CSR mandate In India: What we have learned so far?

Abstract

In 2013, one of the most prominent regulations was introduced in India under Section 135 of the Companies Act 2013, passed by the Indian Parliament. The Corporate Social Responsibility (CSR) regulation for the Indian corporate sector requires that listed Indian companies having a net worth of at least INR 5 billion, annual turnover of at least INR 10 billion, or profits of at least INR 50 million in any financial year must spend 2% of their past three years average profits on CSR. Besides that, the disclosure of CSR was also made compulsory in their financial statements. The CSR rule was based on the "Comply or Explain" principle. This became one of the ground-breaking proposals. Several countries required mandatory CSR reporting, which included Sweden, Norway, the Netherlands, Denmark, France, and Australia.11 However, when it comes to spending on CSR mandatorily, India perhaps became one of the first countries to take the whole CSR game to the next level. CSR, in general, is an inspirational exercise. Coming out voluntarily makes it more worthwhile at times. The law's initial implementation has been patchy, and several amendments have been carried out since 2013 till date. There are several cases of non-compliance resulting in legal actions by the Government.12 CSR is the corporate societal contribution that often goes beyond mandated amounts. These contributions provide a positive signal to both stockholders in the marketplace and the broader range of stakeholders. CSR has received significant attention in academia and the press in recent years due to a firm’s complex relationship with multiple stakeholders. While Indian corporations have had a long tradition of philanthropic activities, CSR as a strategic initiative is a recent phenomenon. CSR as a regulatory requirement may help deal with vast, multifaceted societal problems like poverty, education, environment, health, etc., requiring the business community to share the government’s burden through CSR initiatives (Sarkar & Sarkar, 2015; Krichewsky, 2017). This article discusses the impact of CSR on firm valuation, profitability, accounting conservatism, tax avoidance, and other firm-level aspects, as found in academic research.