When the COVID-19 pandemic hit India, the fault lines in the social, economic and political spheres widened and deepened. The losses in terms of lives and livelihoods transformed the relationship between the state, market and the people. It was the time when the state deliberated on ways to increase public spending to improve the economic situation of the people. But how did the market respond to this unprecedented crisis?

By Shubham Kumar

Corporate Social Responsibility (CSR) is considered as a management concept that helps the market to integrate social and ecological outcomes, and address all stakeholders including the local communities. India is the first country that experimented with mandatory CSR for businesses registered under Companies Act, 2013. After 2015, with universal call for sustainable development goals, CSR projects and public-private partnerships received greater motivation.

Since the rollout of the mandatory provision, total amount spent under CSR was on a steady increase. For perspective, total amount spent in 2014-15 was more than Rs 10,000 crore which rose to Rs 24,600 crore in 2019-20. During this time, total number of CSR projects rose from around 9,300 to over 34,800. The share of total spending by non-government companies increased from 72 per cent in 2014-15 to 79 per cent in 2019-20. The number of companies which spent more than Rs 100 crore in CSR also increased from 17 to 41 during the period.

COVID-19 triggers economic crisis

The pandemic-induced economic crisis saw a large number of job losses. However, the Reserve Bank of India’s annual report for 2020-21 showed some interesting divergence. Despite a significant contraction in India’s GDP, the profitability of Indian corporates rose by 7 per cent year-on-year. This increase in operational profits reflected on the stock market which recorded all-time high levels for the benchmark indices. The Sensex outperformed major world indices during the year.

How did Indian corporates fare on CSR spending in 2020-21? The latest data available with the Ministry of Corporate Affairs indicate a major decline in the total CSR spending by Indian corporates. To begin with, there was a 64 per cent fall in the total spending of less than Rs 9,000 crore. In fact, it hit the bottom last fiscal at 12 per cent less than in 2014-15. Total number of CSR projects came down to just above 8,000 which is less than a quarter of projects in the preceding year. The number of companies that spent more than Rs 100 crore in CSR also come down to 19.

An interesting change came in the share of spending by non-government companies that increased from 79 per cent to 94 per cent implying that government companies had a major pull back in the CSR spending. In 2020-21, CSR spending by non-government companies shrunk by 57 per cent while it shrunk by almost 90 per cent for government-run companies.

CSR in the times of COVID-19

Assessing CSR spending profile for the last two financial years could give us a sense of changing priorities in the 29 development sectors. In terms of proportion, healthcare received maximum upward change, with 29 per cent of total spending in 2020-21, compared with 20 per cent in the previous year. In absolute terms, the total spending in healthcare decreased from Rs 4,825 crore to Rs 2,559 crore during these years. On the other side, the sector which had the maximum downward change is education — from 29 per cent to 25 per cent during the period. Art and Culture, and rural development projects are the two other sectors that received relatively lesser share of spending in the pandemic year.

In terms of spatial distribution, around 43 per cent of the total spending in 2019-20 was on pan-India projects that remained unchanged in the pandemic year. Maharashtra had maximum share of 13.8 per cent in 2019-20 which came down to 12.5 per cent in 2020-21. Karnataka and Tamil Nadu were the next two leading states in 2019-20 with 10.5 per cent share together, while Gujarat and Andhra Pradesh were two leading states for 2020-21 with 11.7 per cent together. Although, total CSR spending remained below 2 per cent for the eight north-eastern states.

Reporting and rewards

With the latest reports on income and unemployment estimating that at least seven million jobs and 12 per cent income were lost, and deficits in the nutrition indicators show some serious concern. The micro, small, and medium enterprises and the informal sector have been hit hard by the pandemic. The government spending on subsidies and income support schemes was raised to cushion the impact of the crisis, but these initiatives are short-term measures. There is an immediate need to place a more robust long-term view in the present development discourse.

One of the important steps in that direction is a review on the nature of CSR spending in terms of compliance, quality and its alignment with the sustainable development goals. For example, if a company spends a certain amount in any rural development project, then how much improvement is recorded in the quality of life and incomes of rural people should be reported. This should be accompanied by evaluation studies of such major projects, so that real progress could be measured.

CSR spending should also be integrated with other modes of grassroots transformation such as social enterprises and collectives. Moving ahead, with internationally benchmarked business responsibility and sustainability reporting that measures the ESG impact of investments, a network could be created that is result-oriented, accountable and efficient. The government’s CSR policy should be based on the understanding that market functions better when there is reporting and rewards for efforts.

Shubham Kumar is Assistant Professor at School of Business at the University of Petroleum and Energy Studies (UPES), Dehradun.

This piece has been sourced from Policy Circle – policycircle.org

Image: Hippopx — licensed to use Creative Commons Zero – CC0