Corporate Social Responsibility: Issues & Development

[op-ed snap] A case against punishing non-compliance of CSR guidelines

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Understand CSR regulations and Companies Act, 2013

Mains level : CSR

Context

To mandate that private firms donate a part of their revenues to charitable causes is to profoundly misunderstand both the social responsibility of corporations and the meaning of the word donation.

Arguments against punishing non-compliance

  1. The fundamental social responsibility of corporates is to generate wealth for shareholders in a law-abiding, ethical and sustainable way. 
  2. They generate surpluses for society, provide consumers with goods and services that they need, create employment, purpose and dignity among workers, and strengthen the nation. 
  3. A profitable, well-run corporation does more for India and its people than any charity could possibly do.
  4. Government, through taxation, has the duty of providing public goods like education, public health, safety, and environmental protection. The government should not indulge in wasteful expenditures through loss-making airlines, wrong subsidies, etc.,
  5. Philanthropy is a private matter—it is up to the individual to decide whether, how much and who to give to. The government can encourage this—through tax deductions, public acclamation, and moral suasion, but should not intervene.

Why CSR

  1. Allocate funds into activities that a government of a low-income democracy cannot.
  2. Faced with immense developmental challenges, our governments cannot easily justify allocations for world-class art galleries, museums, theatres, sports facilities, research institutions and so on.
  3. Individual philanthropy and CSR can support causes that democratic politics won’t allow the government to.

Problems with current CSR spending 

  1. The bulk of CSR spending is going into education, health, rural areas, environment and so on. Already the government is spending hundreds of lakhs of crores for the same purposes. 
  2. Corporate executives are unable to decide on the best social use of CSR funds because they are not equipped to do so.

Way ahead

  1. The right role and the right balance between corporate profits, government taxes, and individual charity promote social welfare.
  2. Do away with mandatory CSR, lower corporate taxes, and introduce tax deductions for certain activities that the government wishes to promote.
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