The DPSP is a critical catalyst for implementing CSR activities. The Constitution framers ensured they were incorporated in the most important document of India as a guiding light for effective, equitable governance. Undoubtedly, they remain the guiding principles of any government responsible for governing the country. – M.Rajendran
The Indian Constitution categorically states that Directive Principles of State Policy are non-justiciable. However, the idea and the thought behind it are ‘fundamental in the governance of the country’, and the state must apply these principles in making laws. These lay down that the state shall strive to promote the welfare of people by securing and protecting, as effectively as it may, a social order in which justice-social, economic and political shall form in all institutions of national life. Source: India Book 2020: A Reference Annual
Directive Principles of the State Policy under Part IV under Article 37 of our Constitution are not enforceable by courts. Still, the Principles of this chapter are to be applied by the Governments in making laws and governance. The Union and State Governments keep in view the welfare objectives of this chapter in governance and while making laws.
In this context, the Enactment of Companies Act, 2013 by the Ministry of Corporate Affairs, Government of India, was one of the world’s largest experiments in introducing CSR as a mandatory provision by imposing a statutory obligation on companies to take up CSR projects towards social welfare activities. Justice Madan Lokur of the Supreme Court has reiterated in many public forums that the mandatory corporate social responsibility under the Companies Act 2013 was a step towards realizing directive principles of state policy enshrined in the Constitution.
This has made India the only country that has regulated and mandated CSR for some select categories of companies registered under the Act. This CSR initiative will push the nation towards achieving sustainable development goals and public-private partnerships to transform India.
It is not a complicated policy. It is a simple learning method that even school students learn in textbooks. The social responsibility of business refers to its obligation to make those decisions and perform desirable actions in terms of our society’s objectives and values. The assumption of social responsibilities by business enterprises implies that they respect the aspirations of society and would try their best to contribute to achieving these aspirations along with their profit interests. Our Constitution states that the state shall direct its policy in such a manner as to secure the right of all men and women to an adequate means of livelihood, equal pay for equal work, and, within limits of its economic capacity and development, to make effective provision for securing the right to work, education, and public assistance in the event of unemployment, old age, sickness and disablement, or other cases of undeserved want. The state shall also endeavour to secure workers’ living wages, humane work conditions, decent living standards, and full involvement of workers in managing industries. Source: India Book 2020: A Reference Annual
This idea contrasts the common notion that business exists only to maximise profits for its owners and is irrelevant to the talk of public good. It follows that a responsible company, and indeed any responsible member of society, must act with due concern for the effects on other people’s lives. DPSP also highlights the opportunities and facilities for children to develop a free and compulsory education system for all children up to the age of 14. This is an area where several companies have been working as part of the CSR activities across the country. Such initiatives have helped advance the government’s resolve to execute the DPSP on this aspect of education.
A related area in the corporations has shown considerable cooperation and participation in the education and economic interests of scheduled castes, scheduled tribes, and other weaker sections. In this sense, social responsibility is broader than the legal responsibility of business. Legal responsibility may be fulfilled by mere compliance with the law. Social responsibility is more than that. The concept of social responsibility implies that it is an ethical issue since it involves the question of what is morally right or wrong concerning the firm’s responsibilities. Social responsibility also has an element of voluntary action on the part of the business person who may feel free to perform or not perform such responsibilities. They may also exercise their freedom to decide how much they want to serve various sections of society.
“The state cannot merely rely on societal actions and responses of corporations’ philanthropy; therefore, practically and feasibly, there is nothing wrong with the legislative mandate of CSR,” Lokur has stated. He added that “the concept has tremendous potential to bring out positive changes in society’s major concerns… With respect to India, the state’s action to include a mandate for CSR in its new company law framework is a step towards the realisation of the principle laid down in Part 4, that is, the directive principles of the Constitution,” he stated in one of his speeches.
Over the years, CSR allocations have been used for economic, environmental, and social upliftment of communities in and around the work centres in the major thrust areas such as community development, infrastructure, drinking water/sanitation, literacy enhancement/empowerment, educational aids, and healthcare/medical. Besides specific social welfare programmes, CSR funds are also used to provide relief to victims of national calamities.
Many corporations have come forward to protect national monuments, promote justice based on equal opportunity, provide free legal aid, protect and improve the environment, and safeguard forests and wildlife in the country. All these are aligned with the DPSP objectives enshrined in our Constitution. The fact that private sector firms had understood the importance of focusing their philanthropic activities on aligning with DPSP much before the CSR Act came into effect is a tribute to the Constitution’s framer’s farsightedness.
CPSEs and CSR
The guidelines on Corporate Social Responsibility for Central Public Sector Enterprises (CPSEs) issued by the Department of Public Enterprises, Ministry of Heavy Industries and Public Enterprises lay stress on the link of Corporate Social Responsibility with sustainable development.
