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India: How CSR Can Help To Develop A Digital Business

Oleg Koldayev, Anna Zhygalina

We are completing the publication of the interview with the lawyer of the Supreme Court of India Sudhanshu CHANDRA. In the first part of the interview, we discussed the topic of the legal regulation of Corporate Social Responsibility in India. Following up upon the interview, we are talking about the introduction of CSR in traditional sectors of the economy and its prospects in the digital economy. At the same time, it is obvious that the adoption of this industry at the highest state level directly depends on the compliance by the market participants with the generally accepted rules of the game, the clarity, and predictability of their decisions in terms of public consequences. Let’s call it a decline of socio-political volatility. CSR can be a good platform for seeking mutual understanding and compromises between digital business and the government.

BNT: The digital economy is cross-boundary in nature. In your opinion, how loyal are the international financial corporations to the concept of Corporate Social Responsibility?

SC: For many transnational companies, India became the home away from home. The processes of globalization and the development of the new market economy in the last decade have brought the world's leading corporations and investment houses into the country, and they are actively competing in the domestic and international markets. At the same time, up to 90% of companies from the Fortune-500 list are currently implementing CSR initiatives. This is not surprising: in the globalized world, the role of the state is becoming less important, and non-state subjects fulfill many functions that were the prerogative of power previously.

I have no doubt that the delegation of certain state powers to business structures created a more open and liberal business environment, promoted competition, leading to an increase in the quality of products and services and, consequently, to an increase in profits. But corporations must make efforts to become socially responsible, admitting that the role and functions they perform inevitably have some impact on society.

However, there is no saying that everyone takes up this concept unequivocally. For example, some argue that there is a strong business argument in favor of CSR, and it lies in the fact that corporations receive broader and longer-term social preferences than their own short-term profits. Others say that CSR distracts from the fundamental economic role of business. Still others consider it a superficial showing off. But both critics and supporters are seriously discussing a number of problems related to the concept. Which includes trying to trace the relations of the concept with the fundamental purpose and nature of the business, as well as finding ways to bring to light questionable motives for the participation of companies in CSR.

The financial authorities of India do not seem to have a definite attitude towards the circulation of digital coins. In the 2018 budget message, the country's Deputy Finance Minister, Arun JAITLEY, stated that virtual currencies were not legal means of payment, and the government would take all measures to eliminate their use in illegal activities. However, at the same event, the chairman of the Indian Securities Department, Ajay TYAGI, said that the rules for regulating the turnover of digital assets were almost ready. “We actually decided what goals each regulator would have, and the committee should prepare the rules very quickly,” he stressed. “We really want the cryptocurrency status to be established as soon as possible.” It was in early February of this year. Six months later, the report of the Commission on Legislation created by the government of the country appeared which stated the value of digital money and the possibility of using it for payments. At the same time, the experts of the organization noted that if we followed the way of a total ban on cryptocurrencies, then an entire sector of the economy might withdraw into the shadows

BNT: The state sector of the economy, in the same manner as the digital one, depends heavily on social capital. Are the CSR rules applied to state corporations?

SC: Of course, in addition to the private sector, corporate players in the Indian state sector are also actively involved in CSR initiatives. Most state corporations in the heavy engineering industry not only build housing for workers but also create social infrastructure for those who live in the area.

Besides that, the government, through tax incentives, encourages private companies to implement rural development programs. For example, the industrial policy provides special privileges for those who create industrial enterprises in backward areas, as well as tax privileges for companies implementing water purification projects.

BNT: We have understood that large private and state corporations are interested in the developing of the CSR system. What advantages can it provide for digital companies?

SC: Of course, the levels and nature of the benefits depend on the direction of the business and are difficult to estimate. However, the company cannot rely only on short-term financial returns while developing its strategy. Risk management is a central part of many corporate strategies. The reputation that has been earned over decades can be destroyed within a few hours because of corruption scandals, fraud, or environmental disasters. They may also attract unwanted attention from regulators, courts, the government, and the media. Creating a genuine social culture in the digital business will help companies reduce social and reputational risks.

BNT: After all, the digital economy acquired vogue in India against the background of acute social problems, that is – riding on the wave of the deficit of decently paid jobs and unfair distribution in the labor market. Is this idea correct? And what is being done in India to make people’s choice in favor of the digital economy not forced but conscious?

SC: It is correct to some degree. The point is that the legislative power in India is parceled out between the central government and the states’ governments. Some laws, for example, regulating the minimum wage, vary in different states.

At the same time, India is the member of the International Labor Organization and has ratified 40 ILO conventions, except 4 main ones. These are the following Conventions: “Concerning Freedom of Association and Protection of the Right for Organization (1948)”, “Concerning the Rights for Organization and Collective Bargaining (1949)”, “Concerning the Minimum Age (1973)” and “Concerning the Elimination of the Worst Forms of Child Labor (1999) ". This is probably why India has the largest number of working children under the age of 14 in the world.

The country's labor legislation consists of 333 regulations. The methods of supervision and implementation of these laws are different. But one of the problems is that 90% of Indian citizens working in the informal sector are not protected by labor laws. Most Indian states have put into execution the law on minimum wages for employed workers, as it is provided in the minimum wage law of 1948. However, even the minimum wage is often not paid. At the same time, according to the ILO, working with the minimum wage is considered to be one of the forms of forced labor. There are more than a million forced labor workers in India, especially in the southern part of the country. Many of them are children.

So, it is no wonder that people try to find alternative ways of earning money. But CSR is aimed at bringing civilized forms of relations to the labor market.

Many countries consider the development of a virtual asset market as a means of reducing poverty. The most striking example is Venezuela, where inflation reached 1,000,000% at the end of the summer this year. To overcome the consequences of the failure of state economic policy, the authorities decided to issue the el Petro state digital coin. But this did not stop the depreciation of the national currency. As of the end of September, monthly inflation was 223%.

In addition, many African countries are on the way to developing the digital market. Here, the results are better. The prevalence of alternative currencies is growing every day. About half of the people in Kenya, Gabon, and Sudan have digital wallets. The funds accumulated in them help young migrants arriving in Europe survive in the early days

BNT: The global economy is changing at the speed of light. What part do you assign to CSR in the economy of the country in general and in its digital sector in particular?

SC: Speaking of CSR from the point of view of its applicability in India, it can be stated that the industry will not practice or include CSR policy into its business strategies until some incentives are offered. For example, the latest introduction of Corporate Social Responsibility to the practice is the corporate credit rating system. Business should seriously think about this idea.

Companies will be able to receive certificates for CSR activities from an authorized state body and earn credits. They can then be sold on the CSR credit exchange. A company that does not want to engage in this activity will have to buy CSR loans from the companies that have earned them.

This is similar to a carbon credit when a polluter gains the right to pollute the environment by buying carbon credits from the companies that have earned them through environmentally friendly activities.

It is very important that the law on Indian companies motivates entrepreneurs to be more responsible to society.

The digital business, in turn, must be institutionalized, not only in the financial system of the country but also in the social fabric of society. And only then, it will be accepted by the authorities as an integral part of the economy and the life of the people.

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