Role of Corporate Social Responsibility in Inclusive Growth Considering The Government Expenditure in Developing Social Infrastructure

Conference on Inclusive & Sustainable Growth
Role of Industry, Government and Society

Conference Proceedings: 2011

Mr. Subhabrata Ghosh and Mr. Pabitra Kumar Ghosh

Role of Corporate Social Responsibility in Inclusive
Growth Considering the Government Expenditure in
Developing Social Infrastructure
Subhabrata Ghosh and Pabitra Kumar Ghosh
Abstract:
The issue of inclusive and sustainable growth is very crucial considering the
disproportionate allocation of wealth and the widening gap between the prosperity of
the rich and the plight of the poor. The robust economic growth of 8%
notwithstanding, India is ranked 119th among 169 countries surveyed, in the United
Nation's Human Development Index, due to poor social infrastructure. India is
lagging behind even countries like Bangladesh and Pakistan in education and
healthcare. The poverty rates in 8 Indian states are similar to 26 of the poorest
countries in Africa.
On the basis of the Census Report, 2011 and the 'Human Development Report 2010'
by UNDP, the paper examines the role of both the Government and the corporate
sector in alleviating the sufferings of the poor while at the same time it also tries to
find out the solution by suggesting appropriate policy formulations.
KEYWORDS: inclusive growth, sustainable growth, disproportionate allocation of
wealth, widening gap, prosperity of the rich, plight of the poor, robust economic
growth, Human Development Index, poor social infrastructure, education and
healthcare, poverty rates, broader society, Corporate Social Responsibilities,
Census Report, 2011, 'Human Development Report, 2010', role of Government and
the corporate sector, appropriate policy formulations



INTRODUCTION:
Corporate social responsibility is necessarily an evolving term that does not have a
standard definition or a fully recognized set of specific criteria. With the
understanding that businesses play a key role on job and wealth creation in society,
CSR is generally understood to be the way a company achieves a balance or
integration of economic, environmental ,and social imperatives while at the same
time addressing shareholder and stakeholder expectations. CSR is generally
accepted as applying to firms wherever they operate in the domestic and global
economy. The way businesses engage/involve the shareholders, employees,
customers, suppliers, governments, non-governmental organizations, international
organizations, and other stakeholders is usually a key feature of the concept. While
business compliance with laws and regulations on social, environmental and
economic objectives set the official level of CSR performance, CSR is often
understood as involving the private sector commitments and activities that extend
beyond this foundation of compliance with laws.
The World Business Council for Sustainable Development, in its
publication "Making Good Business Sense" by Lord Holme and Richard Watts, used
the following definition: Corporate Social Responsibility is the continuing
commitment by business to behave ethically and contribute to economic
development while improving the quality of life of the workforce and their families as
well as of the local community and society at large".
Traditionally in the United States, CSR has been defined much more in terms
of a philanthropic model. Companies make profits, unhindered except by fulfilling
their duty to pay taxes. Then they donate a certain share of the profits to charitable
causes.
In European definition social responsibility becomes an integral part of the
wealth creation process that, if managed properly, should enhance the
competitiveness of business and maximize the value of wealth creation to society.
Aided by equally globalizing communication technologies, international
awareness of the consequences of global economic liberalization grew in the 1990s.
While labour and environmental conditions deteriorated and the number of people
living in extreme poverty failed to decline, inequality increased. US companies such
as Shell, Nike, Gap and Levi Strauss were challenged to justify their actions and
Wall Street demonstrated that the increased significance of the brand and
corporate reputation made leading companies vulnerable to the effect bad publicity
has on profit. A series of UN summits and commissions were set up as public calls
for greater regulation and supervision increased.
Corporations are motivated to involve stakeholders in their decision-making and to
address societal challenges because today's stakeholders are increasingly aware of


