India’s Compulsory CSR: Should contributions to impact investment funds be included to increase shared value?

By Rupal Patel, Arvind Ashta and Priyanka Jayashankar.

The recent CSR clause in the Indian Companies Act 2013 can be considered a trail-blazer in sustainable development. India, which is a huge market for Bottom of the Pyramid (BoP) based innovations and impact investment, is the first country to make CSR spending compulsory.

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India’s CSR history—from shared wealth to shared value

CSR discourse has evolved in India, whereby the concept of ‘shared wealth’ is slowly making way for ‘shared value.’ CSR in India has come a long way since the early 20th century during which business houses such as the Tatas and Birlas established charitable foundations and trusts to contribute their mite to society.  Industrialists such as J.R.D. Tata were influenced by Gandhi’s philosophy of “trusteeship,” according to which it would behoove industrialists to share their wealth with low-income groups.  As a departure from the trusteeship model, wherein the poor were viewed as beneficiaries, a few companies in the post-liberalization era in India have implemented CSR projects to empower the poor as producers and consumers (instead of merely providing handouts).  A case in point would be ITC’s successful E-Choupal initiative, which entails a partnership between ITC’s agro-business division and producers at the BoP. This is in spirit with the concept of ‘shared value’ propounded by Porter and Kramer[i], whereby the competitiveness of a company is symbiotically entwined with the socio-economic welfare of communities.

Steps are being taken to create a more legal framework for CSR in India. It will be interesting to see how the Companies Act, 2013 which now mandates 2% profit allocation for social activities, making corporate social responsibility a legal requirement, will unfold.  The Indian government now obliges large companies to increase spending on education, vocational training, eradicating poverty and hunger, healthcare, women empowerment, social business, and environmental sustainability to balance India’s economic growth with sustainable development.  Companies who are not interested in pursuing their own social activities have the option to pour the required funds into government sponsored relief and social-development programs. Nonetheless, it is argued that only 1% of Indian companies will be covered under the bill.[ii]  However, upon conversion of rupee estimates, the mandated funds approximate to $2 to 2.4 billion.  Comparing this amount to that invested in impact investment globally (estimated $8 billion for 2012[iii]), the mandated CSR funds amount to a substantial 25%. The possible level of impact from these funds is immense.

The economic logic for the government regulation is evident: private investments often create public bad and it is therefore necessary that government intervene through appropriate instruments to make the polluter pay. Issues like global warming and oceans rising are already creating threats to the survival of countries like Kiribati whose atolls are barely a few feet above sea level.  Although countries like Sweden, Norway, the Netherlands, Denmark and France have mandated that big companies should provide sustainable development reports, they have not placed targets. Many US States have ratified B corporations to allow corporates, large and small, to safely spend on social responsibilities. The Indian government has clearly gone further. This may be because India is one of the key polluters after China and the USA, and it is likely that its pollution will increase.

Avenues to deliver high level impact

Given the above scenario, how can companies do well and do ‘good’ within the boundaries of legal CSR framework?  To enhance shared value for all stakeholders, the appropriate expertise and sector knowledge are requisite to inject effective capital.

The questions which is often raised is who is better at non-market based spending? The government or the private sector.  One may argue that the private sector may be more efficient in implementing poverty alleviation programs than the government as it is neither constrained by bureaucratic inefficiency or by public policy decisions. Since government jobs seem to be sticky (they can’t fire people easily), there is a global trend in developed countries to decentralize and privatize or at least create public private partnerships.

For some companies, their internal knowledge and expertise may allow them to reduce pollution or create appropriate technology for the Bottom of the Pyramid (BOP).  For example, TATA Motors, estimated to be the 2nd largest CSR spender[iv], can target funds at developmental R&D on alternative clean technology for transportation, expanding on already garnered knowledge. Thus, there is a case for strategic CSR or core-activity based CSR spending.  Companies incorporating CSR into their core business strategies should consider adopting jugaad (meaning frugal and flexible) innovations for the BoP[v]. Apt examples of such innovations include low-cost solar lighting provided by SELCO or Godrej’s low-cost refrigeration.

