The Political Economy of Corporate Responsibility in India

Corporate social responsibility (CSR) is on the rise all over the world, and India is no exception. The history of corporate paternalism has played an important part in shaping community expectations and CSR practices in India. Civil society, consumers and other actors have increased the pressure on companies to adhere to social and environmental standards, and this new “civil regulatory” environment has had impacts on business in India. This paper considers corporate environmental and social behaviour in India, both in the past and the present, in an attempt to better understand the actual impact of CSR.

The paper is divided into five broad sections with the first section setting forth the issues in context. Section 2 covers the historical aspects of the business and society interface in India from the middle of the nineteenth century up to the present, and it determines the actors and the factors that have influenced the corporate responsibility discourse. Section 3 then presents the state of contemporary CSR in India, by detailing perceptions of the issue, and the initiatives undertaken by selected companies, industries, industry associations, non-governmental organizations (NGOs) and trade unions. It includes a discussion on certain codes of conduct related to labour and environmental issues. Section 4 discusses the drivers of corporate social and environmental responsibility in India, using a case study of the garment sector. Voluntary initiatives are examined in light of the macro changes unfolding in the Indian economy and society since the early 1990s, particularly by examining the characteristics of the labour market and the impact of labour, environmental and other regulations on business and society. This section also documents corporate management and governance practices. The last section contains a brief discussion on issues beyond voluntarism and judicial activism.

Philanthropy has been important in India since the middle of the nineteenth century, largely due to a strong heritage of community influence and paternalism among traders-turned-entrepreneurs. At the same time, the larger economic governance framework that was put in place by the state also influenced corporate practices toward labour and society from time to time. The Indian government’s socialistic policy agenda, which aimed at a more equitable distribution of resources, restricted the concentration of wealth to the hands of a few industrialists through strategies of import substitution, foreign exchange control, reservations for and protection of small-scale enterprises, industrial licence, and quota systems for raw material and production. This influenced business practices of the times. However, business was often reluctant to abide by such principles. As a result, interest in corporate philanthropy decreased, leading to an increase in corporate malpractice, and manoeuvring for survival and profits. All this was facilitated by incidents of corruption in state and national government bureaucracies. However, certain self-enlightened businessmen practiced and advocated ethical and responsible business behaviour, and issues of the social responsibility of business and stakeholder engagement were debated in India as early as the 1960s. In fact, there is evidence available of businesses going far beyond compliance and setting best-practice standards in labour relations and community development even before India’s independence in 1947. Some such best practices later became the basis for drafting related legislation after independence.

Despite the existence of trade unions, the trade union movement was not very effective in advocating for the rights of workers beyond issues related to wages and could not, therefore, contribute much to the larger corporate responsibility debate. To some extent, this shortcoming was offset by the emergence of other civil society actors in the form of NGOs and community-based organizations from the 1970s. However, NGO activism in the early phase was limited by government policies to the role of service delivery agents; it was only in the 1990s, when this role broadened, that NGOs started to have greater effect. However, they tended to influence state policies rather than confronting business head-on. Consumer boycotts, popular in the Western economies, have also been rare in the Indian context.

The response to corporate responsibility pressures in India has occurred mostly in export-led sectors and where the business is part of a global supply chain. The important issue of home-based workers was not addressed by international instruments for a long time and this, coupled with the lack of both the will and capability for monitoring, meant that businesses could exploit vulnerable groups of workers. Manufacturers catering to local markets did not experience the same demands and pressures to practise corporate social and environmental responsibility. Therefore, the locally developed certification and labelling schemes failed to attract the attention of local business.

Since the mid-1990s, CSR has been practised and debated by businesses, industry associations, NGOs and the government. However, there is still progress to be made. CSR is not institutionalized as a part of business practice; instead it is more of a “social good” left to the discretion of chief executive officers or top management. The agenda does not yet engage with CSR in terms of workers’ rights. Employee care is often left to employer benevolence. And while environmental care and total quality management have been driven by international competition as well as by legislation in India, compliance and enforcement are slack.

The nature of corporate actions and market-friendly regulations in India suggests that increased private sector participation in social and environmental affairs will need more vigilance from the government, not less. More importantly, we will need more democracy, not less, to create the space for various actors to operate and provide support and resistance, as required. The government will have to be re-engineered so that its regulation and monitoring role can be strengthened. In other words, it will need countervailing power outside the government-industry nexus. This requires democratic rights and institutions that can defend or advocate these rights, from courts to civil society institutions. The challenge, therefore, is to continue to build a vibrant set of civil institutions capable of feeding the corporate community and their markets with signals of success that orient companies toward social and environmental “goods”, and away from the “bads”.