the importance and impact of corporate decisions upon society and the environment.
The stakeholders can reward or punish corporations. Corporations can be motivated
to change their corporate behaviour in response to the business case which a CSR
approach potentially promises. This includes:
i) Stronger financial performance and profitability (e.g. through eco-efficiency),
ii) Improved accountability to and assessments from the investment community,
iii) Enhanced employee commitment,
iv) Decreased vulnerability through stronger relationships with communities, and
v) Improved reputation and branding.
OBJECTIVE OF THE STUDY:
The objective of this paper is to examine the scope of corporate social responsibility
(CSR) initiatives in developing social infrastructure in India and also to study its
relevance in contemporary business scenario.
KEY DRIVERS FOR CSR:
The term is often used interchangeably for other terms such as Corporate
Citizenship and is also linked to the concept of Triple Bottom Line Reporting (TBL),
which is used as a framework for measuring an organisations performance against
economic, social and environmental parameters.
The rationale for CSR has been articulated in a number of ways. In essence it is
about building sustainable businesses, which need healthy economies, markets and
communities.
The key drivers for CSR are:
i)Enlightened self-interest - creating a synergy of ethics, a cohesive society and a
sustainable global economy where markets, labour and communities are able to
function well together.
ii) Social investment - contributing to physical infrastructure and social capital is
increasingly seen as a necessary part of doing business.
iii) Transparency and trust - business has low ratings of trust in public perception.
There is increasing expectation that companies will be more open, more accountable
and be prepared to report publicly on their performance in social and environmental
arenas


iv)Increased public expectations of business - globally companies are expected
to do more than merely provide jobs and contribute to the economy through taxes
and employment.
KEY FINDINGS OF THE 'HUMAN DEVELOPMENT REPORT 2010' ON
INDIA BY UNDP (UNITED NATIONS DEVELOPMENT PROGRAMME):
Health Indicators:
i)Prevalence of undernourishment in total population (% of population) is 22
ii) Expenditure on health, public (% of GDP) is 1.1
iii) Under-five mortality (per 1,000 live births) 69
iv) Life expectancy at birth (years) is 64.4
Education Indicators:
i)Adult literacy rate (both sexes) (% aged 15 and above) is 68.3
ii) Combined gross enrolment ratio in education (both sexes) (%) is 61
iii) Expenditure on education (% of GDP) (%) is 3.2
iv) Internet users (per100 people) is 4.5
v) Mean years of schooling (of adults) (years) is 4.4
vi) Expected Years of schooling (of children) (years) is 10.3
Income Indicators:
i)GDP per capita (2008 PPP US$) is 3,354
ii) GNI per capita (2008 PPP US$) is LN 8.1
iii) Household final consumption expenditure per capita PPP (constant 2005
international $) is 1,324
Inequality Indicators:
i)Inequality-adjusted income index is 0.397



ii)Inequality-adjusted HDI value is 0.365

Poverty Indicator:
i)Intensity of deprivation is 53
ii)Population living below $1.25 PPP per day (%) is 41.64415301
Gender Inequality Indicator:
i)Population with at least secondary education, female/male ratio is 0.528
ii) Adolescent fertility rate (women aged 15-19 years) (births per 1,000 women aged
15-19) is 68.
iii) Gender Inequality Index, value is 0.748

iv) Shares in parliament, female-male ratio is 0.113 v)Maternal mortality ratio (new
estimates) (deaths of women per100,000 live births) is 230
vi)Gender Inequality Index (updated) is 0.721
Sustainability Indicators:
i)Protected area (percentage of terrestrial area) is 5.3
ii)Adjusted net savings (% of GNI) is 24.2
Human Security Indicators:
i)Refugees (thousands) is 19.6
ii) Unemployment rate, total (%) (% of labour force) is 4.3
iii)Homicide rate (per 100,000) is 2.8

iv)Robbery rate (per 100,000) is 2

v)Population affected by natural disasters (average per year, per million) (average
per year per million people) is 55,557



