Impact of CSR funds ‘not widely felt’ despite jump in spending: Ministry of Corporate Affairs
July 2, 2023
Synopsis
The Ministry of Corporate Affairs (MCA) has highlighted the limited impact of corporate social responsibility (CSR) initiatives in India, despite a significant increase in spending. According to the MCA, CSR spending stood at Rs 26,210 crore in FY21, a growth of 80% since FY16. However, the impact of these funds is not widely felt, and there is a need to enhance their visibility and effectiveness.
The Ministry of Corporate Affairs (MCA) has flagged the limited impact of corporate social responsibility (CSR) initiatives despite a spike in such spending in recent years, and called on India Inc to adopt a long-term approach “to yield productive results”.
In a newsletter dated June 30, meant for various stakeholders, the ministry said the CSR spending stood at Rs 26,210 crore in FY21, having grown 80% from FY16. “However, the impact of the CSR funds is not widely felt and there is a need to enhance the visibility as well as impact of these invested funds,” it said in the newsletter reviewed by ET.
It is important to execute CSR efforts strategically, “with the right balance of capital investments and operational expenses”, it added.
The MCA has also expressed concerns over wide regional disparity in the deployment of the CSR funds and called on companies to balance their area preference with national priorities.
According to rules, companies of a certain size are required to spend, annually, at least 2% of their average net profits made in the previous three financial years.
The MCA has also highlighted the need to ensure the initiatives undertaken become self-sustaining so that the CSR programmes can run seamlessly without being a burden on the companies themselves.
“The emphasis should be on creating an appropriate structure for CSR, ensuring that the funds go towards the well-being of the community. Further, the highest quality of risk management framework needs to be adopted, so as to make the CSR projects sustainable,” it said.
As for regional disparity, the ministry pointed out that just ten states--including industrial ones such as Maharashtra, Gujarat, Karnataka and Andhra Pradesh--grabbed over 44% of the CSR funds in FY21, while the eight north-eastern ones received a mere 0.91%.
“This is concerning, as the smaller regions are the most socio-economically and culturally diverse in the country and have a high incidence of poverty and underdevelopment,” the ministry said.
It is imperative to strike a balance between local area preference with national priorities “to avoid any concentration of CSR funds in specific regions”, it said.
The MCA acknowledged the potential reason for such disparity could be the stipulation under the Section 135(5) of the Companies Act 2013 that companies should give preference to the areas around which they operate while allocating CSR funds. “However, it's not mandatory to do so as the world has become too intricately close with the advent of digitalization and it is difficult to define what the local areas of operations are,” they said.
Education, healthcare, and rural development have remained the top receivers of the CSR funds. According to the official data, between FY15 and FY21, the education sector (including education, livelihood enhancement projects, special education and vocational skills) received Rs 47,188 crore, or about 37% of the total CSR spending. The health sector (including healthcare, poverty, eradicating hunger, malnutrition, sanitation and Swachh Bharat) comes next, with a 30% share in such expenditure amounting to Rs 38,011 crore. Rural development projects received Rs 12,300 crore, accounting for 9.6% of the total CSR expenditure.
[The Economic Times]
