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March 22, 2018

Entrusted philanthropy

Implementing agencies are increasingly executing corporate mandates

Giving back is good business, too. And India Incseems to be taking this dictum to heart.


Spending on corporate social responsibility (CSR)continued to improve in fiscal 2017, the third yearof implementation of the legislative mandate, anddespite the jitters caused by demonetisation andimpending rollout of the Goods and Services Tax.


The amount spent on CSR by eligible listedcompanies rose nearly 7% on-year to just shy ofRs 9,000 crore. Over the past two fiscals, suchspending surged at a compound annual growthrate (CAGR) of 14%, despite a lukewarm 5% growthin profit.


Commendably, the improvement came despite ahigh base of fiscal 2016, which had seen a markedspike in spending led by government push toschemes such as the Swachh Bharat Abhiyaan.Around 70% of these companies spent more thanthey did the previous fiscal. And the number ofcompanies spending the stipulated 2% of their netprofit also increased.


But a wart was visible, too: growth in the numberof companies spending on CSR was slower at just2.4%, compared with 13% in fiscal 2016.


The standout feature last fiscal was anoverwhelming 74% of companies usingimplementing agencies such as non-governmentorganisations (NGOs) to achieve their altruisticgoals. Not just large companies, around two-thirdsof the small ones also did so.


We also conducted a survey to see how corporateIndia is approaching the task, from selection ofgeography to putting in place implementationteams. The findings corroborated our takeaways onincreased reliance on implementing agencies.


Thus, while the improvement in CSR parametersis heartening, we find that NGOs are driving CSRoutcomes as companies have not invested inbuilding their capacity to provide strong oversight.


We believe this has to do with the stipulation thatoverhead cost cannot exceed 5% of the total CSRspend. Respondents in our survey, too, indicatedthis limit is holding them back from engaging moredirectly.


Some regulatory intervention can help here. Anincrease in the limit can ensure a more directinvolvement of companies by helping thembuild bigger teams for CSR. Also, as the use ofimplementing agencies is inevitable for execution,steps can be taken to promote benchmarking ofNGOs to gauge their execution capability and usherin standardisation.