CSR in India's Pharmaceutical Industry: An Exploratory Study

Introduction

Corporate social responsibility (CSR) refers to the commitment of a business to improving the quality of life of their clients or customers, their employees, the local community, and society at large. This term covers the efforts undertaken by the business towards sustainable economic development (Holme & Watts, 2006). CSR initiatives seek to establish businesses as good corporate citizens in the society (Sagar & Singla, 2004). They are essentially the ethical responsibility of all corporations and businesses and are commensurate with the concept of "compassionate capitalism." The efforts include everything done with the purpose of social upliftment and development. Other considerations for these activities include economic reasons, reduced risk, increased access to capital, larger market share, better supplier relationships, and especially increased customer satisfaction and loyalty (Agarwal, 2008).

A study conducted by Mishra and Suar in India showed that responsible actions and dealings with primary stakeholders increased firm performance (Mishra & Suar, 2010). The pharmaceutical companies exist in an industry that serves as a bellwether of economic liberalization, so they need to be very careful of their interactions with societal members as well as their positive contributions towards society (Mitra, 2012). This research aims to conceptualize corporate social responsibility in the pharmaceutical industry of India and assess the scope and content of activities carried out for the benefit of the community at large.

For the purpose of this research, secondary data is used for evaluation purposes and a comparison between the practices of Indian pharmaceutical companies and Western companies is performed. The research is intended to evaluate the current status of CSR compliance in India. For this purpose, the historical background of, and development of, the pharmaceutical industry in India is evaluated. The evaluation of the rationale behind the philosophy of CSR in India helped in performing a thorough analysis of current CSR practices. Through this research, a literature review of secondary data is performed in the light of given research questions by using exploratory research methodology.

Literature Review: Outlook of CSR in India

In order to understand how CSR has been flourishing in the Indian pharmaceutical industry, it is important to obtain a comprehensive overview of current CSR practices in India's economy. For this purpose, a correlation of current practices will be performed with the historical development of CSR in the Indian economy. CSR has emerged out of basic business ethics. These business ethics are expected to set out a framework within which enterprises operate (Caza et al., 2004). In Indian society, most of the concepts of CSR have been rooted in a basic regime of social welfare. As per the research conducted by Gopal and Karjat (2012), the whole process of CSR has been rolled out in the Indian economy in four phases. The first phase was concerned with charity and philanthropy, with values, cultural norms, and traditions serving as the main driving forces causing CSR to gain ground in Indian society.

The first period was prior to 1860, known as the pre-industrialization era. In this era, the wealthy families of the region contributed to the overall welfare of society. Building temples and helping the overall population overcome problems caused by natural calamities and epidemics was one form of social welfare. However, with the arrival of British colonial rule in the subcontinent, this culture of social welfare changed its landscape.

In the second phase, the movement for independence began, during which major pressure was placed on industrialists to show their commitment to society. This was precisely the time when figures like Mahatma Gandhi appeared as sole examples of social workers. Where most industrialists focused on well-being, many contributed to society and the changing scenario of the subcontinent by developing a character of trusteeship. As expressed by Mahatma Gandhi, industries should be the temples of modern India. Trusts, schools, colleges, hospitals, and other social welfare organizations came into existence during the same timeframe. In the early 1900s, when the struggle for independence was gaining momentum, the main focus of the Gandhian regime was on rural development and women's empowerment (Khan, 2008).

The third phase continued from the mid-twentieth century. This was the time when the Indian economy was presenting the outlook of a mixed economy. Power was being transferred from the government to the private sector, and many industries, entrepreneurs, and private organizations emerged during this period. Where the public sector tried to refrain from being a passive player, the result was higher tax rates, embargoes, restrictions on private organizations, and a licensing system. As a result of these constraints, a culture of malpractices emerged. The rich became richer, and the overall balance of state wealth was disturbed, leading to the formation of labor laws and other legislation related to corporate governance and environmental issues.

