COMPUTATION OF AVERAGE CSR SPENDING BY LEADING COMPANIES IN INDIA

This article is written by Ankita Wani of A.K.K. New Law Academy, Pune, an intern under Legal Vidhiya

ABSTRACT

CSR refers to the voluntary initiatives undertaken by companies to address social, environmental, and economic concerns beyond they legal obligations in India. CSR in India is guided by the Companies Act, 2013, which mandates certain companies to spent a portion of the profits on CSR activities.

This article is focused towards the spendings of two leading Indian companies [Reliance Industry Limited (RIL), Tata Consultancy Servies (TCS)], that have contributed most in generating CSR and topped in the CSR report for the last financial year.

KEYWORDS

Corporate social responsibility, CSR, Average CSR spending, Sectoral Contribution, leading companies, CSR Report, Annual report, challenges.

INTRODUCTION

CSR helps companies contribute, like a lot to the overall development of society by addressing social issues such as poverty, education, like healthcare, and environmental sustainability. By investing like so much in these areas, companies can make a positive impact on the lives of communities, making their lives like super great and contribute to their well-being.

CSR initiatives, you know, like help to enhance a company’s reputation and brand image. Like, when companies like actively and stuff engage in CSR activities, they are perceived as responsible and ethical entities, right?

 CSR in India plays like a super crucial role, you know, bridging the gaps in social and economic inequalities or whatever. Like, by focusing on inclusive growth and sustainable development, you feel me, companies can contribute to reducing poverty, promoting gender equality, and like empowering marginalized communities.

CSR initiatives in India like super align with the country’s sustainable development goals and government policies, you know what I mean? Like, the Indian government encourages companies to invest in CSR activities and recognizes their role in nation-building. And like, by collaborating with the government and other stakeholders, companies can create synergies and maximize the impact of their CSR efforts.

Now the question comes that why it is necessary to analyse the average spending of leading companies? The blow paragraphs give answer to this question.

Analysing CSR initiatives allows stakeholders, including investors, customers, employees, the general public, to assess a company’s commitment to social responsibility. It promotes transparency and accountability, ensuring that companies fulfil their obligations and commitments.

Analysis of CSR practices helps identify benchmark companies that excel in their CSR efforts. By studying these leading companies, others can learn from their best practices and replicate successful strategies. It encourages healthy competition and drives continuous improvement in CSR performance across applicants.

CSR initiatives helps evaluate the effectiveness and impact of these activities. By assessing the outcomes and measuring the social, environmental, and economic benefits generated, companies can identify areas of improvement and make informed decisions about future CSR investments.

It allows for dialogue and collaboration between companies, communities, NGOs, and government agencies. By understanding the needs and expectations of different stakeholders, companies can design and implement CSR initiatives.

By analyzing CSR efforts, companies can identify areas for improvement and enhance their reputation as responsible and ethical things.

Overall, analysing CSR initiatives and practices plays a crucial role in enhancing transparency, promoting accountability, and driving positive change in the business sphere.

OBJECTIVES

This article focuses on CSR growth and average of top corporate spending in India.

The purpose of calculating the average CSR (Corporate Social Responsibility) report of leading companies in India is: –

1.  To assess and analyse their collective social and environmental impact.
2.  CSR report provides a benchmark to evaluate the overall performance of the companies in terms of their commitment to sustainable practices, employee welfare, and environmental stewardship. 
3.  This analysis helps stakeholders, including investors, customers and regulators, make informed decisions.
4. It motivate companies to improve their CSR initiatives.

IMPLICATIONS OF LEGAL FRAMEWORK OF CSR

The Mandate of Corporate Social Responsibilities

India’s major problems nowadays are that others see CSR as an important mechanism for creating a positive social and environmental impact and raising companies and brands’ image.

Corporate social accountability is really behind the company in a broader picture. This is in the willingness of companies to respect people to distribute their property, and the assertion of the same privileges of the general citizen should be recognized, and organizations will behave in the general public’s best interests. Therefore, the realistic market decision cannot be beneficial to a particular client, awful to others or valuable now and horrible for tomorrow. The victory circumstance should be present. Mallen baker described CSR as to how companies conduct company processes to create an overall beneficial effect on society.

For many years, India has a feeling of moral and social obligation. The idea of providing and connecting it with salvation was previously the belief framework. It gave up to philanthropy along these sections. Late history is full of instances of wealthy individuals that are philanthropic, either in their power or through organizations.

