The Companies Bill, passed in the Lok Sabha earlier this month, makes it mandatory for companies with turnover of over INR 1,000 crore or net worth of over INR 500 crore or average net profit of INR 5 crore over the preceding three years to spend 2% of their average net profits for the last three years on Corporate Social Responsibility (CSR). The Bill includes a suggestive list of ten spending avenues including environmental sustainability, vocational skills and social business projects, which will qualify as CSR.

Before any further analysis of responses to and possible outcomes of this landmark development, it might be worthwhile to pause and think – why the need for such statutory enforcement of CSR in the first place? Why does India have to be perhaps, the only country to feel this need? What does it say about the ways in which Indian companies think and operate? Business by definition, functions within a society and depends on it in its bid to flourish. In return, it is an intrinsic responsibility of business to support the development of society by sharing with it, the fruits of its success and prosperity. Laying out a framework for carrying out such responsibilities is however, essential for optimising its impact.

Prior to the Bill being passed, the concept of CSR had elicited a diverse set of responses from different quarters of India Inc. Larger corporate houses like Tata and Marico had already been outlaying significant funds towards social development while most others had been viewing CSR as an auxiliary business function. There were still others who viewed CSR as merely a burden on their cash registers, akin to that of another tax. With CSR now becoming mandatory, many from these two latter classes are voicing the opinion that CSR contributions should be considered as tax deductible expenditure.

Irrespective of the responses however, the reality is that an estimated 2,500 companies will now have to shell out about INR 10,000 crore next year on CSR as per a latest article in Business Line. This means a significant and more importantly, assured investment flow into the social sector. From the companies’ standpoint, it means a mandatory inclusion of CSR in boardroom discussions and decisions, demanding greater accountability and clearer outcomes.  CSR initiatives are expected to become much more structured in the aftermath of the Bill with the promise of employment generation across levels ranging from the top management to the grassroots implementation teams. Companies are already reviewing their ongoing CSR programs and chalking out their future CSR strategies. While some are set to beef up their internal CSR departments others might require external support which could mean more business for existing specialised CSR consulting firms and an opportunity for other consulting firms to foray into this niche service line.

While India prepares to become arguably the first country to make CSR a statutory obligation, it is absolutely critical to simultaneously put effective mechanisms for monitoring, accountability and social impact assessment in place to facilitate its effectiveness. A universal alignment on CSR being a win-win game for all can make it an extremely potent force for poverty alleviation and a more inclusive economic growth, particularly relevant in the context of a country like India.