The guidelines define Corporate Social Responsibility (CSR) as a philosophy wherein organisations serve the interest of society by taking responsibility for the impact of their activities on customers, employees, shareholders, communities and the environment in all aspects of their operations. Under these guidelines, the long-term CSR Plan should match the organisation’s business plan. The activities under CSR are to be selected in such a manner that the benefits reach the smallest unit, i.e., village, panchayat, block or district, depending upon the operations and resource capability of the company. Under these guidelines, CPSEs must create, mandatorily through a Board Resolution, a CSR budget as a specified percentage of the previous year’s net profit. Expenditure range of CSR in a financial year is 3-5% of the net profit of the last year in case of CPSEs having profit less than Rs. 100 crores; 2-3% (subject to a minimum of Rs. 3 crores) in case the profit ranges from Rs. 100 crores to Rs. 500 crores; and 0.5-2% in case of CPSEs having a net profit of more than Rs. 500 crores in the previous year.
The CSR budget has to be fixed for each financial year, and the funds will not be lapseable. Special stress has been laid on properly monitoring the CSR projects undertaken. The Boards of the CPSEs would be responsible for implementing the CSR activity, which would then be a part of the annual Memorandum of Understanding (MoU) signed by the CPSEs and the government.
DPSP and Inclusive Growth
The importance of inclusive growth is widely recognised as an essential part of India’s quest for development. It reiterates our firm commitment to include those sections of society in the growth process which had hitherto remained excluded from the mainstream of development. In line with this national endeavour, Corporate Social Responsibility (CSR) was conceived as an instrument for integrating social, environmental and human development concerns in the entire value chain of corporate business. Ministry of Corporate Affairs issued ‘Voluntary Guidelines on Corporate Social Responsibility, 2009’ as a first step towards mainstreaming the concept of Business Responsibilities. This was further refined as ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011’.
Further, the Social, Environmental and Economic Responsibilities of Business, released by the Ministry of Corporate Affairs (MCA) in July 2011, is essentially a set of nine principles that offer Indian businesses an understanding and approach to inculcate responsible business conduct. However, taking into account the national and international developments in the arena of sustainable business since 2011, the NVGs have been updated and released as ‘National Guidelines on Responsible Business Conduct’ (NGRBC) in March 2019 to reveal alignments with the United Nations Guiding Principles on Business & Human Rights (UNGPs), UN Sustainable Development Goals (SDGs), Paris Agreement on Climate Change, etc. The NGRBC provides a framework for companies to grow in an inclusive and sustainable manner while addressing the concerns of stakeholders.
The National Voluntary Guidelines (NVGs) on The 21st Report of the Parliamentary Standing Committee on Finance is one of the prime movers for bringing the CSR provisions within the statute. The Standing Committee observed that annual statutory disclosures on CSR required by the companies under the Act would be a sufficient check on non-compliance. Section 135(4) of the Companies Act 2013 mandates every company qualifying under Section 135(1) to make a statutory disclosure of CSR in its Annual Report to the Board. Rule 8 of the Companies (Corporate Social Responsibility Policy), Rules, 2014 prescribes the format in which such disclosure is to be made.
The first proviso to section 135(5) of the Act provides that the company shall give preference to local areas and the areas around where it operates. Some activities in Schedule VII, such as welfare activities for war widows, art and culture, and other similar activities, transcend geographical boundaries and are applicable across the country. With the advent of Information & Communication Technology (ICT) and the emergence of new-age businesses like e-commerce, process-outsourcing, and aggregator companies, it is becoming increasingly difficult to determine the local area of various activities.
The spirit of the Act is to ensure that CSR initiatives are aligned with national priorities and enhance corporate sector engagement towards achieving Sustainable Development Goals (SDGs). Thus, the preference for local areas in the Act is only a directory and is not mandatory in nature, and companies need to balance local area preferences with national priorities.
CSR provisions aim to involve the corporations as partners in the social development process. Corporate innovations and management skills in the delivery of ‘public goods’ are at the core of companies’ CSR implementation. Therefore, CSR should not be interpreted as a source of financing the resource gaps in Government Schemes. CSR has now become an integral part of business philosophy. Companies also carry out activities that benefit the poor and needy, including women, people with special abilities, rural areas, slums, sportspeople, educational institutions, health and sanitation issues, environment and climate change.
Mahatma Gandhi expounded on the theory of trusteeship of wealth. Influenced by his teachings, many business people contributed to a cause. Each reflects the importance of DPSP and the means to achieving its objectives amidst the challenges and hurdles society and our country face.
DPSP has been silently guiding many social, cultural, and environmental objectives that the governments are mandated to achieve but cannot be questioned on legal parameters. However, over the last seven decades, the people of India, the business community and the public sector enterprises have ensured they will be available for the government to help them execute a critical vision of our Indian Constitution.
It is hoped that governments will continue to look at DPSP to guide them in ensuring that social, economic, and environmental objectives form the basis for their future policies and programs. It is critical since the corporations will also find enough reason and inspiration to be part of such an exercise to make India a more equitable, sensitive and happy country.