Composite Indices:
HDI value is 0.519
Human Development Index Rank is 119

CHART 1: Human Development Index: Trends 1980 present
HIGHLIGHTS OF THE INDIAN CENSUS REPORT2011:
i)Overall Sex ratio at the National level has increased by 7 points since Census 2001
to reach 940.
ii) Three major States (J&K, Bihar & Gujarat) have shown decline in Sex Ratio as
compared to Census 2001.
iii) The Child Sex Ratio (0-6 years) in India is lowest (914) since Independence.
iv) Literacy rate has gone up from 64.83 per cent in 2001 to 74.04 per cent in 2011
showing an increase of 9.21 percentage points.


v) The literacy rate for males and females works out to 82.14 per cent and 65.46 per
cent respectively. The increase in literacy rate in males and females during 2001-
2011 is in the order of 6.88 and 11.79 percentage points respectively.
CSR- THE INDIAN SCENARIO:
Even much before the issue became a global concern, India was aware of corporate
social responsibility (CSR), due to the efforts of organisations such as the Tata
Group. (Around 66 per cent of Tata Sons, the holding group of the Tata Group, is
today owned by a trust).
Corporate companies like ITC have made farmer development a vital part of its
business strategy, and made major efforts to improve the livelihood standards of
rural communities. Unilever is using micro enterprises to strategically augment the
penetration of consumer products in rural markets. IT companies like TCS and Wipro
have developed software to help teachers and children in schools across India to
further the cause of education. The adult literacy software has been a significant
factor in reducing illiteracy in remote communities. Banks and insurance companies
are targeting migrant labourers and street vendors to help them through micro-
credits and related schemes.
In June 2008, a survey was carried out by TNS India (a research organization) and
the Times Foundation with the aim of providing an understanding of the role of
corporations in CSR. The findings revealed that over 90 per cent of all major Indian
organizations surveyed were involved in CSR initiatives. In fact, the private sector
was more involved in CSR activities than the public and government sectors. The
leading areas that corporations were involved in were livelihood promotion,
education, health, environment, and women's empowerment. Most of CSR ventures
were done as internal projects while a small proportion were as direct financial
support to voluntary organizations or communities.
In a survey carried out by the Asian Governance Association, which ranks the top 10
Asian countries on corporate governance parameters, India has consistently ranked
among the top three along with Singapore and Hong Kong, for the last eight years.
In another study undertaken by automotive research company, TNS Automotive,
India has been ranked second in global corporate social responsibility. State-owned
Bharat Petroleum and Maruti Udyog were ranked as the best companies in India.
Bharat Petroleum and Maruti Udyog came on top with 134 points each, followed by
Tata Motors (133) and Hero Honda (131). The study was based on a public goodwill


index and India received 119 points in the index against a global average of 100.
Thailand was at the top slot with 124 points.
Several foundations run by corporate houses plan to devise a common strategy to
ensure transparency in their social and community development operations, such as
tracking spending in and progress of such projects in their annual reports.
The effort is significant because it brings together a wide range of Indian companies
to share ideas on innovating sustainable programmes. Among them are Multi
Commodity Exchange of India Ltd, Anil Dhirubhai Ambani Group and media
company Bennett, Coleman and Co. Ltd,
Audit firm KPMG will partner with them to offer guidance on evaluating corporate
social responsibility or CSR programmesa trend companies are slowly embracing
as India's expanding economy contrasts sharply with growing local protests over
land for future industrial projects.
The network alliance stems from the first sustainability summit that was organized in
January by the Associated Chambers of Commerce and Industry of India.
CSR could prove to be a valuable asset in an age of mergers and acquisitions,
especially as it helps companies spread their brand name, The new network will also
serve as a common ground to lobby with the government for tax exemptions and
safeguard other interests in the future.
Indian companies have made little progress in reporting development projects. And
only 48 companies have so far given their commitment to support the United Nations
Global Compact, a charter for improving the global business environment through
standards, such as labour rights and fighting corruption.
Addressing business leaders in May last year, Prime Minister Manmohan Singh said
"Corporate social responsibility must not be defined by tax planning strategies alone.
Rather, it should be defined within the framework of a corporate philosophy, which
factors the needs of the community and the regions in which a corporate entity
functions."
Some say companies have an inherent "mental block" in reporting development
programmes. A recent KPMG study among 27 Indian companies showed that a
mere 8% mentioned their social expenditures in their annual reports, and only 25%
filed CSR reports at all. But a quarter of them are also signatories of the Global
Reporting Initiative, a 10-year-old movement started by an NGO called Coalition for
Environmentally Responsible Economies (CERES) and the United Nations


