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Is CSR Mandatory Spending Enough? A Policy Perspective on India’s 2% Rule
Corporate Social Responsibility (CSR) in India has changed significantly. It has moved from random acts of giving to a more organised, strategic approach.
The landmark amendment to the CSR law in India under the Companies Act, 2013, says that eligible companies are required to allocate at least 2% of their average net profits to CSR activities.
While the 2% spending mandate has undoubtedly channelled significant funds towards social development, a critical question remains: Is spending alone enough to ensure meaningful impact?
In this article, we will explore India’s unique CSR framework. We will evaluate whether the current focus on spending is enough to meet the broader goals of CSR and look at ways to improve its effectiveness.
The Companies Act 2013 brought a major change by making CSR mandatory for companies that meet certain financial criteria.
The CSR rules apply to any company that meets one of the following conditions from the previous financial year:
Net worth of more than Rs. 500 crore
Turnover of more than Rs. 100 crore
Net profit of more than Rs. 5 crore
The board of directors of each company affected by the CSR rules must ensure that the company spends at least 2% of its average net profits from the last three financial years each year, according to its CSR policy.
The CSR rules in India provide guidelines on eligible activities ranging from eradicating hunger and poverty to promoting education, healthcare, environmental sustainability, and rural development.
While mandatory 2% CSR spend is a commendable start, it doesn’t guarantee effectiveness.
True social transformation demands much more than financial allocation; it requires thoughtful planning, stakeholder engagement, and a deep understanding of local contexts.
Many newly formed companies may see the mandate as a compliance issue rather than a chance for social contribution. That means only ticking boxes without clear objectives or a mechanism for measuring real change.
A well-defined CSR strategy moves beyond simply allocating funds; it involves identifying core social issues, designing strategies with clear outcomes, and integrating CSR into the company’s overall vision.
For example, rather than distributing educational supplies once a year, a strategic approach could involve investing in teacher training, digital classrooms, and long-term mentorship programs, thus creating sustained impact.
Without a strategy, the 2% might be just a spend without a true transformation and social impact.
Today's workforce, especially Millennials and Gen Z, increasingly looks for purpose-driven work that matches their values. Employee volunteerism boosts satisfaction, retention, and overall engagement.
Employee volunteers contribute skills, passion, and direct involvement to projects. This creates a stronger connection between the company’s workforce and the communities it serves.
When employees engage actively, such as through mentoring, skills-based volunteering, or hands-on community efforts, the initiatives become more meaningful and effective.
CSR employee volunteering also boosts employee morale, strengthens corporate culture, and enhances the company’s reputation.
The 2% CSR rules, mandated by the Companies Act 2013, have set a global example, but certain policy gaps could be addressed to maximise the impact.
One key area is the emphasis on reporting expenditure over outcomes. Currently, there is more focus on financial transparency than is crucial; there are more robust mechanisms for CSR Impact Assessment, moving beyond quantitative spending figures to qualitative indicators of change.
Key suggestions include:
Encouraging impact assessment and public disclosure beyond financial spend.
Incentivising collaborations with NGOs and local governments to scale proven models.
Promoting long-term commitments rather than short-term projects.
Strengthening frameworks for monitoring and measuring social ROI (Return on Investment).
The CSR rule in India and the 2% mandate under CSR law in India have increased corporate contributions towards social development. However, the journey towards truly impactful CSR requires a shift in focus towards social development.
By improving the CSR Impact Assessment, encouraging meaningful CSR Employee Volunteering, and addressing policy gaps, India can make sure its CSR policy raises funds while also building a lasting culture of social responsibility. This will create a real positive impact across the country.
Partnering with SoulAce helps corporates with comprehensive solutions to identify impactful projects, manage their CSR initiatives, and measure the outcomes with social impacts.