The fourth phase of this economic and social change began after the 1980s. This was the precise period when Indian private industries and firms began to make efforts to promote a culture of corporate social responsibility, which later became an integral part of business strategy. From the 1990s onwards, Western buyers showed major interest in the environmental impacts of production taking place in India. Therefore, special international standards were established so that environmental and labor laws would be considered as conditions for continued business. Hence, in order to remain active in the international marketplace, Indian private companies were compelled to comply with international CSR standards.

Just as business ethics in Western society are based on Abrahamic religious traditions, the CSR culture in Indian industry has also stemmed out of Gandhism. The cultural and social outlook of Indian society helps establish a notion of harmonious relationship between man and nature. The multifaceted presence of religious ideologies in Indian culture gives CSR practices in Indian industry a spiritual outlook rather than treating them as realistic business practice. Hence, the idea is to give preference to salvation over worldly gains and the urge to attain profit (Sharma & Talwar, 2005). Therefore, the current business practices of corporate social responsibility are based on the spirit of voluntary sacrifice and sharing, with future gains and harmony with nature in consideration.

The current model of CSR practices in the Indian economy, especially in the pharmaceutical industry, is based on the social trusteeship theory rooted in Gandhi's ideology. It was his idea of non-violence which later formed the basis of the struggle for independence and which acted as a concrete ground of resistance against British rule in the subcontinent. The idea of Gandhi's trusteeship theory was to cause no harm to any living thing or to nature itself, and to acknowledge the rights of others while complying with the basic grounds of morality. Since the evils of industrial development without any consideration for social welfare were causing harm to the roots of Indian society, Gandhi presented the philosophical theory of trusteeship, which was intended to focus on women's independence and rural development.

The whole idea of Gandhi's philosophy was based on the notion that everyone is equal before the Almighty and that whatever exists in this world belongs to everyone. Therefore, those who are provided with more assets have a responsibility of sharing them with the deprived members of society. Hence, the owners of assets are trustees by nature, who are expected to serve society, take from their assets only as per their needs, and use their property in the best interest of society.

It is important to note that Gandhi was a supporter of neither capitalism nor socialism, and communism was an unacceptable theoretical model for him. He believed in giving everyone equal rights to continue their lives; therefore, the use of violence and unjustified means was unacceptable to him. Due to his position between socialism and capitalism, he presented an idea of an economy that was capable of using its own resources and was able to flourish on its own without being dependent on external forces, and having a mechanism of self-governance. It presented an amalgam of a capitalist model coupled with a socialist regime.

The 1980s was the precise period when the Indian industrial model was gaining strength. Industries were expanding with new innovations and technological developments, while diversification was being observed in every dimension of the industrial framework. As industries and business empires expanded, public expectations from these business houses also rose, giving rise to the NGO culture. The main aim of these NGOs was the welfare of society and opposing actions by public and private sectors that were causing harm to the general population, along with environmental considerations. Due to these consolidated efforts of NGOs, an Environmental Protection Act was enacted in 1986 and applied to many public and private organizations in consideration of environmental protection (Divan & Rosencranz, 2001).

At the same time, the industry witnessed the emergence of many conglomerates and the overall business community grew extensively. Major business empires like TATA, Birla, and Hindustan Lever came into being. With the expansion of the overall business model, a need for suitable talent also arose, due to which the employment rate in the private sector also became high. Since it was a time of growth and development, industry faced competition in attracting suitable talent. Therefore, employee retention and employee development practices were initiated by many corporations in order to retain their talent (Sundar, 2008). With the expansion of the Indian economy, the new wave of globalization also left its mark in India, where new business ventures and various opportunities appeared for Indian businessmen. Hence, in 1991, various reforms appeared that were initiated by government to facilitate business and trade development (Sawhney, 2004).

Where the environmental protection act was formulated rather late and considerable environmental damage had already been done, aggressive efforts were made in formulating policies that were suitable for clearing the mess created by earlier industrial practices and for regulating existing business processes. With more privatization, the possibilities for foreign trade increased, due to which Indian organizations were required to comply with international requirements of trade, labor, and environmental management. A current profile of Indian industry consists of entrepreneurs, family businesses, and business houses performing national as well as international trade. With the expansion in international trade and the engagement of Indian businesses in aggressive business practices, CSR gained more popularity. Where CSR has emerged as a defined integral business practice, its development as a consistent corporate policy model is yet to be fully realized.

