Will companies turn CSR into CIR?

23 / 09 / 2019

By The Economic Times - -

By broadening the scope of the mandatory corporate social responsibility (CSR) spending, the government has effectively facilitated the concept of CSR to be turned into corporate innovation responsibility (CIR). The move essentially provides a nudge to companies to spend up to 2% of their profits on supporting research and innovation, The Economic Times reported.

To be sure, companies were allowed to grant money from the CSR kitty to tech-incubators located within academic institutions approved by the Centre. The government has now expanded the scope of spending CSR budget on incubators funded by central or state governments, or any agency or public sector undertaking of central or state governments, and making contributions to public funded universities, IITs, national laboratories and autonomous bodies (established under the auspices of ICAR, ICMR, CSIR, DAE, DRDO , DST, ministry of electronics and information technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting sustainable development goals.

This has the potential to give rise to more public-private partnerships in scientific discovery, innovation and technical education, a tradition that is well developed and followed in the West but not so in India. It will encourage Indian companies to support research in the areas of their expertise or interest.

Indian companies largely have a poor record of investing in research, development and innovation. Data from Bloomberg shows that only 34 of the 50 Nifty companies invested in research and development (R&D) in 2018-19. Their cumulative expenditure stood at Rs 20,890 crore. Incidentally, ten of these companies spent more on CSR than on R&D. Five public sector undertakings – IOCL, BPCL, NTPC, Power Grid Corporation and GAIL – spent more on CSR than research.

Against this, the 50 Nifty companies spent a total of Rs 7,093 crore on CSR. With research funding allowed to be made from the CSR kitty, companies that had been hesitant on spending on CSR would now be more willing to support innovation that may potentially help their business.

Pharmaceutical companies are a case in point. Sun Pharmaceutical NSE -1.03 % Industries, for instance, spent Rs 1 977 crore on R&D in FY19 but only Rs 3 9 crore on CSR Such companies Rs 1,977 crore on R&D in FY19 but only Rs 3.9 crore on CSR. Such companies can now easily marry the two objectives of supporting research and drug discovery as well as doing social good in the process.

Banks and financial service institutions, which do not report any expenditure on R&D, can look at investing part of their CSR budget in research on financial inclusion, digital banking and new technologies in digital banking.