Mumbai: Indian companies’ involvement with philanthropy is mainly seen in the form of corporate social responsibility (CSR), but data shows the funds roughly don’t match up to the government’s benchmark, and experts say disclosures, effectiveness, quality and quantity are inadequate.

India’s top 10 companies by market capitalization spent an average of 1.38% of net profit on CSR in the year ended 31 March— lower than the 2% of net profit (average of the last three years) rule set by the new companies law that kicks in from this fiscal year, data from annual reports show.

Most of India’s CSR is directed towards four main segments: education, healthcare, community, and livelihood and infrastructure development. However, as a bigger rush of funds is expected, these segments, the funds allocated and their effectiveness need a relook, experts said.

“Since India is in its infancy in terms of CSR, we are going to evolve our own models of how the CSR will have a social impact," said Vasanthi Srinivasan, chair, Centre for Corporate Governance and Citizenship at the Indian Institute of Management, Bangalore (IIM-B).

Other experts said India’s CSR should focus on how spending makes an impact, rather than simply allocating funds to sectors the companies consider important. Concerted, studied and long-term measures could improve the country’s poor social indicators.

“Donors provide disproportionate funding to a limited number of popular causes, while many other critical needs attract limited support," said a McKinsey and Co. report titled Designing Indian philanthropy for impact. Written by Ramesh Mangaleswaran and Ramya Venkataraman, it shows that around 90% of Indian donor contributions are concentrated in fewer than 10 sectors.

McKinsey also said companies mostly resorted to direct interventions that showed quick results rather than indirect ones that fetched results in the long run, and also that CSR activities lacked quality, quantity and service to niches.

Transparency questioned

Companies are known to aggressively push for publicity for their CSR initiatives, but on the other hand, they fall short of levels of disclosure that experts would want in order to analyse CSR.

“Across all the sectors, there was little transparency when it came to disclosing the amount of money spent on CSR," P.D. Jose, associate professor, corporate strategy and policy, also at IIM-B, said in a paper titled Corporate sustainability initiatives reporting: A study of India’s most valuable companies, written along with Sourabh Saraf. “Part of this may have to do with the fact that very few companies keep a detailed and auditable record of these finances... ," said the paper, which studied India’s top 100 firms.

Tata Consultancy Services Ltd, which spent 0.48% of net profit on CSR in 2013-14, Oil and Natural Gas Corp Ltd (ONGC), which spent 1.55% of net profit on CSR in 2013-14, and Reliance Industries Ltd, which spent 3.24% of net profit on CSR in 2013-14, did not reply to a questionnaire seeking their opinion on low disclosures, direct interventions and low quantity and quality of CSR.

Infosys Ltd, among the top 10 companies by market cap, which spent just 0.1% of its net profit on CSR in 2013-14, said a part of its CSR cannot be measured.

“Our contribution to CSR is mentioned in the annual report which is beyond 9 crore. The others are mentioned as activities even if not monetized," said Sukanya Ghosh, global head, corporate communications, Infosys. To be sure, heavy industries such as metals, mining, cement and chemicals that need social licence to operate and have long gestation periods before their projects start, score better than other sectors on disclosures, the experts said.

“At Tata Chemicals, programmes which are being implemented by Tata Chemicals Society for Rural Development are all based on the principal of sustainable development," said Alka Talwar, head, corporate sustainability at Tata Chemicals Ltd, that spent 2.93% of standalone net profit on CSR in the year ended March.

Similarly, Nik Senapati, managing director, Rio Tinto India Pvt. Ltd, said the company was engaged in community work in 15 villages in Madhya Pradesh at its 11-year-old diamond project site even though it has yet to be developed into a mine. He didn’t say what percentage of net profit is dedicated to CSR.

Splurge on toilets

Experts said the fund allocations for CSR tended to follow trends rather than any formula derived by social experts.

IIM-B’s Srinivasan said education took the largest spending and stood at “No. 1, 2, and 3" in the priority lists of companies. But if the government lays more emphasis on healthcare—if, say, Prime Minister Narendra Modi delivers a few more strong speeches on toilets—“healthcare can tip education".

Sesa Sterlite Ltd, Vedanta Resources Plc’s Indian unit, was one of the first to respond to Modi’s call to build toilets in his Independence day speech on 15 August.

Hindustan Zinc Ltd, a Sesa Sterlite company, signed a memorandum of understanding with the Rajasthan government to build 30,000 rural toilets for below poverty line families to be completed in three years, benefiting 80 rural and tribal villages in Rajasthan, the company tweeted on 19 August.

Sesa Sterlite’s spokesperson didn’t disclose the percentage of net profit the company spent on CSR at the erstwhile Sesa Goa Ltd and Sterlite Industries Ltd in 2012-13, a year prior to the companies’ merger.

Narendra Singh Tomar, minister of steel, mines, labour and employment, said in a statement last week that he has earmarked 100 crore for the CSR fund of public-sector units (PSUs) urging them to adopt villages for sanitation and cleanliness drives.

ONGC is spending over 20 crore on restoration and sanitation at the Taj Mahal in Agra; a company executive said on condition of anonymity that more such monuments could be similarly targeted.

But scepticism prevails among experts, who say toilets could become a symbol of India’s CSR gone wrong—in case they turn unsustainable in the long term.

“Sanitation is not just about building toilets, it is about creating a mindset and culture of hygiene," said Srinivasan, who believes CSR spend on healthcare is more urgent than education in India. “This is truly a long-term commitment."

Madhura Karnik contributed to this story.