In many cases, non-profit organizations and social entrepreneurs are also collaborating with the private sector to deliver public goods, which the government has hitherto failed to provide to the poor. There are well over 3 million NGOs across India, many of which implement CSR strategies and deliver public goods at the grassroots.  Of course, the history of NGOs has not always shown that they are effective: impact measure is conveniently difficult.  It remains to be seen whether Indian NGOs, which vary in terms of efficiency and organizational capabilities, would be able to absorb a sudden influx of funds (stemming from CSR spending) and deploy the funds diligently.  Also, CSR reporting norms are less stringent in India and there is a general perception that companies in India lack transparency in disclosing the outcomes of their CSR activities.  Nonetheless, the private sector can come up with innovations more attuned to the needs of the BoP through synergies with NGOs thereby leveraging their technical expertise and close working relationships with low-income groups.

Market-based responsibility through impact investment

So, the questions raised is how to bring market based responsibility into this sector. As the spending on CSR owing to the Indian Companies Act 2013 will not originate organically, but is rather legally mandated, the inherent market forces in business that drive efficiency and competition will be largely missing.  If we assume that private monitoring is more efficient than public monitoring of CSR, would private spending on development be more effective through impact investing or through CSR or through some combination of the two?

Instead of spending directly or opting to pour funds into government programs, funds could be allowed to be invested in social impact funds or other instruments managed by a group of experts.  Impact investing is a targeted intention to create positive social impact in conjunction with financial profits.  Impact investing is always done through externalizing the responsibility to another legal entity, an investment fund.  The argument here is that funds can be sustainable and continuously reinvested.  Funds can either be managed by individual companies or pooled together into one fund.  The latter argument of pooled funds allows for economies of scale, including appropriate collation of expertise, research and HR, under one roof.  CSR funds can be used for equity, grants, or loans in local communities via patient capital impact investing.  Funds can also be used to create or invest in local community development financial institutions.  The options are plenty and allow for growth of social enterprises and/or programs already working in the development sector without recreating the wheel.

We anticipate some difficulties with our proposal.  CSR expenditure is deductible in calculating profits. The question raised by investments, which go directly to the balance sheet, would be whether these would be tax-deductible. Moreover, these investments require money to come back. This is why impact investors lend more to micro-finance institutions rather than education because the former is profitable while education is not (unless aimed at the better-off). In short, impact investments do not flow out as easily as mandated corporate spending.  One possible way to overcome this difficulty is to develop on the social impact bond concept. In this concept, governments provide taxpayer funding to social causes only if the NGO demonstrates that its program is successful.  What we could propose is that instead of taxpayer funding, corporate funding to NGOs could follow this logic.

The government is striving to enhance shared value for social enterprises, the private sector and the BoP.  In fact, the Indian Companies Act has categorized social business ventures as potential beneficiaries of CSR spending.  However, the bill does not explicitly distinguish between the concepts of shared wealth and shared value, giving little room for clarity as to which kind of operations would come under the ambit of CSR. There is still scope to create a policy environment which is more conducive to the growth of social enterprises and impact investment.  For instance, hybrid legal structures (on the lines of B-Corps and L3Cs in the US) could enable Indian social enterprises to attract both philanthropic and commercial capital and receive tax breaks for delivering social and environmental returns on investment.  Indeed, placing the proceeds into government programs may have been a last-ditch effort at taxing companies who do not meet their targets, the government itself realizing that private direct spending is preferable, especially in a time of great experimentation and allergy to increases in corporate taxation.  It is believed that with appropriate incentives, patience, and experimentation, the private sector may be the key to delivering a high level of impact.

Author bios:

Rupal Patel is a consultant with experience in social entrepreneurship, financial inclusion, and impact measurement.

Arvind Ashta holds the Banque Populaire Chair in Microfinance at the Burgundy School of Business.

Priyanka Jayashankar is an adjunct assistant professor at the Leopold Centre for Sustainable Agriculture and the College of Business at Iowa State University, the US. She is also a research fellow at MSM


[i] Porter, M. E. and M. R. Kramer (2011). “Creating Shared Value.” Harvard Business Review 89(1/2): 62-77.
[ii]  Companies with either net worth of Rs 500 crore or more; turnover of Rs 1,000 crore or more; or net profit of Rs 5 crore or more are mandated to use 2% of average profits from the last three years for CSR.
[iii] JPMorgan and GIIN (2013). Perspectives on Progress: The Impact Investor Survey, JPMorgan Chase & Co. and the Global Impact Investing Network.
[v] Radjou, N., J. Prabhu and S. Ahuja (2012). Jugaad Innovation: Think Frugal, Be Flexible, Generate Breakthrough Growth. San Francisco, Ca, Jossey-Bass.

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2 thoughts on “India’s Compulsory CSR: Should contributions to impact investment funds be included to increase shared value?

