CORPORATE SOCIAL RESPONSIBILITY IN INDIA: LAW, IMPACT AND FUTURE

Published On: September 19th 2025

Authored By: Neha Agarwal

IILM University, Gurugram

ABSTRACT

This article provides a comprehensive analysis of Corporate Social Responsibility (CSR)^[1] in India, a unique paradigm shift that has seen it evolve from a voluntary philanthropic gesture to a legally enforceable obligation. With the enactment of Section 135 of the Companies Act, 2013, India became the first nation globally to mandate CSR, fundamentally redefining the interface between corporate enterprise and societal welfare.

The article meticulously details the statutory framework governing CSR in India. It outlines the specific applicability criteria, requiring companies with a net worth of ₹500 crore, turnover of ₹1,000 crore, or net profit of ₹5 crore in the preceding financial year to comply. Key obligations are explored, including the mandatory constitution of a CSR Committee, the formulation of a comprehensive CSR Policy, and stringent disclosure requirements. Central to this framework is the stipulation for companies to spend a minimum of 2% of their average net profits from the preceding three years on stipulated CSR activities, as detailed in Schedule VII of the Act. Permissible expenditures, ranging from poverty alleviation to environmental sustainability, are differentiated from ineligible ones like employee benefits or political contributions. The robust penalties and enforcement mechanisms, strengthened by 2019 amendments, underscore the seriousness of this mandate, overseen by the Ministry of Corporate Affairs (MCA).

The impact of this pioneering legislation is then critically assessed. Quantitatively, a remarkable surge in CSR expenditure is highlighted, escalating from ₹13,000 crore in 2014-15 to over ₹50,000 crore by 2020, channeling substantial resources into critical national development priorities. Qualitatively, the law has fostered a significant shift from ad-hoc charity to structured, outcome-driven social interventions, enhancing corporate governance and transparency, and cultivating a culture of accountability. It has also spurred innovations and facilitated strategic collaborations between businesses and implementing agencies.

Despite these significant strides, the article identifies persistent challenges. These include a tendency towards “tick-box” compliance rather than genuine social impact, inherent implementation gaps, and notable geographical disparities in fund allocation. The ongoing regulatory reforms are discussed as countermeasures aimed at promoting greater accountability, standardization, and flexibility in CSR initiatives. Looking ahead, the article forecasts the evolving landscape of India’s CSR law, anticipating an expanded scope to include emerging areas, deeper integration with global Environmental, Social, and Governance (ESG) principles and Sustainable Development Goals (SDGs), and the transformative potential of technological advancements in ensuring enhanced transparency and data-driven impact measurement. Ultimately, India’s CSR journey exemplifies a dynamic commitment to fostering a business environment where profitability and social responsibility are not merely coexistent but are mutually reinforcing drivers of inclusive and equitable national development

INTRODUCTION

Corporate Social Responsibility in India: Legal Landscape, Effects, and Future Directions^[2]

Introduction

Corporate Social Responsibility (CSR), at its core, represents the ethical, social, and environmental obligations of businesses towards the societies in which they operate. In India, CSR has seen a marked evolution, transforming from a choice rooted in goodwill to a formal legal obligation. This paradigm shift has significantly impacted the coexistence of business objectives, communal welfare, and sustainable development. The Companies Act of 2013 signaled a historic moment, placing India at the forefront globally by requiring certain firms to invest in societal welfare, thereby institutionalizing corporate accountability and citizenship in business practices.

The Legal Framework for CSR in India
From Philanthropy to Obligatory Statute

Traditional Roots and Early Endeavours

Long before CSR was outlined in statutory language, Indian businesses, especially those led by visionaries like Jamshedji Tata and G.D. Birla, engaged in philanthropic projects. The origins of CSR in India can be found in these traditions, with business leaders actively engaging in activities to support social growth, health, education, and infrastructure for marginalized communities.

The Move Towards Legal Enforcement

Before 2013, CSR activities were almost exclusively voluntary, being influenced by cultural, ethical, and community expectations. However, as public scrutiny of corporate behavior intensified, demands for accountability and contributions to public welfare grew louder. Responding to this, the Companies Act, 2013 introduced a statutory CSR regime, effectively mandating philanthropic activities through legal provisions.

