A Critical Analysis of Corporate Social Responsibility (CSR) under New Companies

Act, 2013

Chapter No.2 Evolution of CSR in India

Submitted by
Sujata Jayant

in partial fulfilment for the award of the degree

of

Doctor of Philosophy

In
Law

UNDER THE GUIDANCE OF

Dr. Ravinder Kumar

Assistant Professor, University School of Law and Legal Studies

Guru Gobind Singh Indraprastha University

Delhi
March 08, 2018

1
 Chapter No. 2-- Evolution of CSR in India

Index Page No

2.1 Evolution of Corporate Social Responsibility (CSR) in India-- 4

Historical Aspect
2.2 Four Phases of CSR Development in India 8

2.3 CSR Pyramid 12

2.3(i) Carroll’s CSR pyramid
13
2.3(ii) Visser’s CSR pyramid for developing countries

2.4 Evolution or Transformation of CSR Approaches in India 15

2.5 Conclusion 18

2
Chapter No. 2 Evolution of CSR in India

Introduction

“From your past emerges the present, and from the present is born your future”

Muhaamad iqbal

CSR is not a new concept in India. India has world’s richest tradition of Corporate Social Responsibility.
Indian corporate sector followed CSR from approx. 18th Century. In around 250 years the concept of CSR
gradually evolved in India. It is based on the idea that not only public policy but companies, too, should
take responsibility for social issues with the time period corporate sector and policy makers of India realized
the importance of CSR in Indian corporate culture. However, since the late nineties, CSR activities have
increasingly come under the lens both of policy makers as well as of corporations’ stakeholders as
governance issues acquired increasing prominence. The CSR initiated by Indian corporate sector as
philanthropy i.e. passive donation to charities now it’s became legal responsibility by codified of section
135 of Companies Act, 2013.

In this chapter researcher will examine/study about evolution of CSR in India i.e. Past of CSR in India for
the period of 18th century (concept of CSR has come in India) to 2007 when legal route of CSR has started
in India. In this chapter, researcher will examine following question i.e. when the concept of CSR came in
India, why this concept came in India, what are different kinds of approaches towards CSR in India, how
it is impacted on Indian society and finally how it is developed in India and became legal responsibility
under section 135 of companies Act, 2013

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2.1Meaning of Evolution

2.2 Evolution of Corporate Social Responsibility (CSR) - Background in India

CSR is not a new concept in India .Corporate Social Responsibility as a concept has existed in India since
ages and plays an important role in a developing country like ours. The organizations have realized that
besides profit making, a corporation must involve in trust building by working upon its societal
relationships and environmental issues. Also, companies which genuinely adopt the principles of socially
responsible behavior are preferred and favored by the society at large, of which the company forms an
integral part.1

India has a comprehensive and prosperous history of close business association in social causes for national
development. CSR in India is known from ancient time as a social duty or charity2. However, the Ministry
of Corporate Affairs, Government of India has recently notified the Section 135 of the Companies Act,
2013 along with Companies (Corporate Social Responsibility Policy) Rules, 2014 and other notifications
related thereto which makes it mandatory (with effect from 1st April, 2014) for certain companies who
fulfill the criteria as mentioned under Sub Section 1 of Section 135 to comply with the provisions relevant
to Corporate Social Responsibility3.

The concept of CSR in India was supported by several religions, philosophers like Katuliya &
Father of India Mahatma Gandhi. CSR has been intertwined with religious laws. “Zakaat”, followed by
Muslims, is donation from one’s earnings which is specifically given to the poor and disadvantaged.
Similarly Hindus follow the principle of “Dhramada” and Sikhs the “Daashaant”4. The concept of CSR
also supported by philosophers like Kautilya from India and pre-Christian era philosophers in the West
preached as promoted ethical principles while doing business. Father of our nation Mahatma Gandhi also

1
Rajeev Prabhakar and Sonam Mishra, A Study of Corporate Social Responsibility in Indian Organization:
An-Introspection, Proceedings of 21st International Business Research Conference, Ryerson University,
Toronto, Canada, 1, 2013
2
Vijay Kapur and Enakshi Sengupta, Social Responsibility in Business - An Indian Context, India CSR
Network, 1, 2011
3
Section 135 of Companies Act, 2013
4
Corporate Social Responsibility: Towards A Sustainable Future, KPMG India, (2008),
http://www.in.kpmg.com/ pdf/csr_whitepaper.pdf, last visited <7th September 2017>

