Social Audit in India

Social Audit is an emerging field in India. In India, Tata Iron and Steel Company Ltd (TISCO), Jamshedpur, was the first to take the initiative to perform social audits in 1979.

It gained relevance after the constitution’s 7  3rd amendment, which dealt with Panchayat Raj Institutions. Article 243J of the Constitution provides for the audit of Panchayat’s accounts.

In India, Social Audit was first made statutory in 2005 through the Rural Employment Act.

Section 17 of this Act makes social audit mandatory for works done under the MGNREGA scheme by the concerned Gram Sabha. The government also issued the Social Audit Rules in 2011 under the MGNREGA Act.

The 9th Five Year Plan approach document placed a strong focus on social audit for the efficient operation of Panchayat Raj Institutions.

The most appropriate institutional level for social audit is the Gram Sabha, which has been given “watchdog” powers and responsibilities by the Panchayati Raj Acts in most states to supervise and monitor the functioning of elected representatives and government functionaries. They also examine the annual statement of accounts and audit reports. These implied powers indirectly empower Gram Sabhas to carry out social audits in addition to other functions. Members of the Gram Sabha and the village, intermediate, and district Panchayats can raise issues of social concern and public interest and demand an explanation.

The uneven progress on NREGA social audits across India prompted the National Comptroller and Auditor General of India (CAG) to take stock of the situation. In 2015, the CAG’s compliance audits in fifty local village governments across India revealed that state governments were violating provisions of NREGA and diluting the spirit of social audits. The CAG’s interest in social audits compelled the National Ministry of Rural Development to form a task force to develop National Standards and a consistent audit methodology. Based on the task force recommendations, the ministry adopted a social audit action plan and instructed state governments to begin monthly social audits on NREGA. This CAG-led process, supported by the Indian Supreme Court, is now being rolled out across India. The scope of social audits has also expanded beyond NREGA and covers sectors such as food security, persons with disabilities, the Building and Construction Workers Act, the Juvenile Justice Act, the National Rural Health Missions, Sarva Shiksha Abhiyan, Pradhan Mantri Gram Sadak Yojna, etc. among others. However, state initiatives to scale up what began as civil society initiatives can have strengths and weaknesses.

Social Audit in India

With the introduction of the Companies (Corporate Social Responsibility Policy) Amendment Rules 2020, Social Impact Assessment came under compliance. Through this amendment, it has been made obligatory for a company incurring CSR spending of Rs. 5 crore or more in the immediately preceding financial year, in pursuance of Section 135, to undertake an impact assessment for their CSR projects.

With the launch of the social stock exchange, social audit has matured with well-defined deliverables.

The Institute of Chartered Accountants of India (ICAI) has defined the required social audit procedures for 16 thematic areas of social development.

The concept of Social Stock Exchange (SSE) came into existence in 2003 when the first Social Stock Exchange was introduced in Brazil. Thereafter, many other countries like South Africa (in 2006), Portugal (in 2009), Canada (in 2013), Singapore (in 2013), the United Kingdom (in 2013), and Jamaica (in 2019) followed suit. However, only three out of the seven Social Stock Exchanges are still surviving and functioning. They are based in Canada, Singapore, and Jamaica.

The National Guidelines on Responsible Business Conduct, 2018 (NGRBC), encourage businesses to contribute towards broader development goals while seeking to be economically viable.

The development of sustainability reporting standards like the Global Reporting Initiative, ISO 26000: Guidance on Social Responsibility, Principle of Responsible Initiative (PRI), and Sustainability Accounting Standards Board (SASB) has contributed to our understanding of social responsibility.

India is a signatory to global initiatives like the Sustainable Development Goals (SDGs) adopted by the United Nations in 2015. These global initiatives address universal social development issues and call for action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity.

Based on the guidance in NGRBC, Business Responsibility & Sustainability Reporting is a compliance requirement for the top 1000 companies in India.

According to a 2012 government estimate, India has 31 lakh NPOs. As of 2018, only 1.8 lakh institutions had registered and claimed tax exemption status. Among them, only 18% had obtained FCRA funding, and 11% had obtained CSR funding.

The term “Social Stock Exchange” was formally introduced in India in 1981 with the establishment of Ashoka (A global association of the world’s leading social entrepreneurs).

The emergence of the Social Stock Exchange concept in India:

Hon’ble Finance Minister Smt. Nirmala Sitharaman, as part of the Budget Speech for FY 2019-20, proposed the idea of an electronic fund-raising platform “Social Stock Exchange” under the regulatory ambit of SEBI to list social enterprises and voluntary organizations working for the realization of a social welfare objective so that they can raise capital as equity, debt, or as units like a mutual fund.

Through a notification dated July 25, 2022, the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”), the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), and the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) were amended to provide a broad framework for the Social Stock Exchange.

As per Regulation 91E of the LODR Regulations, all Social Enterprises that have registered or raised funds using SSE are required to disclose an Annual Impact Report within 90 days from the end of the Financial Year.

In India, the concept of Social Audit and Social Stock Exchange is in the initial stage, and in the next few years, it will create huge opportunities for professionals in the field of social audit, SSE registration, listing of securities, consultancy, etc. It will also ensure transparency, accountability, and prove to be a good tool for faster social welfare for needy and poor people and environmental development.


Author Bio

Qualification: CA in Practice
Location: DELHI, Delhi, India
Member Since: 26 Jun 2021 | Total Posts: 1
Myself CA. Rajesh Goyal. I am practicing Chartered Accountants in Delhi. I have rich experience of 20 years in the field of Income Tax, GST, TDS, Statutory Audit, Bank Audit, Tax Audit, Company matters etc. In addition to FCA, i have also passed the professional course of DISA, CCA, Peer Reviewer, View Full Profile

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February 2024