Zerodha co-founder and CEO Nithin Kamath has raised questions over whether India’s mandatory 2% Corporate Social Responsibility (CSR) spending requirement is the most effective mechanism for generating social impact, arguing that the focus should move beyond the amount spent to the measurable, long-term outcomes created by corporate interventions.
Under India’s CSR framework, companies meeting specified financial thresholds are required under Section 135 of the Companies Act, 2013 to spend at least 2% of the average net profits of the preceding three financial years on eligible CSR activities.
Kamath, sharing his views on social media, said Zerodha allocates around 10% of its profits towards what it describes as “investing for the future,” largely through Rainmatter Foundation. He emphasised the distinction between simply spending money and treating social interventions as long-term investments.
The Zerodha CEO argued that companies may not necessarily possess the expertise or resources required to identify where CSR capital can produce the greatest social benefits. This could encourage businesses to concentrate spending around regions where they already have operations rather than areas with the greatest developmental requirements.
He pointed to states such as Maharashtra and Gujarat, along with Delhi, as examples of regions attracting significant CSR spending, raising the broader question of whether India’s current system results in an uneven geographical distribution of corporate social investments.
Spending Versus Long-Term Outcomes
A central concern raised by Kamath relates to the way companies measure the success of CSR programmes.
Businesses naturally tend to work with measurable targets and timelines, but social and environmental challenges can require interventions extending over several years. According to Kamath, measuring immediate outputs alone can therefore provide an incomplete picture of whether a programme has succeeded.
He cited tree plantation programmes as an example. Reporting that several lakh trees have been planted provides an easily measurable CSR output, but the more important questions include whether appropriate native species were planted and how many trees remain alive a decade later.
Education presents a similar challenge. Constructing a school can be documented relatively easily as an infrastructure outcome, but assessing whether children attending the school are actually learning and achieving better educational outcomes requires longer-term monitoring.
The distinction highlights an increasingly important issue in CSR — the difference between outputs and outcomes. Outputs can measure activities completed or beneficiaries reached, while outcomes examine whether those interventions ultimately produced meaningful and sustainable changes.
Could the 2% Requirement Become a Spending Target?
Kamath also questioned whether prescribing a specific CSR percentage could unintentionally encourage companies to view deployment of the required budget as the objective itself.
“The more the goal becomes deploying a budget rather than solving a problem, the greater the risk of money being wasted or misused,” he said.
He also highlighted what he described as an “anchoring” effect associated with the 2% requirement. While the law establishes a minimum spending obligation for eligible companies, Kamath suggested businesses could psychologically begin treating 2% as the standard amount they are expected to spend.
As a result, even companies capable of committing significantly greater resources during highly profitable years might limit their CSR allocations around the mandated benchmark.
Zerodha’s own approach differs from the statutory minimum. Kamath said the company has allocated approximately 10% of its profits towards initiatives it considers investments in the future, with much of the work carried out through Rainmatter Foundation.
Kamath Suggests Alternative Tax-Based Model
Kamath also proposed an alternative for consideration: instead of requiring companies to independently deploy 2% of profits towards CSR, the corporate tax rate could theoretically be increased from 25% to 27%, with the additional government revenue directed towards social and developmental priorities.
He argued that such a model could potentially allow resources to be distributed more evenly across India rather than concentrating spending in locations where profitable companies and their operations are clustered.
The proposal represents Kamath’s suggested alternative rather than a government policy change. India’s existing statutory CSR framework continues to apply to eligible companies.
A centrally allocated model and company-led CSR spending can also serve different purposes. Corporate CSR programmes can bring private-sector expertise, experimentation, partnerships with non-profit organisations and targeted interventions, while government expenditure operates at a considerably larger scale and is subject to public budgeting and policy priorities.
Impact Measurement Gains Importance in CSR
Kamath’s comments add to a broader discussion around how CSR performance should be assessed as India’s corporate social responsibility ecosystem matures.
The Companies Act framework already goes beyond simply specifying expenditure. India’s CSR rules require impact assessments for certain large projects undertaken by companies with sufficiently large CSR obligations, creating a mechanism for independently examining outcomes from significant CSR interventions.
However, evaluating long-term social outcomes remains more complex than tracking expenditure. Projects involving education, environmental restoration, healthcare, livelihoods and community development can take years before their full effects become visible.
Kamath’s argument therefore shifts the discussion from a straightforward question of “How much was spent?” towards another question: “What changed because the money was spent?”
For companies, NGOs and implementation partners, this approach would mean placing greater emphasis on programme design, baseline measurement, beneficiary outcomes, independent evaluation and monitoring that continues beyond the immediate project period.
“Maybe the real question shouldn’t be how much companies spend on CSR. It should be how much long-term impact the money creates,” Kamath said.
The comments bring renewed attention to the balance between mandatory corporate contributions and effective deployment of those resources, while highlighting the importance of measuring CSR not solely through expenditure but through the lasting social and environmental outcomes it creates.
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