UPSC Mains 2013 GS Paper 3 Q1: model answer

India became the first country to make corporate social responsibility a legal duty when Section 135 of the Companies Act, 2013 came into force in April 2014.

What the law requires

Companies with a net worth of ₹500 crore, turnover of ₹1,000 crore or net profit of ₹5 crore must spend 2% of average net profit of the previous three years on activities listed in Schedule VII, through a board CSR committee.

Challenges in implementation

• Geographic skew: spending clusters near company headquarters in Maharashtra, Karnataka and Gujarat, not in the poorest districts.
• Tick-box spending: money routed to company foundations or big causes without local need assessment.
• Weak monitoring of outcomes; audits check spending, not results.
• Capacity: few credible NGOs in backward areas.
• 'Tax by another name': firms may cut voluntary philanthropy and treat CSR as a compliance cost.

Other provisions and their implications

• Independent directors on listed boards and at least one woman director: better oversight and diversity.
• Auditor rotation and limits on non-audit services: fewer conflicts.
• One Person Company: easier entry for small entrepreneurs.
• Class action suits and a statutory SFIO: stronger shareholder protection.

Since then

The 2019 amendment made unspent CSR money go to an unspent account or a Schedule VII fund; penalties replaced jail in 2021.

Annual CSR spending is now close to ₹30,000 crore. It works best as a partner of the state, not a substitute for it.