Mandatory CSR spending and its impact on profitability: An analysis on NSE – 200 Companies

Abstract

Corporate Social Responsibility is a contribution by companies to the society for utilising the naturally available resources for increasing their profitability. The Companies Act 2013 made it mandatory to spend at least 2 percent of the Average Net Profit, if the company has net worth of INR  500 Crore or more or turnover exceeds INR  1000 Crore or a Net Profit of INR  5 Crore or more during financial year. The study used the secondary data from the annual reports available from NSE website from which 3 years profitability and CSR contribution of sample companies were collected. Statistical and financial tools such as percentage, trend analysis, correlation and regression were used for analysing the data. The NSE 200 companies were classified as Banking, Financial Services(excl: Banking), Construction, Power, Manufacturing, Mining and Non-Financial Services.  The study reveals that the amount spent by NSE 200 companies on CSR activities are showing an increasing trend which is a good sign for the society whereas companies are not spending 2 percent on net average profit. The study suggests for setting up of separate department under the Ministry of Corporate Affairs for ethical utilization of mandatory CSR funds.