Environment Programme. This encourages companies to make voluntary
disclosures and lays down framework on improving reporting principles.
"Most companies tend to give to charities than make long-term development
commitments. When a company voluntarily opens up for self-evaluation, it creates
value for shareholders when competing with other companies," said Parul Soni,
associate director of KPMG's Aid and Development Services.
An estimated 100 corporate foundations and 25 foreign firms are involved in CSR
activities in India, but statistics on input and output are elusive.
The Indian corporate sector spent Rs30,000 crore on social expenditure during the
last financial year, up from Rs17,500 crore the previous year. Quoting from a
government report, he said, companies drew a total exemptions of Rs5,500 crore
under income-tax laws last year. These figures, an analyst said, sound improbable
as Indian companies still do not distinguish between philanthropy and internal
practices to benefit stakeholders such as employees and community.
Companies, too, continue to rely on different models to earmark its social
expenditure, making it difficult to measure the overall impact.
For instance, the Steel Authority of India Ltd (SAIL), the country's largest steel
company, spent Rs100 crore on CSR last year; this was 2% of its profit after tax,
exclusive of dividend tax, according to SAIL spokesperson N.K. Singhal. Yet others,
such as Tata Steel Ltd, which runs a 850-bed hospital and rural projects in 800
villages around Jamshedpur, spends an average of Rs150 crore as part of its annual
revenue expenditure.
What eventually makes up for CSR of a company ultimately depends on leadership;
as part of company decision, about 66% of Tata Sons, the holding group of the Tata
group, is today owned by a trust.
Pharmaceuticals company Jubilant Organosys Ltd, already runs an anti-tuberculosis
programme with the government of Uttar Pradesh. Apart from schools and hospitals
that are run by trusts and societies, the government, too, is exploring to widen the
scope of public-private partnerships to build and maintain schools and hospitals in
return for a fixed annuity payment.
Indian companies are now expected to discharge their stakeholder responsibilities
and societal obligations, along with their shareholder-wealth maximization goal.
Nearly all leading corporates in India are involved in CSR programmes in areas like
education, health, livelihood creation, skill development, and empowerment of


weaker sections of the society. Notable efforts have come from the Tata Group,
Infosys, Bharti Enterprises, ITC Welcom group, Indian Oil Corporation among others.

The 2010 list of Forbes Asias 48 Heroes of Philanthropy contains four Indians.
India has been named among the top ten Asian countries paying increasing
importance towards corporate social responsibility disclosure norms. India was
ranked fourth in the list, according to social enterprise CSR Asia's Asian
Sustainability Ranking (ASR), released in October 2009.

According to a study undertaken by an industry body in June 2009, which studied the
CSR activities of 300 corporate houses, corporate India has spread its CSR activities
across 20 States and Union territories, with Maharashtra gaining the most from
them. About 36 per cent of the CSR activities are concentrated in the State, followed
by about 12 per cent in Gujarat, 10 per cent in Delhi and 9 per cent in Tamil Nadu.

Although corporate India is involved in CSR activities, the central government is
working on a framework for quantifying the CSR initiatives of companies to promote
them further. One of the ways being planned to attract companies towards CSR work
is to develop a system of CSR credits, similar to the system of carbon credits which
are given to companies for green initiatives.

Besides the private sector, the government is also ensuring that the public sector
companies participate actively in CSR initiatives. The Department of Public
Enterprises (DPE) has prepared guidelines for central public sector enterprises to
take up important corporate social responsibility projects to be funded by 2-5 per
cent of the company's net profits.

