Spending money can often be as difficult as earning it. Ask Indian companies – specifically, when it comes to spending on corporate social responsibility-related activities.

The complaint of several top-notch companies, now that the new Companies Act makes it mandatory for the big profit-earners to shell out on corporate social responsibility (CSR), is how to spend the money.

But before we get down to the details, here’s a brief point that holds one edge of the spread.

The Companies Act (2013) has statutory provisions, making CSR mandatory for companies with net worth of '500 crore or more, turnover of at least '1,000 crore and net profit of at least '5 crore. The requirement: spending at least 2 percent of their profits on CSR and constituting a separate committee on their board.
The law, implemented from April, makes India the only country with legislated CSR.

CSR is not the raison d’étre for these companies. So how would they fulfil the obligation? In come the non-government organisations – or NGOs – most of which are anyway into social activities, with many being cash-starved. Besides, they are not a small number by any stretch of imagination, which brings us to the second point, which holds the other edge of the spread.

An estimated 20 lakh NGOs are operating across the country at present, according to a report submitted to the supreme court by the CBI in February this year. For a population exceeding 1.2 billion, this means one NGO per 600 people.

So it’s a win-win situation for both the corporate entities at wit’s end to execute their CSR obligations and the fund-starved NGOs, is it? They can suddenly come across each other and find they were made to tango, right?
Wrong.

According to experts, despite this huge number of active NGOs, many global agencies, private and public sector companies do not find enough eligible partners to work with. Manas Ratha, director of Dasra, a Mumbai-based philanthropic advisory, puts it best when he says there is a “trust deficit” between the two on the aspect of transparency and in designing the programme. “Corporate houses do not understand how projects are actually implemented on ground and the effort put behind influencing the community. They want visibility and brand attention in smaller budgets, which is not reasonable,” he says.
Explaining the reason behind this trust deficit, Amitabh Behar, director of the Delhi-based National Foundation for India, an independent grant-making and fund-raising organisation, says, “Corporate (organisations) believe that NGOs lack accountability and are incompetent. Yes, there are sham NGOs but then there are poor universities and corporate operating as well!

“This cannot be the reason for painting the picture completely black. One can adopt a rigorous evaluation system to fight this evil.”

While arguing that there are still a large number of grassroots organisations doing commendable work across the country, Dasra’s Manas Ratha admits that lack of transparency in functioning in many cases is an issue. “There are lakhs of NGOs operating in the country but only a several thousand are doing quality work. The new Act will certainly scale up these organisations,” he says.

Giving another angle to the reason behind this trust deficit, Vimlendu K Jha, executive director of Delhi-based NGO Swechha, says: “People in the corporate sector see those working in the social sector as unprofessional and inefficient. It becomes difficult for them (corporate officers) to trust us with their money. Just because we speak and wear clothes differently does not mean we are bad people.”

But the truth of the matter, he says, is the corporate sector “looks down on us”.

Working on environmental issues and promoting active citizenship among the youth, Swechha is associated with brands and institutions such as Nokia, the British Council, Vasant Valley School, and  Sri Ram School, among others.

Tying up with corporates
Significantly, while it is true that not all NGOs are ‘clean’, activists also point out that many foundations and trusts set up by private groups are not all about CSR either. They say while many private companies transfer a large chunk of their revenues to own trusts or foundations, often a large part of those funds goes back to the parent organisation in some form or the other.

According to Jha, while many trusts or corporate giants are doing genuine work – like Wipro’s Azim Premji Foundation, or those run by the Tatas and Infosys, among others – this does not hold true for all companies.

Pointing at big organisations like Save the Children and Oxfam, which handle huge annual budgets, Jha says most NGOs are well-equipped and trained enough to handle such big amounts. “Managing resources is not a big challenge. If I am working with 5,000 women today, tomorrow I can work with 10,000 women as well, provided I have the resources. The major challenge is to bring the two sectors on one platform.”

Jha also says corporate houses calculate results in quantitative terms, which cannot be the case while implementing social projects. “They look everything from business point of view. That understanding of output needs to change.”

Calling the new CSR law a great move “in terms of intent”, Jha says, “If it is actually implemented, the (social) sector will get a huge amount of money, for which we usually look up to the government or international grants.”

But he says that even the corporate world will have to change the way it looks at CSR as a marketing tool. “Now they will be socially obliged to spend,” Jha says. “Philanthropy in terms of real donation has really not taken place in the past. This Act can have a very positive impact on society over the years if the money is spent with the right intent and companies do not just manage their books.”

