The Corporate Social Responsibility Act in India: An Early Assessment

Working Paper no. 120-17

The government of India recently enacted an Act that mandates firms to spend a minimum amount on corporate social responsibility (CSR) initiatives. This makes India the first country in the world that makes it mandatory for large firms (defined in terms of net profits, net worth or turnover) to set aside at least 2% of their average net profit for socially responsible expenditures. These funds have a potential to contribute to the social development agenda of the country and improving its environment. This paper aims at providing an early assessment of the response by firms to this Act. It examines the extent to which the CSR Act has led firms to comply and increase the share of profits being spent on CSR and the extent to which implementation of the CSR Act over the financial year 2014-2015 has contributed additional funds towards the social development of the country. The analysis is based on firm level data set of firms all over India over the years 2010-2015. We find that following the implementation of the CSR Act there has been an increase in the number of firms that are spending on CSR initiatives as well as the total amount spent on CSR activities. However, there is a very unequal distribution of CSR expenditures amongst firms. About 80% of the firms in our sample that came under the purview of the Act did not comply with the Act in the first year of
implementation of the Act, i.e., 2014-15..