It is important that instead of considering international best practices and trying to adopt them as they are, a customized model suited to Indian society and business needs should be formulated — one that would be accepted as welfare to society and not merely to the businesses themselves. A series of events such as causalities in coal mines in Jharkhand, which killed hundreds of miners, and the Bhopal gas incident which took place in 1984 and is still considered one of the greatest industrial disasters in history, made this imperative. The casualties that took place in the same timeframe numbered over 3,500, while hundreds of thousands of people remain affected by the side effects of the gas leakage. Even the ecosystem of the same locality is highly inhospitable to animals, plants, and humans. The inhabitants of this region have been found to be highly affected by the disaster that took place in 1984 (Tinsley & Anseley, 2011).

Where legislation is now in place and has clear directives related to environmental and human life protection, it is important to note that not much emphasis has been placed on influencing Indian business enterprises to undertake their responsibilities and practice the given CSR policies aggressively and consistently. Local NGOs and social activists are expected to play their role in this regard. However, since most of the trade comes from foreign organizations, an influence from international bodies would also make a difference (Sawhney, 2004).

With the change in the overall landscape of business practices taking place in India, the forms of CSR practices are also changing and have evolved from religious and social practices to formal strategic business policies. There are several studies which support the notion that India is one of the pioneers in Asia to adopt CSR practices. As a matter of fact, many leading Indian business empires now appear to be publishing their CSR compliance details in their financial statements, which represents a breakthrough in Indian history (Chambers et al., 2003; Khan, 2008). Since there is no governing body involved in active management of CSR practices in India, however, some of the organizations that are part of the CSR regime may be presenting false or inconsistent information in the name of CSR compliance (Chambers et al., 2003). Therefore, there is a need for a consistent effort that would ensure that CSR practices are not only rigorously complied with but are also included in public declarations as well.

According to the literary evaluation of Kumar et al. (2001), the current CSR model in India comprises the original Indian form of Gandhi's teachings as entailed in the Trusteeship Theory, coupled with Nehru's advocacy of Statism. Other than this Indian version of CSR, current Indian organizations also appear to be following Western best practices. The models considered to be followed by today's Indian organizations consist of traditional practices merged with Milton Friedman's liberal CSR model. This model argues that while there are various stakeholders in organizations — including leadership, employees, customers, vendors, etc. — shareholders have the highest degree of importance. In accordance with the principles defined by Friedman, many Indian organizations have appeared to be following practices that focus on shareholder interest and profit generation (Gopal & Karjat, 2012). As per Friedman's ideology, the business is only responsible to its shareholders and is meant to generate profits only.

Another Western model that Indian corporations have appeared to be following is Edward Freeman's Stakeholder Theory (Khan, 2008). According to the model presented by Freeman, stakeholder satisfaction should be the sole objective of the business, and their welfare and wellbeing must be taken into consideration. This particular model is rather concurrent with Gandhi's trusteeship theory, since most stakeholders form a large share of society; therefore, while taking care of stakeholders and not of society itself, the business is actually complying with the CSR model. However, various studies have been conducted in this regard, and there is evidence that Western theories do not fit the model of Indian organizations and need to be customized accordingly. This is because the Indian industrial sector is mainly governed by the ideologies presented by national and religious figures, whereas most Western CSR models are presented by management scholars. This fundamental difference makes Western theories rather unsuitable for Indian society (Mohan, 2001).

The main reason for non-compliance of Indian business enterprises with CSR practices is the distance it bears from core corporate objectives, which makes CSR practices not part of mainstream business operations. Since there is no visible return on investment, the lack of financial gains makes CSR compliance a low priority. However, as per various studies conducted in pursuit of evaluating compliance to CSR standards by Indian businesses, it has been discovered that change has been initiated and many business leaders in Indian industry are actually taking the necessary measures to create synergy between the earlier philanthropic model and the new Western regime (British Council et al., 2002). Transformations in the traditional model of organizational management and the development of management into business leadership are also changing the landscape of social welfare performed by businesses.