Experts believe that for smaller amounts, companies can take up CSR projects on their own but must depend on NGOs’ expertise in particular fields for big-ticket projects.

Behar of NFI says companies cannot perform extraordinarily through in-house trusts as they have limited reach and CSR is not their core business activity. “Culturally we have believed that the idea of philanthropy is feeding the poor. That needs to change. Also, corporate (people) seek quicker results. There are a lot of good NGOs working in sectors like democratic rights, RTI and electoral reforms. Such initiatives bring results in the long run,” he says.
A study on emerging philanthropy in India, undertaken by NFI last year, found that most corporate houses do not do philanthropic activities, including CSR, in a strategic manner and do not put serious research behind it. It also said that corporate entities have a tendency to support very tangible outcomes. “They would prefer to invest in school building, for instance, rather than in building inclusive curriculum or teacher training programme. Visibility is important for them,” explains Behar.
Also, while certain sectors like education, health, and livelihood trigger greater interest, there are sectors like governance, its accountability and human rights which are completely unattended. There is a total lack of transparency and inadequate data in the public domain regarding CSR, the study reports.
Behar, who has high hopes from the new law but is at the same time a jot cynical, says: “Indian companies will gradually realise the importance of contributing in nation building and will start spending strategically. More enlightened corporate houses will see it as an opportunity. There is a lot of scope in sectors like panchayati raj and the northeast.”
At the same time, he says, many companies think the law should not have made CSR a mandatory activity for them – “these companies might find ways to evade it in spirit.”

Partnering industry in development
Many big companies were actively engaged in CSR activities even before the new law but experts believe the number is low and Companies Act, 2013 will lead to a significant increase in their numbers.

But alongside those hopeful of big money coming to the development sector from profit-making industries are many in the sector who do not foresee much change on ground. That, they say, is primarily due to the lack of data on the existing annual budget of NGOs.

Dhaval Udani, CEO, Give India, a donation platform for NGOs, says though the estimate of CSR obligations looks big, this will be a small fraction compared to the government’s spend on social initiatives earmarked in the budget. Give India, Udani says, was established with the intention of streamlining the muddled funding and donations culture in the country, and has less than 300 NGOs listed with it.

“The union government has a budget of '2,00,000 crore for social development. If we are expecting that some kind of social change will come with the mandatory spend on CSR, that is not going to happen,” Udani says. “It is too early to predict any kind of social change. We will have to see how NGOs reach out to corporate houses.

“One change I immediately see is that funding by individuals may change toward capacity building.”
Stressing that there is no dearth of good NGOs in the country, Udani says the corporate sector does not make much effort in finding them. To bring in change in keeping with the spirit of the new law both sectors – corporate and social – will have to understand each other better and work for the right cause, he says.

“A lot of work will have to be done to bring in accountability and credibility. NGOs will have to understand how the corporate world functions, how their lifecycle works and why it is important for them to do regular monitoring. Most NGOs are not aware of these aspects.

“The corporate world, on the other hand, will have to understand that social impact does not really come about with money, and that social impact of a programme should be measured quantitatively as well.”

Vimlendu Jha of Swechha agrees: “I am not sure about the transformation of the NGO sector. We need to build some system to share the best practices and to build a bridge of trust. Both (corporate sector and NGOs) should come forward and respect each other.”

Highlighting some of the challenges NGOs face while dealing with corporate houses, Behar says, “The corporate world might start dictating the causes, some with the right intend and some may distort the agenda.”

Manas Ratha of Dasra suggests that corporate houses should have an open mind in spending on CSR. Apprehensive that only bigger organisations will have a dominant share of CSR funds, he puts an emphasis on the need for capacity building, capability enhancement and better connect between the two worlds.

“NGOs face many challenges while dealing with corporate houses. So long as the project is genuine and has high community impact, there is no problem. Getting visibility is not against the spirit of the (Companies) Act,” Ratha says. He also suggests building trust and dialogue between the two sectors to ensure there is better clarity in finalising the priority areas.

The key idea behind these rules is to emphasise the need for India Inc to look beyond philanthropy and undertake initiatives in project mode which have potential to make social and economic impact. Also, the Act aims to promote greater transparency.

CSR would only be effective if the initiatives undertaken by companies are strategic and participatory in nature, and are tailored to cater to the needs of the local communities. Though the Act can be seen as a step in the right direction to promote social development, there are some challenges that can affect its implementation – at least in the first few years.