  1. Is there any ray of hope for TRIPURA ?

    Lakhs of Educated Youths (and their families) of TRIPURA (2nd highest populous state in NORTHEAST) have been languishing in complete frustration for over a decade now (recent news on TRIPURA can be referred for details) due to lack of –> Progressive policies, Meaningful development, Best of the industries and quality professional employment opportunities, Best of the class healthcare, Proactiveness in being nationally and globally competitive.

    Does anyone know why capital AGARTALA is not yet even an inch near to a tier-2 city like PUNE ?

    Does anyone know what TRIPURA have achieved (in terms of giving its educated youth much needed professional career opportunities at par with other progressive states) till date by focusing only on natural resource (rubber, bamboo, plastic) based industry, which in progressive states (e.g. Karnataka, Maharashtra) is considered as intermediary industry, while IT and High Tech industry are the prime economy drivers !!

    Does anyone know why poor and lesser educated people are still not able to live a life with self dignity – at par with those in other progressive states (e.g. An Healthcare firm or IT MNC firm not only employs Doctors, Engineers, Managers and other graduates – alongwith them there are many other supporting and maintanance staffs who get due trainigs, well paid and can make their own career as well !!).

    Does any one know HOW LONG (and WHY) people of TRIPURA (Youths especially) have to languish in backwardness when rest of the progressive states are vying for attention from top IT MNCs and High Tech firms to set up their base ??

    If tier 2 cities like PUNE, GURGAON can achieve same through right mix of people, policies, push and willingness to embrace technology and competition – why can’t AGARTALA ??

    Hope much needed ECONOMIC VIBRANCY (like Bangalore, Mumbai, Gurgaon, Pune, Chennai, Hyderabad) is created in AGARTALA (to emerge as new SMART CYBER CITY of India!) with best of the policies and setting up of World Class Infrastructures.

    Really hope leadership in CENTER, TRIPURA Govt and Other Concerned DIGNITARIES takes a FUTURISTIC and PROGRESSIVE approach and goes BIG to put TRIPURA into national & international scheme of things and strives hard in making AGARTALA into an world class city signifying uprising India’s growing prowess!

    We really need to move forward by developing TRIPURA with world class infrastructures and bring it at par with best of the other Indian states in the shortest possible time!

    Yes – we do have logistical issues in terms of connectivity,tough terrains – which slowly but surely being overcomed with multiple links opening up through Bangladesh,Myanmar!

    Appreciating TRIPURA Govt and Center on the development works so far,would request to set higher goals and aim to make TRIPURA the new face of emerging India!

    Some of the very important issues plauging TRIPURA badly:

    1.INDUSTRY – Not a single High Tech corporate, Big MNCs – especially economy driving Service Sector (from IT, High Tech – source of higher disposable income – source of thriving economy) have a presence in TRIPURA – Need of the hour (with major connectivity projects on and due for completion in next 1-2 years) is to have many of these companies (e.g. IBM,Accenture,TCS, Infosys, Wipro,HCL,Cognizant, Tech Mahindra) set up Delivery & Consultancy centers (by facilitating them with setting up of necessary IT zones / parks – in the line of ITPL Bangalore, Electronics City Bangalore, HITEC Hyderabad, Rajiv Gandhi Infotech Park Hinjawadi Pune, DLF IT Park Chennai – with due URGENCY) – Which is a must to open up window of professional opportunities (and mass employment) for bright (More than 6 lakhs UNEMPLOYED !!) youths of the state. TRIPURA is also home to massive talent pool with combination of huge number of working professionals (working in other Metros and abroad currently), local educated youths, youths (and working professionals) from neighboring NORTHEAST states and legal working professionals from Bangladesh and Neighboring countries! At the same time geographical proximity of AGARTALA to important BANGLADESH cities (and subsequently to other SE Asian countries) gives ample business opportunities for IT Majors to expand their client base across industrial domains (e.g. Digital Bangladesh project being envisaged by Bangladesh Govt).

    2.LIFESTYLE – Not a single world class 5 star hotel (Taj, Leela, Oberoi, ITC), World class shopping mall (Phoenix Market city Mumbai, LuLu International Shopping Mall Kochi, Mantri Square mall Bangalore), multiplexes (PVR, Big Cinemas, INOX) , World class Retail chains (Walmart, IKEA, Pantaloons,Shoppers Stop, Croma, Reliance Retail etc) exists in TRIPURA – Need of the hour is to have many and which is a must for a better and modern lifestyle for both people of State as well as thousands of (domestic and international) tourists arriving in the state.