Corporate Social Responsibility Spending

Each approved company’s board ensures that the company investing at least two percent of
the company’s average net profits made over the three preceding years based on its CSR policy.
Which Company to comply Section 135 shall be complied with by each company in order to protect the rights of minority shareholders.

Any company which is not covered during three consecutive financial years shall be exempted from this clause. CSR as a company is a foreign company with a branch in India.
Spending on CSR

The Public Sector Companies is under the responsibility of CSR projects. CSR spending
is to be required of all profit-making central public sector companies as of October 2015. The new regulatory measures can be found more rigorous than the Companies Act, 2013, as they will be imposed on all profit-making central public sector enterprises. Producers who do not follow the Companies Act requirements but have made a profit in the previous year will be expected to invest at least 2% of the profit on CSR programme in the previous year’. Under the Companies Act, 2013, and CSR regulations, all CPSEs are bound to conduct CSR activities. (UNIDO, 2020).
CSR Activities

Schedule VII of the Companies Act, 2013 was updated, and the list of CSR operations was
amended. While MCA had declared its implementation date on 1 April 2014, but still from the
date of presidential assent until the notified date, the Central Government, in the exercise of its
authority bestowed by Section 467, sub-section 1, amended Schedule VII33 to make a list more
detailed. Schedule VII has revised again even after the Act came into effect. 34 This time, a new
item No. (xi) is applied to the construction of the slum district. While starting the new item has not been notified, omission and inclusion in the prescribed schedule suggest that it is very flexible.
The government has identified 10 key places for the 2 per cent expenditure to claim credit.
The CSR activities include:

• The eradication of hunger, violence, malnutrition, and the promotion of preventive hygiene,
• Promoting gender equality, educating women, setting hostels for women, orphans, aged, daycare centres and addressing inequality faced by backward social and economic classes.

• Protection of national heritage, art and culture.

• Measures for the benefit of veterans of the armed services, widows of battle and their dependents.

• Para-Olympic and Olympic sports training.

• Contribution to the National Relief Fund of the PM

• Rural development projects(Pradhan & Ranjan, 2012).

The provisions regarding CSR reporting are as follows:

• The financial statements sent to the general meeting of a corporation shall be followed by a report by its board of directors comprising, in compliance with Section 134(3)(0) of the Companies Act, 2013.
• Online- there should be a connection to the CSR Regulation. The entire list of projects/activities/programmes planned to be performed by the company should be included in the CSR regulation.

• In the text, the makeup of the CSR Committee should be stated.
• The company’s average net profit for the last 3 financial years should be given.
• Information of CSR activities/projects carried out throughout the year should be given:

(i) Complete sum for the year to be spent

(ii) Amount brought on from years past

(iii) Amount invested throughout the year

(iv) The amount for the year carried forward

• Document to be signed by every management or chairman of the CSR Committee by the CEO/managing director.

• The CSR Committee’s statement of duty should suggest that the execution and
monitoring of CSR policy are in letter and spirit, in line with the goals of CSR.

The computation of Corporate Social Responsibility (CSR) in India is governed by the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014. The regulations stipulate that companies meeting certain criteria must allocate a specific percentage of their average net profits to CSR activities.

METHODOLOGY

The methodology comprises the following steps:

1. Identifying eligible companies: Companies that fulfil the criteria outlined in the Companies Act, 2013 must adhere to CSR rules.
2. Determining CSR spending: Companies are required to calculate their average net profits for the preceding three financial years to ascertain the amount they must assign for CSR activities.
3. Formulating CSR policy: Companies must formulate a CSR policy that involves the planned activities, geographical focus areas, and timeline for implementation.
4. Executing CSR activities: Companies must execute the CSR activities as defined in their policy. The activities can encompass domains such as education, healthcare, environmental sustainability, skill development, and more.
5. Monitoring and reporting: Companies must monitor the progress and impact of their CSR activities and provide a report in their annual reports, including details of the amount spent, projects undertaken, and accomplished outcomes.

It is important to note that the methodology and guidelines for calculating CSR may vary depending on updates to the Companies Act and associated regulations.

SECTORAL CONTRIBUTION

Sectoral contribution of CSR by selected Indian companies: –

In this section, an attempt also has been made to assess the CSR spent in Selected Indian companies over the 5 years. The major sectoral contribution towards CSR in India focused on Education, Differently Abled, Livelihood, Health, Eradicating Hunger, Poverty and Malnutrition, Safe Drinking Water, Sanitation, Rural Development and Environment, Animal Welfare, Conservation of Resources. The contribution towards Swachh Bharat Kosh and Prime Minister’s National Relief Fund also has been emphasized for better India. The present study based on secondary sources. The secondary data considered for the present study are from various sources like government website repository, previous literature on CSR by reputed journals, Company annual reports, CSR reports by reputed consultants, sustainability reports, newspapers, internet etc.