4
talked about CSR when he introduced the notion of "Trusteeship", according to which the industry leaders
had to manage their wealth so as to benefit the common man & quoted as “I desire to end capitalism almost,
if not quite, as much as the most advanced socialist. But our methods differ. My theory of trusteeship is no
make-shift, certainly no camouflage. I am confident that it will survive all other theories." This was
Gandhi's words which highlights his argument towards his concept of "trusteeship". Gandhi's influence put
pressure on various Industrialists to act towards building the nation and its socio-economic development.

According to Gandhi, Indian companies were supposed to be the "temples of modern India".( give the
proper reference)

India has been following tradition of corporate philanthropy and industrial welfare since late 1800s. During
late the 18th century, there were protests aimed at resisting industrialization or improving lives of those
affected by it. The social and environmental consequences of early industrialization is relevant in today
context in a country like India which is now witnessing influx of rural people into urban area and where
economic growth can appear to be the expense of human and environmental well-being .

In the pre-independence era, the businesses which pioneered industrialization along with fighting for
independence set up charitable foundations, educational and healthcare institutions and trusts for
community development. The donations either monetary or otherwise were periodic activities of charity.
The philanthropy that was taken out of personal savings did not belong to the shareholders nor did it
constituted an integral part of business. In the late 1900s, socially responsible business practices took
diverse forms: philanthropic donations to charity, service to the community, enhancing employee welfare
and promoting religious conduct. Corporations started funding charitable or educational institutions. (
give the proper reference)
During the independence movement, there was increased stress on Indian Industrialists to demonstrate their
dedication towards the progress of the society. This was when Mahatma Gandhi introduced the notion of
"trusteeship", according to which the industry leaders had to manage their wealth so as to benefit the
common man. "I desire to end capitalism almost, if not quite, as much as the most advanced socialist. But
our methods differ. My theory of trusteeship is no make-shift, certainly no camouflage. I am confident that
it will survive all other theories." This was Gandhi's words which highlights his argument towards his
concept of "trusteeship". Gandhi's influence put pressure on various Industrialists to act towards building
thee nation and its socio-economic development. According to Gandhi, Indian companies were supposed
to be the "temples of modern India". Mahatma Gandhi influenced various industrialists to adopt the

5
practices with respect to socio-economic development due to which various companies had set up training
centers and educational institutions like schools and colleges. Eventually, CSR got a push by way of
introduction of the labour and environment protection laws in India and the Public Sector Undertakings
were asked to take up the CSR initiatives. This is how this practice developed and has now evolved as a
sustainable business strategy5

CSR evolved over a period of time when in the 19th century, the industrial families like Tata, Birla, Godrej,
etc. had an inclination towards such activities. These giant corporate involved themselves in a variety of
CSR activities without any legal requirements and view it in the context of building goodwill, reputation
and brand building.6 First CSR initiative taken by leading business houses are Tata, Bajaj, Birla Group
through FICCI. CSR has been part of Tata group ever since days of Jamshetji Tata (Founder of Tata group).
Right from 1892 Tata Group involved in CSR activity as follows :

 Workers welfare requirement of the country

 Granting scholarship for further studies abroad in 1892
 Supporting Gandhi campaign for racial equality in South Developing countries
 First science center, hospital and atomic research center
 Providing relief and rehabilitation to natural disaster

Tata Group initiated various Labor welfare Laws like establishment of welfare department was introduced
in 1917 and enforced by law in 1948 or Maternity Benefit was introduced in1928and enforced by law in
1946.7

The term CSR itself came into common use in the early 1970s, although it was rarely abbreviated. By late
1990s, the notion was fully recognized. People and institutions across all sections of society started
sustaining it. This can be corroborated by the fact that while in 1977, less than half of the Fortune 500 firms
even mentioned CSR in their annual reports8. By the end of 1990, approximately 90 percent Fortune 500
firms embraced CSR as an essential element in their organizational goals, and actively promoted their CSR
activities in annual reports.9( give the proper reference) However, since the late nineties, CSR