    3.EDUCATION – Not a single higher education institute of national importance (IIM, IIT, IISc, AIIMS, Symbiosis management institutes, Xavier management institutes etc …) exists in TRIPURA – Need of the hour is to have many (given the fact that a huge number of students from TRIPURA migrates to other states for pursuing Engineering, Medical and Management from best of the institutes) which is a must to bring youths at par to the ones in other part of India !! This will also help best of the brains from other parts of INDIA to know NORTHEAST (TRIPURA in particular) better!

    4.HEALTHCARE – Not a single HOSPITAL of national importance (in terms of professionalism , proven quality and trusted brand) exists in TRIPURA which is a must for those helpless people of state who has to run around and rush to Chennai and other cities for treatment even during those critical hours of life! – Need of the hour is to go PROACTIVE and INVITE best of the brands available (e.g AIIMS, FORTIS, APPOLO, MANIPAL Hospitals) to set up their HOSPITAL CHAINS at AGARTALA, at the same time highlighting enormous business opportunities they can derive from Medical Tourism Market comprising of Tourists coming from other Northeast states, Bangladesh, Myanmar, Nepal, Bhutan and other Neighboring countries.

    5.RAIL – Really hope TRIPURA gets connected to Trans-Asian Railway (TAR) Network with individual lines to MYANMAR and BANGLADESH – in the earliest possible time. Given the huge prospect of being a important Rail hub (catering to domestic and international traffic) connecting NORTHEAST to SE Asia and further to Europe, Hope AGARTALA rail station gets transformed into a world class Rail station (with best of the technologies, equipments, infrastructure and amenities) in the line of Chhatrapati Shivaji Terminus (Maharashtra) and Chennai Central station (Tamil Nadu). Also, need of the hour is to have a seamless Rail connectivity between all the NE capitals (Mumbai-Chennai like network need to be put in place for people to move across NORTHEAST easily without any hassles/security issues). Does anyone know when first High Speed Train will arrive in TRIPURA ?

    6.CITY TRANSPORT – Not the best of the Road Infrastructure and City Transport System is in place in AGARTALA! Need of the hour is to have world class technology (e.g. GPRS enabled systems) and equipments embedded in ROADS (e.g. Digital Sign boards, CCTV cameras, Automatic Traffic Signal Control System etc.) and PUBLIC TRANSPORT VEHICLES (e.g. High Tech VOLVO AC and Non-AC Buses, Double-decker Buses) ; and install a organized process (e.g. Daily, Monthly and Yearly Passes, Dress code for Bus operators) in place – with something like Ahmedabad Bus Rapid Transit system, Bangalore Metropolitan Transport Corporation, Delhi Integrated Multi-Modal Transit System! Does anyone know when AGARTALA METRO will be flagged off ?

    7.AIRPORT – Really hope AAI comes up with an world class international terminal (in the line of Delhi, Hyderabad, Bangalore , Mumbai Airports) in AGARTALA with modern technology, infrastructure, equipments and best of the amenities! With growing economic linkage between INDIA and other ASEAN countries (latest being PM’s visit to Japan and Thailand) as part of INDIA’s ACT-EAST POLICY,it hardly leaves any room for imagination – the role AGARTALA going to play in near future being the hub of international trade. And SMOOTH and AROMATIC flow of INTERNATIONAL and DOMESTIC travelers (includes businessman, tourists, patients, students) will hold key to fully realize potential of ACT-EAST policy envisioned by INDIA’s leadership.

    8.WATER Ways – TRIPURA Rivers are connected to Rivers in Bangladesh. Need of the hour is to transform TRIPURA rivers into national waterways, set up World Class Inland ports (in the line of Kaladan Multi-modal Transit Transport Project) and connect them to Bangladesh River and Sea ports, which would ease TRIPURA’s landlockedness to a significant extent and improve Supply Chain and Logistical delivery of goods and services!

    9.HIGHWAY – Hope AGARTALA gets incorporated to have seamless access to SE Asia connectivity points (India-Myanmar-Thailand trilateral highway and Kaladan Multi-modal Transit). Also Need of the hour is to have Multi-lane express highway (in the line of Mumbai-Pune expressway, Delhi-Gurgaon Expressway) connectivity among all NE capitals. Can there be a Express Highway (via DHAKA) connecting AGARTALA and KOLKATA ?