The data were collected from Five Indian companies (out of the top 10 companies based on CSR spent, sources- https://www.csr.gov.in) viz., Reliance Industry Limited (RIL), TCS, Infosys, NTPC and IOCL. A regression model was fit to reach a valid inference by using collected data over the last five years (Arpita Jena, Jena, Mishra, et al., 2020). The year 2014-15 was considered the base year (because the CSR Companies act implemented in March 2014) and 2021-22 as the terminal year (As per the data available from the above-given source). To find out the significant sectoral contribution of selected Indian companies, the Descriptive Statistics [Mean, Standard Deviation (SD) and Coefficient of Variation (CV)] has been calculated. Sectoral Contribution of CSR by Selected Indian Companies

The major sectoral contribution towards CSR in India focused on Education, Differently Abled, Livelihood, Health, Eradicating Hunger, Poverty and Malnutrition, Safe Drinking Water, Sanitation, Rural Development and Environment, Animal Welfare, Conservation of Resources.

 The contribution towards Swachh Bharat Kosh and Prime Minister’s National Relief Fund also has been emphasized for better India. The present study based on secondary sources. The secondary data considered for the present study are from various sources like government website repository, previous literature on CSR by reputed journals, Company annual reports, CSR reports by reputed consultants, sustainability reports, newspapers, internet etc.

The data were collected from Five Indian companies (out of the top 10 companies based on CSR spent, sources- https://www.csr.gov.in) viz., Reliance Industry Limited (RIL), TCS, Infosys, NTPC and IOCL.

Calculating CSR Outlay

The typical net benefit to decide the spending on CSR exercises is to be registered as per the arrangements of segment 198 of the Demonstration and will likewise be select of the things given under rule 2(1)(h) of the Companies (CSR policy) Rules, 2014. Segment 198 of the Demonstration indicates specific increases/cancellations (changes in accordance with) be made while working out the net benefit of an organization (principally it bars capital instalments/receipts, personal expense, set-off of past misfortunes). Benefit Before Duty  is utilized for calculation of net benefit under area 135 of the Demonstration.

Organizations (Correction) Act, 2017 subbed the clarification to the Part 135 w.e.f. 19-9-2018 which presently explains that with the end goal of this segment “net benefit” will exclude such aggregates as might be recommended, and will be determined as per the arrangements of area 198.

Further, the net benefit has likewise been characterized in the Standard 2(i)(h) as net benefit implies the net benefit of an organization according to its budget summaries arranged as per the material arrangements of the Demonstration, however will exclude following in particular:

(I) Any benefit emerging from any abroad branch or parts of the organization, whether worked as a different organization etc.; what’s more,

 (ii) Any profit got from different organizations in India, which are covered under and consenting to the arrangements of segment 135 of the Demonstration.

Given that in the event of an unfamiliar organization covered under these standards, net benefit implies the net benefit of such organization according to benefit and shortfall account ready concerning statement (a) of sub-segment (1) of area 381, read with area 198 of the Demonstration.

Section 198 and the CSR rule were at odds in the past because certain incomes, like dividends from other Indian companies and profits from overseas branches, were not included in the calculation of net profits. However, section 198 did not contain any such provisions. As a result, the amendment has addressed this issue and clarified how net profits are calculated to determine whether or not CSR provisions in section 135(1) are applicable. Net profits are calculated in accordance with Rule 2(i)(h) and Section 198 of the Act.

We can say that basically benefit before duty or net benefit wouldn’t have the option to legitimize the arrangements and thus wouldn’t be a right boundary to decide the relevance of CSR.

[1]

Sr.No.	Particulars	Amount in `
(a)	Profit before tax as per the statement of Profit & Loss	—
(b)	Add: Amount specified under section 198(5)(b), 198(5)(c) & 198(5)(d) of the Act	—
(c)	Less: As per Section 198(3) of the Act
	Profit by way of premium on shares or debentures which are sold by the company unless the Company is investment company	—
	Profit on sales of forfeited shares	—
	Profit of a capital nature including sales of undertaking or any part thereof or sale of immovable property or fixed assets of the Company	—
	Change in carrying amount of assets or liability	—
	Any unrealized gains, notional gains or revaluation of assets (in case of loss of above mentioned items to be added back)	—
(d)	Net Profit under Section 198 (d)=(a)+(b)-(c)	—
(e)	Less:
	(iii) profit arising from any overseas branch(es), whether operated as a separate company or otherwise	—
	(iv) dividend received from other companies in India, which are covered under and complying with the provisions of CSR	—
(f)	Net Profit for CSR [(f)=(d)-(e)]	—

The above table is about Calculation of Net Profit as per Section 198

Comparative Analysis of CSR Activities Between Two Selected Indian Companies

This section attempts to go for a comparative analysis of CSR activities between two selected Indian companies. For in-depth analysis, methods used are based on explorative research design and focus on both Qual and Quant research methods.

