December 11, 2023
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Introduction:
Corporate Social Responsibility (CSR) has evolved significantly since its incorporation into the Companies Act, 2013. This mandate requires eligible corporates to allocate 2% of their net profits to specific activities or recognized funds outlined in Schedule VII of the Companies Act, 2013. Traditionally, these CSR initiatives have focused on sectors like rural development, healthcare, education, and livelihood, catering to the immediate needs of society. However, it is time to broaden our perspective and explore the transformative potential of CSR in fostering innovation and research.
Certain areas like technological development and manufacturing processes need constant efforts which although won’t yield immediate results but in the long term can have transformational impact which has the potential to uplift the economy of the entire nation.
India entering its “Azaadi ka Amrit Kaal” i.e the journey from its 75th year of Independence to the 100th Year of Independence by the year 2047, is on track to become a developed nation as it has already leapfrogged nations like France and Britain to become the fifth largest economy in the world.
The growth seen so far has been an unconventional one as India thus far has not seen a manufacturing or a technological boom, more reliance so far has been placed on the services sector.
Considering the consumption demands of a populous country like India its time that more emphasis is placed on improving the manufacturing prowess. The efforts are already there to be seen with campaigns from the government such as the “Make in India” and “Vocal for local”
In order to sprint up this journey its important that the corporates in India align their goals and vision with that of the government. CSR acts as a perfect medium whereby corporates can contribute towards the improvement of manufacturing and technological processes in a more sustainable and expert oriented manner.
Analysis of the CSR spending trends of corporates shall be required to understand the present scenario prevailing in the corporate sector of India.
A. One-Dimensional Approach:
The Ministry’s CSR portal data[i] reveals a striking trend – a substantial portion of CSR spending remains concentrated within a limited spectrum of sectors as seen from the below attached flowchart. While these domains undoubtedly contribute to societal empowerment, it is essential to understand that, in a developing nation like India, addressing sectoral needs is an ongoing endeavour.
Historically, corporates have predominantly followed a supply-based CSR model. This approach delivers quick results by addressing immediate, short-term societal needs. Nevertheless, the changing aspirations of India necessitate a more balanced and forward-looking strategy.
| GWOR- Gender Equality, Women Empowerment, old Age Home, reducing Inequalities EAC- Environment, Animal Welfare, Conservation of resources. AOF- Any other fund PMNRF- PM National relief fund HA&C- Heritage, Art & Culture. Other sectors- Technology Incubators and Benefits to armed forces |
B. The Role of Research and Development:
The Schedule VII of the Companies Act, 2013, strategically outlines specific areas that align with India’s goal of becoming a developed nation by 2047. R&D initiatives hold the potential to revolutionize the manufacturing landscape and ensure the sustainability of products. However, this naturally leads to a critical question: Is enhancing manufacturing and technological prowess more important than addressing immediate issues like poverty, health, and livelihood?
The answer is not an ‘either-or’ proposition. Corporates must strike a balance between addressing immediate and long-term societal needs. The clauses ix (a) and (b) of Schedule VII reinforce this approach, emphasizing contributions to incubators, research, and development projects. These projects must be funded by government bodies.
Let us delve into the wording of clause ix (a) and (b) of Schedule VII of Companies Act, 2013 to gain a deeper understanding of their significance.
(ix) (a) Contribution to incubators or research and development projects in the field of science, technology, engineering, and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and
(b) Contributions to public-funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under the Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha, and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defence Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering, and medicine aimed at promoting Sustainable Development Goals (SDGs).
The choice of words within clause ix is notable. It uses the term “contribution,” which, in the ordinary dictionary meaning, can signify a contribution in terms of money or in kind. However, in the context of Schedule VII, the usage of “contribution” indicates that some monetary amount is required to be transferred to the Schedule VII fund.
Also the point number 3.12 of the FAQs issued by MCA dated 25th August, 2021 includes a question as under:
“Whether contribution in Kind can be monetized to be shown as CSR expenditure?
-The requirement comes from section 135 (5) that states that “The Board of every company shall ensure that it spends..” Therefore CSR contribution cannot be in Kind and monetized.
Additionally, it’s worth noting that clause ix (a) and (b) mandates corporate entities to collaborate with the government in supporting R&D initiatives and thus Independently corporates won’t be able to carry out such research initiatives. The areas of Science, Technology, Engineering, and Medicine are vital to the nation’s progress, and corporates are encouraged to contribute monetarily to these initiatives.
C. Achieving Energy Independence Through CSR initiatives:
To compete globally with economic powerhouses such as the USA, Germany, and Japan, India must harmonize the fulfilment of basic societal needs (healthcare, education, poverty eradication, etc.) with advances in manufacturing and technology. This balance is crucial to reduce the nation’s reliance on imports, ensuring economic stability in the long run.
As of today a major chunk of India’s Forex reserves are used for crude oil imports and other electronic and machine equipment imports. The dependence on crude oil for fuel consumption needs not only results in increased Green House Gas Emissions adding up to the Global warming challenges faced as a society but also makes India as a nation vulnerable and dependent on oil rich gulf countries.
CSR initiatives on part of corporates can help India to transition to ethanol blended fuels and achieve self-sufficiency in its fuel consumption requirements. Companies can support R&D initiatives to enhance ethanol production efficiency and promote the use of advanced technologies, making ethanol a more cost effective and environment friendly fuel alternative.
D. The Changing Global Scenario:
To understand the significance of broadening CSR to include innovation and research, we must consider the shifting global landscape. The world is moving towards a knowledge-based economy, where technological advancements and innovation are key drivers of success. To remain competitive on the global stage, India must embrace this paradigm shift.
One such highly important matter is India’s reliance on imported military weapons and equipment. When the defence systems of any nation is even partially dependent on imports then it imposes certain conditions and criticalities which are not appropriate for a sovereign nation, especially when the country is one like India which constantly faces dual front war situations and internal security concerns caused by radicalised warmongers.
Corporates can thus collaborate and support the Defence research & Development Organisation by providing direct funding through its CSR obligations resulting in advancements of military capabilities of the defence forces of India.
E. Unlocking the Manufacturing and Technological Potential
India’s aspirations to become a global manufacturing and technological powerhouse require a significant inflow of funding. Corporates, through their CSR initiatives, can act as a crucial source of support for research and development projects that enhance processes across industries.
Consider the example of the electronics industry. If India aims to produce cutting-edge smartphones and other electronic devices at competitive prices, research-oriented development of processes is indispensable. This requires a concerted effort to advance technologies and streamline production methods
Conclusion
The evolving landscape of CSR beckons us to look beyond the immediate and short-term needs of society. As India aspires to become a developed nation by 2047, it is imperative to focus on nurturing innovation and research, specifically in the domains of Science, Technology, Engineering, and Medicine. By collaborating with government bodies and supporting R&D initiatives, corporate entities can contribute significantly to India’s progress.
The synergy between societal well-being and technological prowess creates a harmonious, prosperous nation. To compete on a global scale, India must harness the transformative potential of CSR to empower its citizens, reduce dependency on imports, and lead the way in innovation and research. This is not just a corporate responsibility; it is a collective responsibility toward a brighter future. In an interconnected world, the choices we make today will shape the India of tomorrow. It’s time to embrace innovation and research as integral components of our CSR endeavours, working together for a better, more prosperous India
[i] https://www.csr.gov.in/content/csr/global/master/home/home.html