Sustainable CSR Idea for Rural Electrification

Submitted for IIMB – Ideas for sustainable CSR

Sanjeev Kumar, Kaushik Kochhar (MDI, Gurgaon)

Executive Summary

India is witnessing corporates mature as corporate citizens of the country. From miscellaneous acts

of philanthropy to sustainable corporate social responsibility (CSR) initiatives, organizations have

come a long way in the way they give back to the society. Are they making a real difference? Are they

building processes, which are sustainable, or merely delivering products?

In this paper, we critically analyse the current CSR activities and propose a sustainable CSR idea that

is easy to implement, does not harm the environment and solves more problems than one.

Contents

Executive Summary ............................................................................................ 1

Introduction ....................................................................................................... 3

Current CSR Initiatives ....................................................................................... 3

Need for Sustainable CSR ................................................................................... 4

Why Rural Electrification? .................................................................................. 5

Proposed Idea .................................................................................................... 8

Concept&Implementation Model ................................................................... 9

Challenges .................................................................................................... 10

Conclusion ....................................................................................................... 10

References ....................................................................................................... 11

Introduction

The term ‘Corporate Social Responsibility’ off late has garnered a lot of attention in India and

abroad. The term may be new but the concept isn’t. In 1965, the then Prime Minister of India, Lal

Bahadur Shastri issued the following declaration on the Social Responsibilities of Business:

“[Business has] responsibility to itself, to its customers, workers, shareholders and the community…

every enterprise, no matter how large or small, must, if it is to enjoy confidence and respect, seek

actively to discharge its responsibilities in all directions…. and not to one or two groups, such as

shareholders or workers, at the expense of community and consumer. Business must be just and

humane, as well as efficient and dynamic.”

Companies are taking an increasingly active role in the communities where they have a presence by

following means,

1. Partnering with non-profit and/or non-government organizations, government agencies or

2. Independently running initiatives for social development

3. Co-creating

4. Being environmentally responsible by setting high standards of efficiency

Despite the many initiatives, the general observation has been that a large number of corporations

have treated CSR as a peripheral item. This perception has to change – CSR has to become a

mainstream item. Corporations, in its pursuit to achieve their business objectives, should also strive

to achieve the larger social goals. The good news is several corporations, such as Tata group of

companies, Cairn India Ltd, Mahindra and Mahindra, have displayed deep and continuing

commitment towards corporate social development through a plethora of actions.

In this research paper, we will focus on #1 and #2. We start with a broad level analysis of the current

CSR initiatives of large corporations in India. We analyse the need for sustainability and whether

many of the current CSR initiatives are truly sustainable to make a permanent change in the social

space. We then propose our idea for a sustainable CSR initiative for rural electrification and discuss

its merits.

Current CSR Initiatives

In a developing country such as India the economic development issues are different and

characterized by issues such as poverty, illiteracy, healthcare, social security and basic civic

infrastructure. These have been on the government’s priority list since independence and continue

to remain the pain areas. 1990s has seen NGOs and social activists pursue the issues of human

rights, child mortality, women’s empowerment, community development and environmental

conservation.

The CSR activities of corporates have also been in this direction but have been by and large carried

out to meet the minimal legal and regulatory framework requirements. They have also been top-

down in nature. The drivers for CSR differ based on the industry sector, size of the organization and

nature of ownership – private or public sector. For instance, drivers for CSR in private corporates are

often brand value reputation and competitiveness. On the other hand, the main driver for public

sector companies emerged to be corporate values in a study conducted by Baxi and Sinha Roy

(Baxi&Sinha Roy, 2012). In the same study, the common barriers to CSR are lack of governance, lack

of dedicated staff and indifference in top management and following were their key findings:

1. Companies entered into education, healthcare, infrastructure, women empowerment etc

2. Companies chased too many CSR products; their objectives were diffused

3. The objectives were not renewed for a long time

4. The lack of clarity of prioritization within companies among the objectives was significantly

evident

5. The pursuit of too many objectives deprived the company any opportunity to focus on the

core issues in CSR implementation and evaluation of the impact of such activities.

Some of the notable CSR activities are in the areas of social impact, health, education, vocational

training, applying IT to improve processes and social empowerment. (Narang, 2009)

Social Impact Health Education Vocational Training

Information Technology

Social Empowerment

Cairn India Ltd Bharat Aluminium Co. Ltd.

Godavari Sugar Mills Ltd

Tata Motors Ltd

GTL Ltd Vedanta Aluminium Ltd

Multi Commodity Exchange of India (MCX)

Tata Refractories Ltd

L&T GMR Infrastructure Ltd

Tata Consultancy Services

Hindalco Industries Ltd

ITC Ltd Tata Steel Ltd Grasim Cement Rawan

Sona Koyo Steering Systems Ltd

Hewlett-Packard India

The Singareni Collieries Co. Ltd

Indian Farm Forestry Dev. Co-op. Ltd

Grasim Industries Ltd

Chennai Petroleum Corp. Ltd

ONGC Ltd

Bharat Petroleum Corp. Ltd

J K Lakshmi Cement Ltd

Mahindra & Mahindra

Cairn India Ltd

National Thermal Power Corp Ltd

L&T

Need for Sustainable CSR Rabindranath Tagore emphasized on process rather than product in his ideas about rural welfare

and reconstruction. It was back in 1922 that he established a dedicated institute for Rural

Reconstruction in Santiniketan. His focus was to create processes by which the villages could tackle

their own problems. The institute worked in broadly three areas, research, education and extension.