    10.BUSINESS MEET – Not a single Global Investor Meet organised yet in AGARTALA (whereas in Karnataka, Gujarat and even Chattisgarh these are almost frequent affairs – Recent one being PUNJAB getting thousands of crores of investment out of a Investor Summit !!). Need of the hour is organize such event which would surely put TRIPURA in global map and radar of world class corporates!

    11.SPORTS – Not a single International stadium exists in AGARTALA to hold national and international level football and cricket tournaments (ODI, T20, Test matches, IPL, ISL, Challengers League etc) !!! Need of the hour is to set up an World Class International stadium with latest technology, infrastructure, equipments and best of the amenities (to the level of Eden Gardens Stadium, M Chinnaswamy Stadium, M. A. Chidambaram Stadium) to facilitate football and cricket crazy fans of TRIPURA (2nd Populous NE state!!), fans from neighboring NE states and neighboring countries of Bangladesh & Myanmar, budding cricketers and footballers from NORTHEAST to watch their favorite STARS in action !! This would also be a huge boost to Tourism, Relationship build up with neighboring countries, Opening up of many other avenues in industry starved NORTHEAST TRIPURA! For an instance, even though INDIA will be hosting 2017 U-17 FIFA world cup, there seems to be no chance of having few matches played in TRIPURA – though that would be the nicest thing to bring WORLD much closer to NORTHEAST TRIPURA !! Does anyone know when first international cricket match will be played in AGARTALA ?

    12.ECONOMIC ZONE – Really hope AGARTALA gets incorporated in the proposed BCIM (Bangladesh, China, India, Myanmar) corridor project and BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) project. Having close geographical proximity with important cities like DHAKA and CHITTAGONG will surely help TRIPURA leverage it’s strategic location of being India’s Gateway to SOUTHEAST ASIA! Also there is a urgent need to build economic and industrial corridors connecting all NE capitals to leverage economic potential between Northeast India and Southeast Asia. Does anyone know when a Special Economic Zone (SEZ) will come up in AGARTALA?

    13.TOURISM – There seems to be no concerted approach in Branding and Marketing TRIPURA TOURISM with a wider internet reach through Social Media network, Top travel and hospitality web sites (in the line of Maharashta Tourism, Tamilnadu Tourism, Uttar Pradesh Tourism, Kerala Tourism, Goa Tourism) even though there is a huge scope for TRIPURA in both National and International Tourism Market. Also hilly terrains can be transformed into a major hub for Adventure Tourism (in the line of Ladakh) in addition to existing eco, cultural and religious Tourism.

    14.TECHNOLOGY – There seems to be no approach in promoting and using modern technologies e.g. Internet Of Things (Combination of Physical things, Sensors, Internet, Cloud, Big Data and Real time Analytics) – which allows to overcome day to day challenges and enhance quality of public life (e.g. Wireless sensors on Bridges and Buildings for precaution against earthquake and natural disaster; Smart farms to improve Agriculture productivity; Effective Monitoring of Healthcare for patients; Managing Rivers, lakes and flood situations; Managing Traffic Congestion; Managing Air Polution; Managing Forest Degradation; Maintaining Roads and Highways; Monitoring Goods Transportation; Monitoring vehicle speed and preventing Road Accidents).

    15.SMART CITY – Hope AGARTALA gets incorporated in the SMART CITY project envisaged by NDA Govt.

    16.ENTREPRENEURSHIP – Does anyone know why there is no notable start up (like RedBus, Snapdeal, Flipkart) yet from TRIPURA ?

    Also urgent need of the hour is to complete all the existing infrastructure projects as soon as possible and identification and sanctioning of all other infrastructure projects fulfilling above infrastructure gaps without any further delay!!

    Anything less than ‘WORLD CLASS’ would only defeat the very purpose behind infrastructure development of TRIPURA under ACT-EAST Policy!!

    IMPOSSIBLE – just means I AM POSSIBLE! If India need to catch up with developed part of the world,the most strategically placed Northeast (especially TRIPURA) need to be made into a developed region in the shortest possible time!

    I strongly believe TRIPURA govt (in close co-ordination with Center, other concerned dignitaries & all corporate vissionaries) can certainly achieve this sooner rather than late, which would definitely give its people a better employment opportunities, a better healthcare, a better access to quality education, a quality lifestyle, and last but not the least a confident and connected TRIPURA leading India’s charge towards contributing to a more stable and stronger global economy!!

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