Once the Company’s selection is made, then secondary data were collected and then segregated year wise. The illuminate data is exposed to subjective analysis with the aid of a non- experimental system. Subjected to arbitrary study was an articulate study methodology. The expressive analysis contained familiar confirmation of the features of a particular phenomenon with an observational premise or the evaluation of the interaction between at least two wonderful components. Information analysis is conducted to build awareness of the business’s potential, and qualitative study will be an add-on to the hypothetical general analysis. Different questionaries were formulated based on different classes, and the authenticity of the questionaries was checked with a pre-existing data set and found to be good enough to find out essential details and comparative analysis.

Two companies were selected, i.e. Reliance Industries Limited (RIL) – private sector and Indian Oil Corporation Limited (IOCL)- public sector, among the top twenty companies as per CSR fund in India by 2020(CSR BOX T- 20, 2020). The companies chosen are:

Reliance Industries Limited (RIL): Reliance Industries Limited (RIL) is also a refineries company. The Company ranks as the top companies in the private sector undertaking in India as per CSR financial Estimates and CSR Funds 2018-2019 (CSR BOX-RIL, 2020; CSR BOX, 2020; CSR BOX T- 20, 2020). Highest estimated expenditure in CSR activities as a public sector company spend 892.46 Cr. in the financial year 2019-2020.

The sectoral amount spends towards CSR by Reliance Industry Limited (RIL) over four years reveals that major contribution of CSR spent by RIL focusing on Reliance University- Education (Mean-26631 crore and SD-16017 crore), Promoting Grassroot Sports (Mean-2510.25 crore and SD-1868 crore), Sir HN Reliance Foundation Hospital and Research Centre (Mean-16489.75 crore and SD- 8654 crores), total sectoral contribution towards CSR projects (Mean-66114.5 crore and SD-11056 crore). The coefficient of variation (CV) of total CSR projects of RIL was 17%, showing a consistent contribution to society’s development.

CSR Details of FY 2020-21

Average Net Profit = 44200 Cr.

CSR Prescribed Expenditure = 884 Cr.

CSR Spent = 922 Cr.

Local Area Spent = 813 Cr.

CSR Details of FY 2020-21 of Reliance Industries Limited (RIL)[2]

During FY 2022-23, Reliance contributed RS. 1,271 crores towards supporting a number of needs based, impactful CSR initiatives.[3]

Reliance achieved a solidified income of ‘9,74,864 crore ($118.6 billion), up 23.6%, when contrasted with ‘7,88,743 crore in the earlier year.

All working fragments saw development in income. Sharp expansion in gas cost acknowledgment combined with expansion in the gas creation added to development in Oil and Gas fragment incomes. Retail Portion income was driven areas of strength for by based development across all utilization crates and enormous scope store extension.

Benefit Combined EBITDA for the year expanded by 24.4% to 1,53,920 crore ($18.7 billion) when contrasted with 1,23,684 crores in FY 2021-22.[4]

Indian Oil Corporation Limited (IOCL): Indian Oil Limited (IOCL) is a refineries company. The Company ranks as the top companies in public sector undertaking in India as per CSR financial Estimates and CSR Funds 2018-2019 (CSR BOX, 2020; CSR BOX T- 20, 2020; CSRBOX-IOCL,

CSR Details of FY 2020-21[5]

2020). Highest estimated expenditure in CSR activities as a Public sector company spend 560.8 Cr in the financial year 2019-2020(CSRBOX-IOCL, 2020).         

CSR Details of FY 2020-21

Average Net Profit  = 17100 Cr.

CSR Prescribed Expenditure = 342 Cr.

CSR Spent = 445.09 Cr.

Local Area Spent = 460.37 Cr.