Section 135 of the Companies Act, 2013: The Legal Vessel^[3]

Criteria for Applicability

Section 135 sets forth clear thresholds, making CSR activities compulsory for any company (including subsidiaries, foreign registered firms, and not-for-profit entities falling under Section 8) that meets at least one of the following criteria in the prior financial year:

Net worth of ₹500 crore or above.
Annual turnover of ₹1,000 crore or greater.
Net profit of at least ₹5 crore.

Key Obligations and Corporate Governance^[4]

CSR Committee: Each eligible entity must set up a CSR Committee on its board, which should typically include a minimum of three directors, one being independent. If applicable rules waive the need for an independent director, two directors suffice.
Developing a CSR Policy: The CSR Committee is mandated to recommend a CSR policy to the Board, detailing the preferred interventions and projects as per Schedule VII of the Act.
Transparency and Public Disclosure: Annual reports must include exhaustive disclosures about the committee, policy, project details, fund utilization, and these must be easily accessible on the company’s website.
Minimum Spending Requirement: At least 2% of a company’s average net profits from the previous three fiscal years must be allocated for CSR activities. This requirement makes India’s CSR regime unique in its binding financial commitment.

Eligibility and Exclusions for CSR Spending

Permissible Activities: CSR investments can target an array of societal welfare areas, including but not limited to: eradicating hunger and poverty, enhancing healthcare and education, advancing gender equality, and promoting sustainable environmental practices, as prescribed under Schedule VII.
Prohibitions and Restrictions: Any CSR expenditure that exclusively benefits corporate employees, constitutes political contributions, or funds activities outside the boundaries of India is expressly excluded from qualifying as valid CSR spending.

Enforcement, Penalties, and Amendments

Failure to uphold mandated CSR obligations can attract significant penalties, including fines up to ₹1 crore for the company and up to ₹2 lakh for officers at fault, or one-tenth of the amount due to be spent, whichever is less.
Amendments, particularly through the Companies Amendment Act, 2019, have tightened compliance, requiring any unspent funds (targeted at ongoing projects) to be deposited in specified government funds for future use.

Regulatory Oversight and Reporting

The Ministry of Corporate Affairs (MCA) oversees and enforces the statutory CSR framework, prescribing formats for disclosures and annual reporting. This regulatory approach aims to streamline implementation and promote a culture of transparency in corporate charitable activities.

The Tangible Impact of Statutory CSR in India^[5]

Quantitative Impact – Mobilizing Resources for Social Upliftment

Escalating Budgets: The legal mandate for CSR has resulted in a substantial surge in the pool of funds earmarked for development projects. The aggregate CSR spending by Indian corporates jumped from ₹13,000 crore in 2014-15 to over ₹50,000 crore in 2020, with projections crossing ₹75,000 crore for 2024. This exponential increase demonstrates the effect of statutory compulsion and the growing commitment of Indian business to social responsibility.
Distribution by Sector: Health care, rural development, education, water management, and environmental protection are among the chief beneficiaries of CSR funding, illustrating the scheme’s breadth and alignment with pressing national needs.

Qualitative Impact – Beyond Numbers

Catalyzing Social Development

The legal regulation of CSR has prompted corporates to move beyond sporadic charitable donations to more organized, measurable, and sustainable endeavors. Projects now focus on areas with wide-scale, lasting social impact, such as:

Poverty reduction,
Healthcare accessibility,
Enhancing education quality,
Community infrastructure development,
Environmental restoration and awareness.

Improving Transparency and Stakeholder Trust

The requirement for annual CSR^[6] disclosures has spurred a new era of transparency and accountability in Indian corporates. Companies are now answerable not only to shareholders, but to society at large, which has had a positive impact on their public image, stakeholder relations, and even investor confidence.
Employees also view meaningful CSR activities as a sign of an organization’s values, boosting morale and cultivating a sense of purpose.

Strategic Approach and Collaborative Innovations

Many businesses have begun integrating CSR within their broader corporate strategy, treating community development as crucial to long-term sustainability. Notably:

Collaborations between private firms, NGOs, and governmental bodies have become more common, enhancing the scale and effectiveness of projects.
Companies now seek synergy between their CSR objectives and key business interests, resulting in innovative solutions to social problems.

