In today’s Finshots, we look at how Indian companies spend their CSR (Corporate Social Responsibility) money, why some aspects of this spending seem broken, and how we could fix them.

But before we begin, if you’re someone who loves to keep tabs on what’s happening in the world of business and finance, then hit subscribe if you haven’t already. We strip stories off the jargon and deliver crisp financial insights straight to your inbox. Just one mail every morning. Promise!

If you’re already a subscriber or you’re reading this on the app, you can just go ahead and read the story.

The Story

Back in 2014, India did something few countries had attempted before. It made corporate charity mandatory. Meaning, under Section 135 of the Companies Act, companies with a net worth of at least ₹500 crore, a turnover of ₹1,000 crore (or more), or a net profit of ₹5 crore (or more) must spend at least 2% of their average net profits over the previous three years on social causes.

This is called Corporate Social Responsibility (CSR). And companies have to fund it out of their own pockets. The government doesn’t allow them to claim CSR spending as a normal business expense under the Income Tax Act.

Over the years, this has created a massive pool of money. In FY25, companies spent around ₹40,000 crore on CSR, which was about 40% more than the previous year. And a recent CSR Outlook report also suggests that annual spending could reach ₹77,000 crore by the end of this decade.

But what really caught our eye was how this money was spent. A recent ten-year review by CRISIL found that CSR spending continues to flow largely towards states that are already relatively wealthy.

For example, in FY25, Maharashtra alone received ₹8,631 crore in CSR funding. On the other hand, all eight northeastern states combined received roughly ₹855 crore, barely a tenth of Maharashtra’s share.

This becomes even clearer when you look at the bigger picture. Five industrialised states — Maharashtra, Gujarat, Karnataka, Delhi and Tamil Nadu, received over half of all CSR money. If you calculate this spending per person using 2011 Census figures, Maharashtra received roughly ₹767 per person, while Bihar received just ₹44, despite having a similarly large population.

So why does money meant to help society keep flowing towards wealthier states when poorer ones may need it more?

To understand why, we first need to look at how the CSR law works. Companies can spend their CSR money in two main ways. They can donate directly to eligible government funds, such as the Prime Minister’s National Relief Fund and the Swachh Bharat Kosh. In FY25, companies contributed ₹943 crore or about 2% of the total CSR money to these funds. For the remaining 98%, companies largely decided which causes to support and where to spend the money.

And this freedom may be one reason behind the geographic imbalance. Because you see, the law encourages companies to give preference to the areas around where they operate. Although this isn’t a strict requirement, it makes sense from a business perspective simply because a company running a factory in Gujarat might fund a school, clinic or drinking-water project in a nearby village as it can visit the site, understand the community’s needs and see how its money is being used.

But this creates another problem. Companies tend to spend their CSR money in states where they operate, which are often wealthier states with a strong industrial base. India’s top three CSR spenders such as Reliance Industries, HDFC Bank and TCS contribute to this pool. As a result, poorer states that may need more support can struggle to attract the same funding.

This imbalance also carries forward to what causes this money is spent on. For context, education and healthcare together account for nearly a third of the entire CSR pool. Meanwhile, technology incubators, armed forces welfare and administrative overheads together receive less than 0.2%.

Now sure, education and healthcare are essential. But there’s another reason they attract so much funding. Their results are relatively easy to measure. For instance, a company can count the classrooms it builds, students it enrols, computers it donates or patients it treats. These numbers are easy to include in an annual report. Compare that with a project to improve rural livelihoods or help a village adapt to climate change. Its benefits may take years to become visible, making them harder to measure.

This doesn’t mean we’re suggesting that companies fund schools and hospitals just to look good. Just that when businesses need to demonstrate results, projects with visible outcomes can seem more attractive.

Another thing is that most companies don’t run these projects themselves. They rely on implementing agencies, often non-governmental organisations (NGOs), to do the work. And NGOs need money for more than the projects itself. They need staff, accountants, monitoring systems and proper records to ensure that the money is used responsibly.

But companies often want as much of their CSR budget as possible to go directly towards beneficiaries. NGO operating costs can range from 5% to 51% of their total expenses. Yet companies may be willing to allocate only around 10% of a project’s cost towards these expenses.

This creates a vicious cycle. Companies complain that capable NGOs are hard to find in poorer districts. But grassroots organisations in these very places may lack the money to hire qualified staff and meet the standards companies expect.

And even when companies want to support underserved regions or communities, finding the right organisation to execute projects like these can be difficult. India does have a National CSR Exchange Portal to connect companies with implementing agencies. But simply registering an NGO doesn’t guarantee that it can deliver a project effectively. Companies also need reliable information about where their money goes and what it achieves.

So, how can India possibly fix these imbalances, you ask?

One option is to learn from countries that have tried different approaches to mandatory CSR.

Take Mauritius. It introduced a mandatory CSR contribution of 2% of profits in 2009. And since 2019, at least 75% of this contribution has had to go through the tax authority for allocation to social programmes, leaving companies with greater freedom over the rest. This gives the government more say in where the money goes, rather than leaving every company to make that decision independently.

However, centralising the money doesn’t automatically guarantee fair distribution. The government must still allocate it transparently and ensure that the money reaches the communities that need it.

So India doesn’t necessarily have to copy this model. It could instead make a few practical changes to the system it already has.

First, it could clarify the rules that might be making companies reluctant to spend on NGOs’ operating expenses. CSR regulations cap a company’s own administrative overheads at 5% of its total CSR expenditure. But this is different from the operating costs of the NGOs implementing its projects. Making this distinction clearer could encourage companies to cover the genuine costs of capable NGOs, helping them build stronger teams and financial systems.

Second, companies could pool their CSR money to tackle larger problems. Because if you think about it, ten companies funding ten small, unrelated projects in the same town may not make much of a difference. But if they combine their resources to improve a district’s schools, healthcare facilities or rural infrastructure, they could create a more lasting impact. And the law already allows companies to collaborate on CSR projects.

And that could in a way, help ensure that communities elsewhere aren’t overlooked simply because fewer companies operate nearby. After all, if CSR is meant to give back to society, shouldn’t the people who need the most help have a fair chance of receiving it?

Until then…

Don’t forget to share this story on WhatsApp, LinkedIn, and X.

How Strong Is Your Financial Plan?

You've likely ticked off mutual funds, savings, and maybe even a side hustle. But if Life Insurance isn't a part of it, your financial pyramid isn't as secure as you think.

Life insurance is the crucial base that holds all your wealth together. It ensures that your family stays financially protected when something unpredictable happens.

If you’re unsure where to begin, Ditto's IRDAI-Certified insurance advisors can help. Book a FREE 30-minute consultation and get honest, unbiased advice. No spam, no pressure.