5
Gahlot Sushmita, Corporate Social Responsibility: Current Scenario, Research Journal of Management
Sciences,12, 2013
6
Sanjay Kumar Sharma, A 360 degree analysis of Corporate Social Responsibility (CSR) Mandate of the
New Companies Act Available at: http://www. ripublication. com/gjmbs_spl/ gjmb sv3n7 _09.pdf
Formatted: English (India)
7
http://www.in.kpmg.com/pdf/CSR_Whitepaper.pdf
8
https://studylib.net/doc/13270100/international-journal-of-application-or-innovation-in-eng... Formatted: English (India)
9
https://www.slideshare.net/paulvazhayil/csr-oil-companies-05-09-igjams Formatted: English (India)

6
activities have increasingly come under the lens both of policy makers as well as of corporations’
stakeholders as governance issues acquired increasing prominence. At the policy level, the formal focus
on CSR started in India with the issuance of the Corporate Social Responsibility Voluntary Guidelines in
2009 by the Ministry of Corporate Affairs (MCA, 2009) that culminated in the enactment of Section 135
of the Companies Act 2013 (MCA, 2013) making CSR spending as well as CSR disclosure mandatory for
specific types of companies. Significantly while CSR issues have been gaining in prominence across
countries, India became the first country, and at the time this article is written, the only country to have
made CSR activity mandatory for large and profitable companies incorporated into law. In all other
countries CSR efforts by corporations have been kept largely voluntary, with only a select number of
countries mandating corporations to disclose such activities10. To comprehend the existing status of Indian
CSR, India’s long tradition must be taken into account. Its CSR approach is closely linked to its political
and economic history, in which four phases can be distinguished.

10
Sanjay Kumar Sharma , A 360 degree analysis of Corporate Social Responsibility (CSR) Mandate of
the New Companies Act, Global Journal of Management and Business, 757, 2013
7
2.2 Four Phases of CSR Development in India

The history of Corporate Social Responsibility in India has its four phases which run subsequently to
India's historical growth and has resulted in dissimilar approaches towards CSR. However, the phases
are not stagnant and the features of each phase may have common characteristics to other phases.

The four phases of development of CSR are discussed below:

The First Phase

The first phase consists of charity and philanthropy as the main drivers of Corporate Social Responsibility.
Indian Culture, family values, religion & tradition and industrialization had a dominant effect on CSR. The
pre-industrialization phase, which lasted till 1850, wealthy merchants shared a part of their wealth with the
society by way of setting up temples for a religious cause. Furthermore, these merchants helped the
society in getting over periods of famine and epidemics by providing foodstuffs from their storehouses and
money and thus securing an integral position in the society. When the colonial arrived in India from the
1850’s onwards, the approach towards CSR was changed. The businessmen of the 19th century i.e.,
Tata, Godrej, Bajaj, Modi, Birla, Singhania were strongly inclined towards economic and social
considerations11. Though, it has been examined that their attempts towards social as well as industrial
advancement were not only driven by noble and religious motives but also manipulated by caste groups
and political objectives12.

11
Vijay Kapur and Enakshi Sengupta, Social Responsibility in Business - An Indian Context, India CSR
Network, 1, 2011
12
Pooja Srivastava and Surabhi Goyal, The Pre and Post legislative development of CSR in India: A case
illustration of Mahindra and Mahindra, Asian Journal of Management Research, 459, 2015

8
The Second Phase

The second phase occurred during the independence movement, there was increasing pressure on Indian
Industrialists to show their commitment towards the growth and development of the society. Mahatma
Gandhi commenced the idea of "trusteeship", according to which the business leaders had to deal with
their wealth so as to help the common man. "I desire to end capitalism almost, if not quite, as much as the
most advanced socialist. But our methods differ. My theory of trusteeship is no make-shift, certainly no
camouflage. I am confident that it will survive all other theories." This was Gandhi's words which highlights
his argument towards his concept of "trusteeship". Gandhi's influence put stress on various Industrialists
to take action towards the growth of nation and its socio-economic development Indian companies were
supposed to be the "temples of modern India". Businesses established trusts for schools and colleges and
also helped in setting up training and scientific institutions.

The operations of the trusts were largely in line with Gandhi's reforms which sought to abolish
untouchability, encourage empowerment of women and rural development.