But, we believe, the current CSR has been focusing by and large on the product and have been

fragmented in nature. According to Debasis Bhattacharya (Bhattacharya, 2006), even though

corporates have been participating in social development activities, these have remained

miscellaneous. There is no organized channelization of the resources through a well defined media.

We believe the CSR activities should have the following features to be effective in the long run:

1. The activity should contribute in building a process than a one time or repeated act of

philanthropy

2. Dedicated manpower should be allocated to CSR activity by creating a separate unit from the

corporate (or a dedicated business unit within). For example, Infosys Foundation& Infosys Scientific

Foundation created by Infosys Ltd

3. There should be proven governance mechanism for the CSR activity. Success should be tracked by

parameters such as utilization of allocated budget, beneficiary satisfaction surveys, independent

audits etc. Strict control and monitoring mechanisms should be in place to measure the outcome of

the activity

4. The goal of the CSR activity should follow Lao Tzu’s famous quote:

Give a man a fish; feed him for a day. Teach a man to fish; feed him for a lifetime

The CSR activity should empower the beneficiaries with tools, equipment and provide them an

environment in which they can develop themselves.

5. The CSR should be sustainable.

In line with the above features, we have chosen the area of rural electrification for our idea of

sustainable CSR. We propose using sustainable energy resource – the solar power – in this idea.

Why Rural Electrification?

Today,

Over 40% of population has no access to electricity

Roughly 70% households use traditional biomass for cooking

More than 70% of our crude requirement is being met through import impacting India’s

energy security

India spent INR 78,198 cr. on petroleum products subsidy in 2011

Sixty-five years after Independence, only nine states - Andhra Pradesh, Gujarat, Karnataka,

Goa, Delhi, Haryana, Kerala, Punjab and Tamil Nadu - of 28 have been officially declared

totally electrified

India needs 8%+ GDP growth for lifting the bottom 40% of the population to an acceptable

standard of living

If we want to serve to the nation and want to become a real developed nation, we have to

address to the above mentioned facts. Every year we give away a huge amount of subsidies. We

believe subsidies must be given; it is most powerful tool in the hand of government. But we

must measure whether we are providing them to the real needy people or just cross subsidising

for those who do not need it.

For making electricity available to rural homes, India’s problem is threefold – the massive

investment required in building the infrastructure for the electrification project, the lack of self-

sufficiency in power generation and mitigating effects on environment by choosing sources of

energy wisely.

Let us understand the distribution of Households by Primary source of energy for lighting in rural

and Urban India (2007–2008)

Source: NSSO 2010

From the above two graphs it is clear that kerosene is the second largest source of electricity in rural

homes.We also know that kerosene is an inefficient and more expensive source of lighting when

compared with electricity and causes indoor air pollution. If we can provide a better solution to rural

India for lighting we can solve multiple issues.

Electricity 60%

Kerosene 39%

Others 1% Rural

Electricity 94%

Kerosene 5%

Others 1% URBAN

Quantum of Under-recoveries in Rs. Cr.:

Sensitive Petroleum Products

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Petrol 2723 2027 7332 5181 5151 2227 -

Diesel 12647 18776 35166 52286 9279 34706 81192

Domestic LPG 10246 10701 15523 17600 14257 21772 29997

PDS Kerosene 14384 17883 19102 28225 17364 19484 27352

Total 40000 49387 77123 103292 46051 78190 138541

Source: http://ppac.org.in/

1.07 per cent of GDP was paid in under recoveries in 2011. Same year Total expenditures of both

central and state governments on health and education were 1.27 per cent and 2.98 per cent of GDP

respectively.

Breakdown of per Unit Under-recovery on diesel, PDS Kerosene and domestic LPG

Source: Teri Report 2012

Note: Prices are Jan 2012 price. Desired price is the sum of refinery gate price plus transportation

and OMCs margin. Realized price is price charged to dealer by OMCs.

Almost Rs.30 per Liter we give as kerosene subsidy. The real needy of kerosene are the rural people.

When almost 40% of kerosene is used for lighting then why not we provide some other clean energy

for lighting in rural India.

Proposed Idea

We propose making Solar Lantern and Solar Home System available to rural homes.