The financial services sector is going green in a steady manner. With an eye on
preserving energy, companies have started easing the carbon footprint in their
offices. Efforts by companies such as HSBC India, Max New York Life and Standard
Chartered Bank have ensured that the green movement has kept its momentum by
asking their customers to shift to e-statements and e-receipts.
RECENT DEVELOPMENT IN INDIA REGARDING CSR:
India Inc. can finally breathe a sigh of relief because the government has ruled that
CSR will not be made mandatory. Instead flexible and directional guidelines will be
issued. Corporate Affairs Secretary D. K. Mittal said recently, There is no way the
government wants to mandate it. If we make it mandatory there can be thousand and
one ways to bypass it. It will be only directional and not mandatory. We want it to be


flexible. But once the new norms are in, firms will have to disclose their CSR spends
or non-spending.
The new Companies Bill would be tabled in the monsoon session of the Parliament,
towards the end of July. The 2% compulsory CSR spend proposal had sparked off
an intense debate, with majority of corporates favouring voluntary CSR spend.
The on-going debate of whether or not to make CSR mandatory has been going on
for almost a year now. There have been several times when government officials
have backtracked on the decisions. Now finally India has declared that CSR is not
mandatory which means corporations can focus on ground-up, holistic CSR
initiatives that are not skewed towards charity.

SCOPE FOR INDIAN CORPORATES DISCHARGING THEIR SOCIAL
RESPONSIBILITIES:
CSR commitments and activities typically address aspects of a firm's behaviour
(including its policies and practices) with respect to such key elements as; health and
safety, environmental protection, human rights, human resource management
practices, corporate governance, community development, and consumer protection,
labour protection, supplier relations, business ethics, and stakeholder rights.
The Indian Corporate needs to shift their focus beyond health and education
schemes. Area for focus should include:
Electricity Generation: India has a severe power shortage. There are
several companies which already focus on CSR that can do a lot to change
the situation by encouraging a model of decentralization and increased use of
renewable resources.
Environmental Pollution: Rivers, lakes and cities are polluted due to lack of
regulation as well as high population. Encroachment on agricultural land and
forest land is a common occurrence. This not only hinders biodiversity
protection but also impacts human health. Education is not the only means by
which awareness can spread. Companies should invest in holistic community
building exercises with a strategic CSR focus that puts environmental
initiatives in the fore-front.


Biodiversity Protection: This of course falls in a beyond business category
of CSR but it is nevertheless important. Business operations that have
minimal impact on biodiversity should be the new mantra for Indian business.
Employee Engagement: This is the most important thing that Indian
business misses out on. CSR initiatives for the most part do not have a trickle
down effect to the people that really matter. Employees are brand
ambassadors and change creators. Businesses must start galvanizing on this
powerhouse of resource to better implement their CSR strategy.
Indian corporates should also pay their attention towards:
i) Reducing gender inequality which will ultimately decrease abortion of female
child.
ii) Creating more job opportunities
iii) Establishing training schools and conducting job-oriented courses
iv) Undertaking many social-awareness programmes
CRITICISMS AND RELEVANCE OF CSR IN TODAYS BUSINESS
ENVIRONMENT:
Critics concerned with corporate hypocrisy and insincerity generally
suggest that better governmental and international regulation and enforcement,
rather than voluntary measures, are necessary to ensure that companies behave in
a socially responsible manner. CSR could prove to be a valuable asset in an age of
Mergers & Acquisitions, as it helps firms spread their brand name.
A range of scholars questions whether CSR can be adapted into meeting
the needs of the poor. The very idea of business playing a role in development is
subject to considerable debate, because it implies the acceptance that you can meet
social and environmental challenges through market-based solutions, and that the
private sector is better at optimizing resources than the public sector.
Criticism is aimed at CSR being 1) misplaced as a concept; 2) competing
interests between short-term and long-term horizons; between shareholders and any
other stakeholders; between outputs and outcomes when defining CSRs actual
impact; and between sharing and withholding social learning; 3) Criticism is also
directed at non-addressing power and participation issues.
Other opponents argue that CSR is only a public relations tool
used to mask the sometimes devastating impact large corporations can have on
vulnerable people and the environments in which they live. Case in point are