The Third Phase

The third phase of Corporate Social Responsibility fall between 1960 -1980 had its relation to the element
of "mixed economy", emergence of Public Sector Undertakings (PSUs) and laws relating to labour and
environmental standards. The public undertakings were seen as the prime mover of development and
growth of society. However, the strict legal rules and regulations surrounding the actions of the private
companies the period was described as an "era of command and control". The policy of industrial
licensing, high taxes and restrictions on the private sector led to corporate malpractices. This led to
enactment of legislation regarding corporate governance, labour and environmental issues. However the
public sector was effective only to a certain limited extent. This led to shift of expectation from the public
to the private sector and their active involvement in the socio-economic development of the country
became absolutely necessary. In 1965 Indian politicians corporate and academicians, set up a national
workshop on Corporate Social Responsibility aimed to resolve the issues. They put emphasis upon
transparency, social accountability and regular stakeholder dialogues 13.

13
Sawati Nagwan, Evolution of Corporate Social Responsibility in India, Volume III, Issue VII, 2014

9
The Fourth Phase

The fourth phase from 1980 to till date Indian companies started discarding their traditional engagement
with Corporate Social Responsibility and incorporated it into a sustainable business strategy. In the 1990’s
the first opening towards globalization and economic liberalization were started. Control and licensing
scheme fairly had done away which gave advancement to the economy the signs of which are very
obvious today. Increasing growth thrust of the economy helped Indian companies to develop rapidly and
this made them more willing. Globalization has changed India into an important destination in terms of
manufacture and industrialized bases of TNCs are concerned. The Western markets become more and
more concerned about labour and environmental standards in the developing countries, Indian companies
which export and produce goods for the developed world need to pay a close attention to compliance with
the international standards. This phase give CSR a new era to develop in India and bring sustainable
development by the business.

The CSR agenda in India is changing. Though, traditional philanthropic approaches are still prevalent,
CSR activities in India are undergoing transformation processes in line with worldwide trends. The concept
is now integrated into core business processes and assigned to corporate departments and formulation
of law has given a different stand to CSR in Indian business scenario. However, this transformation
process is slow and will take time; the journey has begun with the instigation of regulatory framework 14.

14Heal Geoffrey Heal, When Principles Pay: Corporate Social Responsibility and the Bottom Line,
Columbia University Press, 1187, 2008

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Table 1: Different development phases of CSR in India

Phase Year Particulars

First Phase (Before 1800) The philanthropy of business people in India was
pre-industrial rooted mainly in religious belief and so closely
period resembled western philanthropy approaches.

Second Phase (1858- CSR activities were mainly undertaken outside

1914)During companies and included donations to temples
the independence and social welfare causes Influenced by
movement, Mahatma Gandhi’s theory of trusteeship, the aim
of which was to consolidate and amplify for
social development.

Third Phase (1960-1980) The reform programmes included activities

geared particularly to abolishing untouchability,
empowering women and developing rural areas.
Dominated by the paradigm of the “mixed
economy, CSR largely took the form of the legal
regulation of business activities and/or the
promotion of public-sector undertakings (PSUs).

Fourth Phase (1980 until the Indian companies started abandoning their
present) traditional philanthropic engagement and partly
by steps taken to integrate CSR into a sustainable
business strategy.

Source: Chahoud, T. et al (2009)

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2.3 CSR Pyramid

2.3 (i) Carroll’s CSR pyramid

The most durable and widely cited literature of CSR is illustrated in Carroll’s pyramid. According to CSR
Scholar Archie Carroll “Corporate Social responsibility involves that conduct of a business so that it is
economically profitable, law abiding, ethical and socially supportive. To be socially responsible then means
that profitability and obedience to the law are foremost conditions which discussing the firm’s ethics and
the extent to which it supports the society in which it exists with contribution of money, time and talent.

Philanthropic
Responsibilities

Ethical
Responsibilities

Legal Responsibilities

Economic Responsibilities

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Figure 2 : Caroll’s Classic CSR pyramid

Diagram the four responsibilities of CSR in Carroll’ Pyramid

a) Economic Responsibility -- Responsibility of business to be profitable only the way to survive and
benefit society in long term.
b) Legal Responsibility ---Responsibility to obey laws and other regulation e.g. employment,
Competition, Health &Safety.
c) Ethical Responsibility – Responsibility to act morally and ethically, go beyond narrow requirement
of the law e.g. Treatment of suppliers & Employees.
d) Philanthropic Responsibility – Responsibility to give back to society, discretionary but still
important e.g. charitable donation, staff time on projects.

