITC sells, are given for crops with quality above the norm. In this way, the e-Choupal system bypasses the government-mandated trading mandis. PinnacleResearchJournals33 http://www.pinnaclejournals.com Farmers benefit from more accurate weighing, faster processing time, and prompt payment, and from access to a wide range of information, including accurate market price knowledge, and market trends, which help them decide when, where, and at what price to sell. Farmers selling directly to ITC through an e-Choupal typically receive a higher price for their crops than they would receive through the mandi system, on average about 2.5% higher (about US$6 per ton). At the same time, ITC benefits from net procurement costs that are about 2.5% lower (it saves the commission fee and part of the transport costs it would otherwise pay to traders who serve as its buying agents at the mandi) and it has more direct control over the quality of what it buys. The system also provides direct access to the farmer and to information about conditions on the ground, improving planning and building relationships that increase its security of supply. The company reports that it recovers its equipment costs from an e-Choupal in the first year of operation. ITC gains additional benefits from using this network as a distribution channel for its products (and those of its partners) and a source of innovation for new products. For example, farmers can buy seeds, fertilizer, and some consumer goods at the ITC processing centre, when they bring in their grain. Sanchalaks often aggregate village

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Spectrum:AJournalofMultidisciplinaryResearch Vol.2Issue1,January2013,ISSN22780637

demand for some products and place a single order, lowering ITCs logistic costs. The system is also a channel for soil testing services and for educational efforts to help farmers improve crop quality. ITC is also exploring partnering with banks to offer farmers access to credit, insurance, and other services that are not currently offered or are prohibitively expensive. The following table depicts the presence of e-Choupal across India. TABLE 1 PRESENT STATUS OF E-CHOUPAL States Covered Villages Covered No. of e-Choupals Source: http://www.echoupal.com 7 (B). PRODUCTION SYSTEM PRIOR TO THE E-CHOUPAL There are three commercial channels for agricultural produce: traders, governmentmandated markets (mandis), and producer-run cooperative societies for crushing in cooperative mills. In addition, farmers traditionally keep a small amount of their crops for their personal consumption and get the produce processed in a small-scale crushing-plant called a ghani. The system varies among states and districts, as does the percentage of produce going through each channel, but on average, 90% of crops are processed through traders and mandis. The following figure presents the vicious circle of various types of costs around the farmers. FIGURE 4 OPERATION OF THE MANDI DISTRIBUTION SYSTEM 10 40,000 6,500

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Source: http://www.echoupal.com

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