04 May Less than 0.2%: CSR Powered Innovation, A Missed Opportunity to Amplify Impact

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It is well established that investment in Innovation is positively correlated to economic growth [1]. Any investment in Innovation leads to positive ROI at a broad level. This is also confirmed by AIC-IIITH’s direct experience.

As data shows below, investment in Innovation by Corporates under their Corporate Social Responsibility (CSR) is Anemic. This in turn constitutes a major missing opportunity by India’s Corporate leaders to support desperately needed Innovation in the country which can acts as booster for economic growth and job creations.

Methodology

This article primarily replies on CSR data collected and reported by the Ministry of Corporate affairs (MCA) and CSR portal run by it. It also uses other published work where necessary, in order to get more data. A major limitation is that MCA data does is not a comprehensive source, that is, based on the numbers, it does not look like it captures all CSR spending in India. Nevertheless, in absence of any other source which is more comprehensive, it is the best option available. Also, as the data is primarily used for comparative analysis, rather than for absolute figures, it mitigates the risks.

CSR Landscape in India

India is the 3^rd country in the world with Compulsory CSR law. Law mandates that companies meeting the required criteria spend up to 2% of net profits on mandated CSR activities. Schedule 7 of the Companies Act, 2013, provides the list of areas under which this spending can be done. After multiple amendments and rules changes, one of the categories where this spending can be done is government supported incubators [2].

As per MCA data, the total amount of CSR spend in the country in the last five years is INR 1,27,961.12 Cr, with most spending in sector like health and education [3].

So, what does the Data say?

For this analysis, we are taking CSR spending in the category of ‘Technology Incubators’ as a proxy for CSR spending in Innovation. While there may be some more spending in other categories which goes towards Innovation, under the categories mentioned in MCA, most innovation-focused spending is directed via incubators. And these numbers are, there is no other way to put it, minuscule.

In the last five years, where data is available (FY 20218-19 to FY 2022-23), 0.12% of the total CSR spending in India was directed towards the category ‘Technology Incubators, totaling a mere INR 158.17 Cr. This is a very small amount. For FY 2021-22 year in which we saw the highest spending of INR 62.62 under the category ‘Technology Incubators,’ it still has an abysmally low 0.24% of the total CSR spending of INR 26,210.95 Cr in the year.

In fact, over time the situation has not improved, but seen a secular decline. After increasing to highs of INR 62 Cr in FY 2021-22, the spending in this category has seen a steady and steep decline as can be seen in the graph below [Fig 1] [4]. It falls to INR 1.38 Cr in FY 2022-23 [Note: This number seems too low and some data might be missing, nevertheless the trend holds].

The overall contribution to this category is so low that the government portal does not deem it worthy to list it on its homepage. The category is lumped together in other sectors[Fig 2] [5].

Fig 1.

Fig 2. Image Source

Geographic spread:

While it shifts from year to year, generally the contribution by CSRs to Incubators is dominated by Maharashtra, Tamil Nadu and Karnataka, with Maharashtra leading in 2019-2020 (18.59 Cr), 20-21(20.75 Cr), 2021-22 (2.4 Cr), Karnataka in 2018-2019 (10 Cr) 2022-23 (0.67 Cr). However, there is a lot of variability, TN is second for some years and Karnataka is 4^th in 2019-20. Despite some good years like 2021-22 when it was 3^rd, Telangana is a poor performer, in 2018-19 lagging behind even UP at 7^th place.

Why is the CSR spending for innovation so low?

This situation persists despite multiple attempts by major Ecosystem players to highlight and encourage the push for CSR contribution to Innovation sectors. This includes the Aug 2017 ‘Handbook on leveraging CSR contribution for supporting start-ups/social enterprises’ by Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH [GIZ]. This handbook explains what incubators are and the various legal entities through which CSR funds can be utilized to support startups. It also lays out the legal and reporting process for engaging with an incubator and gives a list of Incubators in India [6].

Similarly, in 2024, AIM published a Guidebook created by Sattva Consulting, “CSR & Corporate Philanthropy for Innovation in India: A Guidebook for Corporates to Incubate and Accelerate Innovation”. This too highlights the fact that a miniscule portion of CSR is bring allocated to Innovation and that up to 24% of corporates are not even aware that funding Incubator is possible under CSR rules. At the whereas 45% corporates willing to fund Incubators, they lacked knowledge of suitable options [7]. The guidebook goes on to provide information to Incubators and CSRs on how to facilitate CSR spending towards investments, providing Templates for section, reporting etc. and gives examples of successful CSR projects with a summary of the program design.

According to Sattva’s Guidebook, there are three main reasons for this low spending on Innovation by CSRs

1. Lack Leadership Buy-In at CSR decision making level
2. Partner Information Gap i.e. lack of awareness of this option among CSRs
3. Impact Assessment Complexity

In our experience, first two reasons are most important. If the CSRs are aware and are willing to work with incubators other issues can be sorted out.

A missed opportunity

This lack of CSR spending in Innovation is truly a missed opportunity. Anecdotally, Technology Incubators are one the most efficient uses of CSR funds as generally approx. 10-15% of the total funds go towards operations. Most funding is toward supporting beneficiaries via seed grants or program elements like mentorship. HDFC Startup Parivartan program for example generally allows 15% toward Administration expense, with the rest going to Startups as grants.

As we reported earlier, our own program run with EPAM Systems India to support Tech-based Social Startups has a program design which allows allocation of ~90% of the CSR funding to be given to startups as grant, which in turn helped them in various ways (operational, product development, etc.). In addition, this program has allowed the startups to make financial gains of INR 19.81 Cr (revenues + other grant + investment] against CSR budget of INR 1.068 Cr. This program has also facilitated creation of 140+ jobs.

Conclusion:

Despite the clear link between innovation investment and economic growth, India’s corporate CSR spending on innovation-measured by allocations to technology incubators-remains extremely low, accounting for just 0.12% of total CSR outlays over the past five years. This trend persists despite government support and guidance, as well as evidence that incubator-focused CSR programs can deliver significant impact, including providing startups with much needed funding support that eventually helps them create jobs and make financial gains. Key barriers include lack of awareness among corporates and limited leadership buy-in, resulting in a major missed opportunity to amplify the positive effects of CSR on India’s innovation ecosystem. More action is needed by major stakeholders to break this logjam and unlock the full potential of CSR-driven innovation. Otherwise, this truly will remain a missed opportunity in the CSR and Innovation Landscape of the country.

Footnotes:

¹ https://eelet.org.uk/index.php/journal/article/view/1890/1727

² https://link.springer.com/chapter/10.1007/978-3-031-24647-0_7

³ https://www.csr.gov.in/content/csr/global/master/home/home.html

⁴ https://www.mca.gov.in/content/csr/global/master/home/home/csr-spent–development-sector-wise/sector-division.html?=Technology%20Incubators=FY%202022-23=Other%20Sectors%20(Technology%20Incubator%20And%20benefits%20To%20Armed%20Forces%20And%20Admin%20Overheads)

⁵ https://www.mca.gov.in/content/csr/global/master/home/home.html

⁶ https://www.giz.de/de/downloads/giz2017-en-handbook-csr-supporting-startups%20and%20soci….pdf

⁷ https://aim.gov.in/pdf/AIM-CSR-Guidebook.pdf Pg. 12