2.3 (ii) Visser’s CSR pyramid for developing countries

Caroll's model of CSR first recognizes the importance of other social obligations of corporations, which is
beyond profit. Visser (2006) implemented the model of Carol for Developing countries context and said
that, just like the developed countries case, different layers of the model have different significance, as
shown in fig 2 (bottom).

13
 Ethical
Responsibilities

Legal
Responsibilities

Philanthropic Responsibilities

Economic Responsibilities

Figure 3: CSR pyramid for developing countries

Visser's CSR pyramid elaborated the limitations of Carroll’s CSR pyramid

1. Financial Obligations – In developing counties, financial liability for business still takes priority,
but unlike developed countries corporations, where profits and shareholders are given priority over
everything, the corporation of developing counties needs to take account profits and other
stakeholders. Visser’s an example of the Anglo American 2003 CSR charter is an extension that
involves adding importance to production as an economic contribution, the development of
employees, the transfer of technology, the construction of jobs and the establishment of local
business relationships or "economic multiplier".
2. Philanthropic obligations – The conditions in which many developing countries corporations
operate are also often one of the extreme poverty. It would be embarrassing if the companies
demanded to enrich themselves and their owners, while the surrounding communities and workers
lived in disgusting poverty or huts. One important thing is that Visser has stressed the criticism of
the model of Caroll that charity is not only on the model of Caroll, the model does not have
descriptive clarity. The developing countries market is not considered to be a lucrative market for
pharmaceutical companies, so arguments for philanthropy to make meaningful in developing
countries.

14
 3. Legal Obligation – The issue of prioritizing legal obligations, in particular, is another limitation of
the Carol Model (Visser) in the developing countries context, where legal and judicial structures
are challenging to challenge large corporations, neither are mature or neither by political pressure
are they free enough. It argues Carroll for legal obligations as the second priority limited. This is
not logic against corporation's commitment to legal compliance, but rather that economic and
philanthropic priorities should be emphasized.
4. Moral Obligation – In a continent where 145 countries have only two countries in the top 50 less
corrupt countries of the world, moral obligations will hardly be of higher quality on corporations
or government agenda. The largest corporations try to keep a code of ethics, but overall business
scenario is dominated by corruption, which reduces calls for ethical action (Visser )15. (
(Should be discussed in more detail) (Details are not required here)

2.4 Evolution or Transformation of CSR Approaches in India

India became the first country in the world, which codified section 135 of Companies Act, 2013
and made mandatory spending or responsibility on CSR activity by certain companies. i.e. Indian
government made compulsorily participation by Indian corporate sector to the nation building or
remove the social cause of nation by the way of CSR activity. Recently, Indian government has
codified section 135 of Companies Act, 2013 to compliance CSR provision where certain
companies mandatory spending to CSR activity. It does not mean that corporate sector did not
spend on CSR activity before codified of Section 135 of Companies Act, 2013. The Indian
corporate sector spend on CSR activity since from 18th century but philosophy/ approaches invest
towards CSR has changed over the period of time. The concept of the companies established in
India approx. in 18th century .Initially the motive of companies was solely company profit i.e. a
company exists only for short term share profit. After industrial protests aimed at resisting
industrialization or improving lives of those affected by it. The social and environmental
consequences of early industrialization is relevant in today context in a country like India which
is now witnessing influx of rural people into urban area and where economic growth can appear

Wayne Visser, Revisiting Caroll’s CSR pyramid: An African perspective, Copenhagen: Copenhagen
15

Business School Press, 1, 2006

15
to be the expense of human and environmental well-being. There is need of arising that companies
should responsible towards the society in which they operate & does something for betterment of
the society. Then merchants shared their profit by establishing the religious temple to the society
and giving donation to the society i.e. philanthropy approach means that, passive donation to
charities when required. In philanthropy approach corporate sector gives passive donation to
charities from its part of profit. Donation is made to religious purpose/ charitable purpose is the
most common approach of CSR. So we can say there is movement from corporate profit/ self-
interest to philanthropy approach i.e. passive
donation to charities which show in Figure 1below(Give proper reference)

16
 To To
To
Community Corporate To
From
Community To
Philanthro Affairs Sustainable
Profit Focus investemen Section
py a strategic giving Business
a company exists
passive linked to business t integrated into
135 of
only for short
term share holder donations to interests (includes strategic business Companies
charities when cause - related funstions, goals,
profit
marketing)
partnership Act, 2013
requested strategy
initiated by
company

Figure 1: Evolution/Transformation of CSR approaches in India

After philanthropy approach of CSR shifted to community affairs approach i.e. Strategic giving liked to
business interest. It includes because related marketing. This approach means giving something to society
by way of that strategy by which business interest can be achieved. Hence CSR is just doing to achieve the
maximum profit of company with no emotional or cultural attachment to society/nation where it operates.