Appraising the Challenges of CSR Implementation

From Check-box Compliance to Genuine Impact

Despite substantial financial outlays, criticism persists that CSR in India sometimes devolves into mere compliance with spending targets, with less attention paid to the actual results achieved (“tick-box” approach).
The emphasis on minimum spending can, at times, overshadow the imperative for sustained, long-term impact and genuine community engagement.

Practical Hurdles

Identifying credible implementation partners,
Tracking the flow and utilization of funds,
Measuring and articulating the actual social impact,
Navigating complex, often bureaucratic, reporting requirements.

Inequitable Distribution

CSR funding often gravitates towards states or regions housing major corporations, potentially bypassing areas in dire need without significant corporate footprints, leading to regional imbalances in social development support.

Regulatory Reforms to Address Gaps

Latest amendments require that implementing partners be officially registered, aiming to weed out fly-by-night operators and enhance reliability.
CSR expenditures on company-owned assets are no longer permissible, boosting public trust.
There is now scope to carry forward excess spending for up to three years – a nod to the need for flexible, long-term impact planning.
Introduction of annual action plans and certification of fund utilization by financial heads has added another layer of scrutiny and discipline.

The Future Trajectory of CSR Law in India^[7]

A) Legislative and Policy Developments on the Horizon

Adapting to Emerging Needs

India’s policy-makers are evaluating ways to expand the definition of valid CSR activities, with possible inclusion of:

Digital literacy initiatives,
Climate change mitigation and adaptation,
Leveraging advanced technology for public good.

Inclusion of Small and Medium Enterprises (SMEs)

Currently, CSR laws primarily affect large corporations. Consideration is being given to either mandatorily involving SMEs or at least providing incentives for them to partake, thus catalyzing broader participation in national development.

B) Aligning with International Sustainability Goals

Embedding ESG and SDGs

A notable trend is the seamless integration of Environmental, Social, and Governance (ESG) standards and the United Nations Sustainable Development Goals (SDGs) within CSR strategies, ensuring Indian companies are in harmony with evolving international norms.

Cross-border Initiatives

As Indian corporations grow their global presence, they are likely to export CSR best practices and implement cross-border programs, promoting India’s developmental vision globally and learning from global peers.

C) Digital Transformation of CSR Compliance^[8]

Enhanced Monitoring and Reporting

Cutting-edge digital technologies such as blockchain are poised to revolutionize the monitoring and verification of CSR project implementation, curbing malpractices and bolstering stakeholder confidence.
Real-time data analytics will empower companies and regulators alike, facilitating robust reporting mechanisms and promoting strategic decision-making.

Outcome-oriented Assessment

Standardized, data-driven evaluation frameworks are being developed to shift the focus from input-based (spending-oriented) to outcome-based (impact-oriented) CSR, catalyzing investments with measurable and scalable social benefits.

D) Recommendations to Bolster CSR Effectiveness

Adopting a Holistic, Impact-focused Model

Move beyond mere regulatory compliance towards models that prioritize long-term impact, continuous monitoring, and recipient feedback, fostering true sustainable development.
Encourage regionally balanced CSR, especially in neglected and remote communities, through supportive policy tools and collaborative mechanisms.

Strengthening Ecosystem Capabilities

Continuous capacity building for implementation bodies—be it NGOs, civil society groups, or local governments—is crucial for maximizing reach and impact.
Encourage knowledge sharing and replication of successful models across sectors and regions.

Conclusion

The evolution of Corporate Social Responsibility in India marks a significant chapter in redefining the role of businesses in society. Section 135 of the Companies Act, 2013, solidified a global benchmark by legally requiring corporates to engage meaningfully in public welfare. The resultant mobilization of resources, enhanced transparency, and shift towards strategic giving have firmly embedded CSR into the Indian business consciousness.

Nevertheless, persistent challenges loom large: a tendency towards compliance rather than impact, regional disparities, and gaps in impact measurement. As legal and policy frameworks continue to progress, the emphasis is shifting towards fostering impact-driven, transparent, and technologically advanced CSR models. There is growing recognition that profitability and social good must cease to be seen as conflicting pursuits. Instead, they are increasingly being interpreted as mutually reinforcing, essential for creating a sustainable, inclusive, and equitable future for India.