Sectoral contribution of IOCL

The sectoral amount spends towards CSR by IOCL over four years indicates that over half of the money invested in Corporate Social Responsibility is spent on the LPG scheme. -BPL (Mean-6017crore and SD-2655 crore), Statue of Unity (Mean- 2357crore and SD- 3363 crore), SDI, BBSR (Mean-2164 crore and SD- 3704 crores), total sectoral contribution towards CSR projects (Mean- 16986 crores and SD- 9044 crore). The coefficient of variation (CV) of total CSR projects of IOCL was 53% showing a greater variability of sectoral contribution towards the development of society.

Indian Oil made its mark among the ‘Top 10 Strongest Oil and Gas Brands’ worldwide (Brand Finance Plc 2022 listing) and was also named as the ‘Most Loved Non-FMCG Brand’ by Kantar Brand (2022).[6]

Indian Oil, as India’s largest Energy PSE, has always been going beyond business priorities to align with national commitments. Indian Oil has long standing CSR legacy, which started long before the CSR legislation under Companies Act 2013 came into effect. In the last 29 years, Indian Oil has contributed Rs.3,611 crore towards various community development and CSR projects improving the quality of lives of societies or communities primarily residing in the vicinity of our units/ installations. IndianOil’s Corporate Social Responsibility (CSR) thrust areas include ‘Safe drinking water and protection of water resources’, ‘Healthcare and sanitation’, ‘Education and employment-enhancing vocational skills’, ‘Rural development’, ‘Environment sustainability’, ‘Empowerment of women and socially and economically backward groups’, etc.

Indian Oil undertakes CSR activities across the country, from Leh in J&K in the North to the North-eastern States, to Gujarat in the West and Tamil Nadu/Kerala in the South.[7]

INDUSTRY-SPECIFIC CHALLENGES

India has a number of industry-specific challenges that firms face in implementing CSR initiatives. Some of these challenges are:

1.  Lack of awareness and understanding: 

Many companies, especially in smaller industries or regions, may have limited awareness and understanding of CSR and its potential benefits. This may hinder their ability to effectively plan and implement CSR initiatives.

2.  Limited resources:

 Some industries, especially small and medium-sized enterprises (SMEs), may have limited resources in terms of funding and manpower for CSR activities. Limited financial resources and competing priorities can make investing in CSR projects difficult.

3. Complex Regulatory Environment:

India has a complex regulatory framework for CSR, with the introduction of the Companies Act, 2013. Companies are required to spend a certain percentage of their profits on CSR activities and like fines can be applied oneself not following these regulations. Ensuring compliance can be more enjoyable for companies when navigating through the labyrinthine regulatory landscape.

4. Stakeholder Engagement:

Engaging and involving stakeholders, such as local communities, NGOs, and government bodies, is crucial for successful CSR initiatives.

CONCLUSION

Hence, to conclude it can be said that the average CSR spendings of leading companies will help in studying the development of the country. It is necessary for a healthy competition between the companies. This analysis helps stakeholders, including investors, customers and regulators, make informed decisions. It motivates companies to improve their CSR initiatives. Therefore, it is important to study about the average CSR spendings of leading companies.

REFERENCES

1. https://www.csr.gov.in/content/csr/global/master/home/home/csr-expenditure–geographical-distribution/state/district/company.html?=Reliance%20Industries%20Limited=L17110MH1973PLC019786=FY%202020-21
2. https://www.ril.com/ar2022-23/pdf/RIL-Integrated-Annual-Report-2022-23.pdf
3. https://www.csr.gov.in/content/csr/global/master/home/ExploreCsrData/dynamic-csr-report-search.html.html
4. https://iocl.com/pages/csr-overview
5. https://iocl.com/contents/AnnualReportenglish_2022-23/index.html
6. CSR spends remain flat at Rs 14.6k cr in FY22: Study – Times of India
7. CSR in India, Corporate Social Responsibility India CSRBOX
8. CSR202223.pdf
9. Comprehensive Guide to CSR Activities – Implementation | Monitoring | Tax Implications
10. https://iocl.com/pages/csr-overview

---

[1] CSR spends remain flat at Rs 14.6k cr in FY22: Study – Times of India

[2] https://www.csr.gov.in/content/csr/global/master/home/ExploreCsrData/company-wise.html

[3] https://www.ril.com/ar2022-23/pdf/CSR202223.pdf

[4] https://www.ril.com/ar2022-23/pdf/RIL-Integrated-Annual-Report-2022-23.pdf

[5] https://www.csr.gov.in/content/csr/global/master/home/ExploreCsrData/company-wise.html

[6] https://iocl.com/contents/AnnualReportenglish_2022-23/index.html

[7] https://iocl.com/pages/csr-overview

Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or the materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is of a personal nature.