After community affairs approach, it shifted to corporate community investment i.e. good corporate
citizenship. Investment in social development as part of business plan which is also prescribed to National
Voluntary Guidelines (NVGs) on social, environmental and economic responsibility. It is issued by
Ministry Corporate Affairs (MCA) in 2011. Hence now corporate sector spend on CSR activity as part of
its business plan but this is voluntary& optional only as these are only guidelines. it has shown some
companies contributed on CSR activities but there are other companies who in spite of earning huge profits
still do not contribute on CSR.16

However, since the late nineties, CSR activities have increasingly come under the lens both of policy
makers as well as of corporations’ stakeholders as governance issues acquired increasing prominence. At
the policy level, the formal focus on CSR started in India with the issuance of the Corporate Social
Responsibility Voluntary Guidelines in 2009 by the Ministry of Corporate Affairs (MCA, 2009) that
culminated in the enactment of Section 135 of the Companies Act 2013 (MCA, 2013) making CSR

16
Harpreet Singh Bedi, Financial Performance and Social Responsibility: Indian Scenario SSRN: 8819,
2009

17
spending as well as CSR disclosure mandatory for specific types of companies. Significantly while CSR
issues have been gaining in prominence across countries, India became the first country, and at the time
this article is written, the only country to have made CSR activity mandatory for large and profitable
companies incorporated into law. In all other countries CSR efforts by corporations have been kept largely
voluntary, with only a select number of countries mandating corporations to disclose such activities 17.

2.5 Conclusion

The concept of CSR has existed in India since ages and plays an important role in a developing country
like ours. The rationale behind CSR that not only public policy but companies/corporate, too, should take
responsibility for social issues. Indian corporate sector followed CSR from approx. 18th Century. In around

17
Jayati Sarkar and Subrata Sarkar , Corporate Social Responsibility in India - An Effort to Bridge the
Welfare Gap, Indira Gandhi Institute of Development Research, Mumbai, 1, 2015

18
250 years the concept of CSR gradually evolved in India. During time of independence Mahatma Gandhi
gave notion of “Trusteeship” i.e. companies are trustor and general public is beneficiary, Companies having
and uses all resources of Nation should act in favour of its beneficiary i.e. general public at large. However,
since the late nineties, CSR activities have increasingly come under the lens both of policy makers as well
as of corporations’ stakeholders as governance issues acquired increasing prominence. At the policy level,
the formal focus on CSR started in India with the issuance of the PM’s ten point of social charter in 2007
that culminated in the enactment of Section 135 of the Companies Act 2013. India became the first country
in the world whicho made corporate social responsibility as Legal responsibility.

Business or Companies must to do something to remove social case of the country/community in which
they operate i.e. CSR , it has been done by business world/corporate sector since 18 th century but the way
/approaches of doing has changed with the passagephrase of time. First and most common approach of
CSR is “Philanthropy” i.e. business world / corporate sector for doing something for society they gave
donation /charity to the society donate a part of their wealth for the charitable purposes .After that business
world/ corporate sector treated CSR as “Marketing tool” i.e, to make itself a brand and do gooder in the
eyes of its customer or general public Companies are doing good for society so that they can maintain good
reputation or brand image in the eyes of its customer or general public. After that corporate sector/business
world treated CSR as “Sustainable business” i.e. CSR integrated into business plan or goals. Now this is
new era for CSR as it is treated as “Legal Responsibility” by codified section 135 of Companies Act, 2013.
Now companies are also responsible to remove social cause of society/community/nation and give their
participation in national development. No doubt, this is big and appreciable step taken by the Indian
Government but we need to analyses the ground reality of this CSR law. (Check out this once
more)

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