Let us see how a Kerosene lantern compares against a Solar Lantern:

Characteristic Kerosene Lantern Solar lantern

Capital cost Low High

Cost of fuel Depends on usage Nil

Replacement cost Low High

Availability and reparability Very good, even in remote locations Poor, due to limited sale and servicing outlets

Flexibility to reduce illumination

Possible by lowering the wick No options for dimming the illumination in CFL- based lantern, possible in LED based lanterns

Lumen Output Low 4-5 Times higher

Safety aspects Fire and health hazards due to smoke Safe to use

Subsidy burden Recurring burden of fuel subsidy One time burden of capital subsidy(if Provided)

Providing Solar Home system where an individual house can generate its own electricity through

solar power can have multiple positive effects. A solar home system that provides 2-3 lights,1 mobile

phone charging point shall be sufficient for a rural use.

Availability of Solar system will have both social and economical impacts

Impact Of Solar lighting Remarks

Social Scalable solar power models can be built to provide electricity to primary health centers and education centers, thus having a large social impact

Improve productivity Increase in working hours of

Environmental sustainability Clean Energy

Poverty reduction Local employment generation ( maintenance and repair, allied industries for solar home system)

Economical Standalone power system eliminate the need for huge capital investments in power projects

New Job Opportunity Local level job creation

Saving foreign Exchange India is net Importer of Energy. The less we import the better it is towards reducing our trade deficit

Even Government is working to provide solar system but due to bad management and corruption

the progress is not as it should be.

Concept&Implementation Model

In our model one or more companies, such as ABC Ltd shown below, would transfer CSR fund to an independently run Trust. The Trust would provide a loan to a NGO, which has a good reach in rural parts of the India. The NGO will tie-up with Suppliers of the Solar home system – let us call it Clean Lighting System. The NGO will buy the product from supplier and sell it to Consumer.

Product Fl Flow Money to suppliers

Loan Repayment Loan Repayment

Financial model for sustainability of the plan

The customer will either pay in cash (unlikely because the economic condition of the target

customer will be below poverty line) or choose financing option, such as 15 % down payment and

balance byweekly or monthly instalments.

85 % of payment NGO would return to the trust. This will make the system responsible to collect

and effective use of money. 15 % will cover operating expenses, such as administration, salaries of

employees etc.

ABC Ltd

CSR Trust Non Profit Org.

BIJLI

Suppliers

Consumers

Credit terms to consumer:

15% down payment Loan tenor can varies from 1

year to 5 years Interest rate may varies from

4 to 6% per annum Repayment frequency is

monthly or weekly

Flow of money from

one or more

companies to trust

The Trust may run various other social activities.

This system is sustainable as it need initial grant from companies and in later stage it has loss of only

15 % and same can be spent as CSR activity by companies.

The model can be made self-sufficient in future either by increasing loan interest rate or by cross

subsidizing by the trust. Alternatively, the Trust can run some other for-profit business and give part

of its retained earnings to the NGO.

Challenges

We foresee the following challenges in implementing this model,

Payment collection from consumers

After sale service pertaining to warrantee of faulty product

Local Politics

Conclusion

The main motto for the CSR is to serve for the Society. Corporate India invests in CSR activities but the real effect is not measured so it lacks effectiveness.

First we need to identify the real problems in the society and collectively work to solve them. One of

the major problems is availability of electricity in rural India. Providing Clean Lighting system will

have both intended and unintended positive externalities. We can contribute to society and

environment by supporting reduction in poverty and social upliftment there by improving country’s

GDP.

References

1. Bhattacharya, D., 2006; Corporate Social Development: A Paradigm Shift, p.23, New Delhi:

Concept Publishing Company

2. Baxi, C. V. & Sinha Roy, R.; Corporate Social Responsibility: A study of CSR Practices in Indian

Industry, Noida: Vikas Publishing House Pvt Ltd

3. Narang, R. K.; Corporate Social Responsibility: Replicable Models on Sustainable

Development, New Delhi: The Energy and Resources Institute Press

4. Hopkins, M.; Corporate Social Responsibility and International Development: Is Business the

Solution? p. 127, Routledge

5. Fiscal Subsidy on PDS Kerosene & Domestic LPG Report (Retrieved from http://ppac.org.in/

on 19 Jan 2012)

6. Total Subsidy on PDS Kerosene & Domestic LPG Report (Retrieved from http://ppac.org.in/

on 19 Jan 2012)

7. Under recoveries to Oil Companies on Sale of Sensitive Petroleum Products Report

(Retrieved from http://ppac.org.in/ on 19 Jan 2012)

8. Lang, K. &Wooders, P.; India’s Fuel Subsidies: Policyrecommendations for reform. Policy

Brief August 2012 (Retrieved from

http://www.iisd.org/pdf/2012/india_fuel_subsidies_policy_brief.pdf on 27 Jan 2012)

9. Rural energy access and inequalities: An analysis of NSS data from 1999-00 to 2009-10. TERI-

NFA Working Paper No. 4 (Retrieved from

http://www.teriin.org/projects/nfa/pdf/Working_paper3.pdf on 28 Jan 2012)

10. National Sample Survey Office (2010). Energy Sources of Indian Households forCooking and

Lighting (Retrieved from

http://www.indiaenvironmentportal.org.in/files/file/Energy%20Sources%20of%20Indian%2

0Households.pdf on 28 Jan 2012)