continuing negative effects on Nigerian communities because of Shells oil
extractions; the health issues of workers on the plantations under British American
Tobacco contract; and Coca Cola depriving local communities in southern India of
clean water.
Finally, a number of companies that have initiated
or are otherwise involved in CSR are the same companies that continue to ignore or
fail to address the human rights abuses, poor labour standards, and environmentally
harmful activities that occur within their core operations. For example, even though
British Petroleum had complied with the codes of conduct laid down in the Extractive
Industries Transparency Initiative, in relation to the construction of the Baku-Tbilisi-
Ceyhan pipeline, it did not address the human rights abuses and the destruction of
livelihoods of the local communities as a result.
Given the immense impact businesses can have on peoples lives,
and their increasing power, environmental, human-rights, and social justice activists
have tried different ways to get businesses to be more accountable for their actions.
They have tried to go through their government (that is supposed to be
representative of their people, in a democracy), and even to businesses and
shareholders themselves to urge better responsibility. As a result, many business
leaders have tried to pursue corporate social responsibility practices, or attempted
to.
POLICY SUGGESTIONS:
1.CSR should be made mandatory for all companies operating in India which reports
annual profit to the Registrar of Company.
2.Percentage of profit amount to be spent on CSR programme should be determined
on the basis of the turn-over of the respective profitable company.
3.Companies associated with manufacturing products like cigarette and alcohol
should spend more of their profit amount on CSR programme than other companies.
4. More and more companies should be encouraged to adopt backward and under-
developed villages and undertake development work, like, establishing health-
centres and hospitals, schools and colleges, night schools for elderly people.
5. The Central Govt. should also encourage companies to try to develop village
infrastructure by developing roads and establishing pure drinking water facilities.
6. In return, the Central Govt. should think of providing companies tax-relief or duty-
relief to some extent as an impetus.


CONCLUSION:
The concept of corporate social responsibility has gained prominence from all
avenues. Organizations must realize that government alone will not be able to get
success in its endeavor to uplift the downtrodden of the society. The present societal
marketing concept of companies is constantly evolving and has given rise to a new
concept of Corporate Social Responsibility. Many of the leading corporations across
the world had realized the importance of being associated with socially relevant
causes as a means of promoting their brands. It stems from the desire to do good
and get self satisfaction in return as well as societal obligation of business.
REFERENCES:
1. Corporate Social Responsibility in India - An Empirical Research
by Bernadette Dsilva
2. CSR could prove to be a valuable asset in an age of M&As, as it helps firms
spread their brand name - Maitreyee Handique
3. Corporate Social Responsibility is no longer just an addition, it is a key
differentiator." Prasad Chandra, CMD, BASF South Asia
4. http://hdrstats.undp.org/en/countries/profiles/IND.html
5. http://censusindia.gov.in/

Authors

Mr. Subhabrata Ghosh is an M.Com. from Burdwan University and an MBA in
Finance from Heritage Institute of Technology, Kolkata. He has keen interest in
Equity Research and Academics. He has several papers published in conference
proceedings and journals.

1. Mr. Subhabrata Ghosh
Independent Equity Research Analyst

M.Com.(Burdwan University), MBA (Heritage Institute of
Technology, Kolkata),
Email: subhabrata_1981@yahoo.co.in



Mr. Pabitra Kumar Ghosh is an M.A in Political Science and also an M.A. in
English. He is a Faculty of English in S.L.Bajoria Foundation High School, West
Bengal. He has deep interest in Research and Academics.

2. Mr. Pabitra Kumar Ghosh
M.A (Political Science) & M.A. (English) Faculty of
English, S.L.Bajoria Foundation High School, West Bengal
E mail: pabitrakumarghosh1975@gmail.com

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