Corporate Squander Responsibility

India’s Corporate Social Responsibility (CSR) regime has reached a conceptual dead end. What began as an attempt to sensitise firms to social obligations hardened into a compliance-driven levy that taxes the same surplus twice, once through the fiscal system, and again through mandatory post-profit costs.  While the intent is laudable, as it seeks to embed inclusiveness into the country’s growth story, the current framework does little to address the most binding constraint, which is its technological capability. A reorientation towards Corporate Scientific Responsibility, supported by a continuous Corporate Structural Review, can place capability creation at the heart of CSR, and channel huge sums into R&D.

One of the issues is that the laws narrowly define CSR through the balance sheets. Under the Companies Act, 2013, a company that spends two per cent of its average net profits on approved social projects, and files the requisite certificates is deemed "responsible." Thus, the framework diverts attention from production, learning, and technological depth. Financial compliance substitutes for operational substance, and innovation remains peripheral to CSR discourse. India is the first, and only nation to impose mandatory CSR across sectors. Juxtapose this with India’s weak presence in the list of top global firms. In 2024, it had nine firms in the Global 500 list, compared to 124 for China, and 138 for the US. Of these nine, only one was in the medium high-tech, and none in high tech.

Firms contribute twice to the social goals. Corporate tax carries a mandatory four per cent health and education cess, explicitly earmarked for social-sector spending. With corporate tax collections exceeding INR9,00,000 crore in FY-24, the cess totalled nearly INR34,000 crore. In addition, firms spend two per cent of their net profits on CSR. In FY-24, this amounted to another INR35,000 crore, and nearly two-thirds of the amount was in education, healthcare, sanitation, and government-sponsored funds. The CSR expenditure in the five years since 2019-20 works out to INR1.45 lakh crore.

Apart from the duplication, it is a distortion. CSR functions as a “tax on profit” that yields no fiscal credit, unlike surcharges or cess. In 2023-24, CSR amounted to 3.9 per cent of net corporate tax collections, which was an implicit levy imposed outside the fiscal framework. The overlap is stark. The State mobilises resources for health and education. However, firms are compelled to directly finance similar activities. The burden of CSR is unevenly distributed because obligations are linked to net profits rather than the scale of operations. Many MNC affiliates routinely make large payments for tech licensing, brand usage, management services, and intra-group financing. The payments on the use of IP, an overwhelming portion of which is made by the MNC affiliates, stood at INR1.45 lakh crore in 2024-25, which obviously depressed net profits.

Consequently, many MNC affiliates, especially the unlisted ones with a strong market presence but limited public scrutiny, incur relatively light CSR obligations. It may be an exceptional case, but a global IT major with an annual income of INR28,000 crore in 2024-25 reported royalties of INR20,000 crore, or three-fourths of its expenses, which resulted in a CSR obligation of INR21.75 crore. RBI’s Company Finances Studies show that the profit-to-sales ratios of MNC affiliates are lower than those of non-government non-financial public limited companies (which include MNC affiliates). Domestic firms, which possess limited profit-shifting buffers like these, shoulder a disproportionate share of both taxes and CSR.

India cannot become a developed nation by borrowing technologies. Its innovation indicators highlight the urgency for reforms. Gross expenditure on R&D has stagnated at 0.64 per cent of GDP for over a decade, with the private sector contributing less than 40 per cent. Redirecting CSR toward innovation can increase R&D spending without new taxes or borrowings. Incidentally, the total outlay on the Research, Development, and Innovation (RDI) scheme, which was launched in 2025, is INR1,00,000 crore, or less than the INR1,45,000 crore CSR expenditure over the last five years.  In addition, the existing CSR regime is convoluted. Firms fund social projects that are primarily the state’s responsibility, while the state floats separate schemes for R&D promotion. A pivot to Corporate Scientific Responsibility will align CSR with capability development.

India has a relevant conception of responsible business conduct. The National Guidelines on Responsible Business Conduct, drafted by the Indian Institute of Corporate Affairs, articulate nine principles that locate responsibility within core operations: Ethical governance, environmental stewardship, labour practices, consumer welfare, sustainable value creation, and relevant disclosures. Global frameworks, such as the OECD Guidelines for Multinational Enterprises, emphasise due diligence, technological practices, local capability building, supply chain responsibility, and knowledge transfer. Both converge on a simple insight: Corporate responsibility is not about what firms spend from their profits, but about how profits are generated. Thus, India’s CSR regime represents a narrow and distorted view of this broader principle.

A capability-oriented approach requires restoring the structural visibility of corporate operations. Prior to 2013, company disclosures provided systematic information on installed capacity, actual production, R&D efforts, material use, and foreign exchange transactions. This enabled a meaningful analysis of the real economy. The dilution of these disclosures reduced transparency precisely when India was seeking deeper integration into the global value chains. Revenue growth is visible, but production growth and its structure are not. The boundary between manufacturing, assembly, services, and trading blurred, and segment reporting remains inadequate for assessing technological depth, import dependence, and royalty intensity. The coverage of foreign exchange transactions in RBI’s studies illustrate this deterioration.

Restoring and fine-tuning such disclosures, and instituting an annual Corporate Structural Review will enable accountability, not merely in spending, but in capability formation and real-economy performance. India cannot afford to continue a system prone to duplication, distortion, and malpractice, while ignoring the vital need for tech self-reliance. Redirecting CSR toward science can unlock huge amounts for R&D, and strengthen domestic capabilities. By transferring redefined CSR allocations to a public fund dedicated exclusively to science and technology, India can align its responsibilities with its capabilities. This is not a plea for lower corporate taxes, or CSR, but a strategic reorientation to ensure that the funds raised enhance India’s long-term competitiveness. This aligns with the government’s slogan of "Ease of Doing Business" by streamlining the obligations into a single channel. The aim is not to do away with CSR obligations, but redirect and reorient them. Firms can still fund welfare voluntarily, and claim relevant tax deductions.

Rao is Senior Research Fellow at the Academy of Business Studies, and Ranganathan is an independent researcher; views are personal