It is also argued that the changing face of CSR in the Indian economy is because of the emergence of MNCs in the given industry. Ruud (2002) argued that MNCs in India are the drivers of the CSR agenda. They act in a more environmentally sustainable manner than local companies do and follow stricter standards in accordance with those of their headquarters in the West. As a result, sustainable business practices often threaten the competitive advantage of MNCs that are more responsible. However, in response to that, it is argued that MNCs are more prone to profit-making since they must justify their presence in foreign regions; therefore, their practices are more profit-oriented. Other scholars present a notion that instead of complete adherence to either profit-making or social welfare, MNCs are more prone to maintaining sufficient profits along with risk management. Therefore, most MNCs have altered their overall business model and have been following localized policies.

This adaptation makes them more acceptable in the Indian market and also makes them liable to comply with already undermined CSR standards. Since MNCs are mistrusted in Asian economies, the general perception is that MNCs are not playing their due role and are not taking sufficient and concrete measures required for society's welfare (Kumar et al., 2002). Most MNCs have appeared to adapt to a local identity and have lowered their standards when it comes to CSR. If a comparison is made, MNCs would be found to be doing very little as compared to their Western sister concerns.

To be more precise, there are various schools of thought that govern the basic CSR practices in Indian industry. Where corporations appear to be following various social and environmental welfare policies, they can be seen as being driven by Gandhi's trusteeship theory, which is deeply rooted in philanthropic practices. On the other hand, another school of thought follows Nehruism and believes in the sovereignty of the state. There are also other groups who believe that Western theoretical models are the most suitable ones. However, they all lead to a common conclusion: there is a higher degree of inconsistency in the efforts made in this regard, and there needs to be a governing framework which would act as a defining road map for these enterprises. While the principles of Gandhian trusteeship seem to be present in some form, the extent of its influence is inconclusive.

Profile of the Indian Pharmaceutical Industry

There are various reasons that played a key role in selecting the Indian pharmaceutical industry as the subject of this research. Firstly, some of the pioneers of industrialism in India are in the pharmaceutical sector. There are major groups that make maximum contributions to the Indian economy and have a well-established market presence. Secondly, the pharmaceutical companies, due to their historic presence, are highly affected by the Indian ideology of CSR, and one can therefore expect that they would comply with CSR requirements since their foundations are based on the typical culture of philanthropy. These companies are further expected to be working under the influence of Gandhi's theory of trusteeship, as their leaders belong to the era of the 1960s onwards. There are also studies that have supported the notion that companies with higher revenues are expected to be better contributors to CSR practices in Indian society (Arora & Puranik, 2004). Therefore, the big business groups are expected to undertake major responsibility in this regard.

On the other hand, it is pharmaceutical companies that have a major adverse impact on the environment as a result of their production activities and are therefore more liable to take part in CSR activities in India. One of the strongest arguments was presented by the President of Novartis himself, stating that pharmaceutical companies must be held to higher standards for social responsibility, because their consumers (patients) do not possess the "consumer sovereignty" to buy or reject their products (Khan, 2008).

The Indian pharmaceutical industry possesses a distinguishing portfolio as compared to other sectors. It is mainly involved in the manufacturing of drugs and medicines along with other peripheral products. The industry thrives on the basis of new research and development as well as the presence of established drugs. Basic value-addition processes include research and development, production, packaging, and logistics. The industry focuses on manufacturing generic drugs and bulk units, both of which possess different natures. In the pharmaceutical industry, generics are copies of branded drugs whose patent protection has expired, and they are bioequivalent to their corresponding branded drugs. Also referred to as unbranded formulations, these drugs are sold under their chemical names at a fraction of the price of patented drugs. However, some companies do opt for the option of "branded generics," whereby they invest in marketing and differentiating these from other generics. Bulk drugs are the powder forms of active chemical therapeutic substances (e.g., vitamins, analgesics, etc.) that are the main ingredient in pharmaceutical products. These are used for producing pharmaceutical formulations, whether generic or patented (Khan, 2008).