Blurring Lines: How CSR is Redefining the Three-Sector Model
As CSR Funds Flow to Government-Backed Entities, Where Does That Leave NGOs?
A 300-bed, shining, hospital opened its doors in Assam’s Sivasagar district in November 2023. Locals might assume it was a government project — after all, a Union Minister did the ribbon-cutting — but the ₹483 crore facility was actually built with funds from Oil and Natural Gas Corporation’s CSR budget(Source: Here).
Across India, similar stories are emerging: Corporate Social Responsibility (CSR) funding, traditionally channeled to independent NGOs and charitable trusts, is increasingly being funneled into government-backed initiatives. From Foundations (Section 8 companies) set up (or steered) by government agencies to state-run institutions like public hospitals and schools, CSR is taking a new and interesting direction. Is this trend amplifying social impact through public-private partnership, or is it actually short-circuiting the three-sector balance by turning the third sector into an extension of the government? It is high time to explore this evolution through real examples — and what it means for the future of social development.
The Traditional Three-Sector Model
For decades, societal development rested on a three-sector model: the government (public sector) provided governance and basic services, the private sector drove economic growth, and the third sector — NGOs, charities, civil society — innovated and addressed gaps with independence and community focus. CSR emerged as a mechanism for businesses to support third-sector initiatives financially, without directly enlarging the state. Ideally, this arrangement kept each sector in check: NGOs could even critique or complement government efforts, and companies could fund social causes outsideof state control.
Historically, the third sector has been referred to by different terms — each reflecting a particular perspective. The concept of a sector distinct from government and business existed well before formal terminology emerged, with early references to “charitable sector” or “philanthropic sector.” In 1965, Richard Cornuelle introduced the term “independent sector,” though his definition included some for-profit entities. By 1973, Theodore Levitt popularized the term “third sector,” giving it an academic foundation, while Burton Weisbrod’s economic theories in the 1970s and 1980s further clarified the sector’s role in addressing market and state failures. Over time, terms like “nonprofit sector” (focusing on financial structures) and “voluntary sector” (emphasizing participation and civic engagement) became widely accepted. Yet, as scholars like Peter Frumkin and Rob Macmillan have noted, these definitions remain contested, evolving alongside the sector itself.
Today, however, that tidy separation is blurring. A sharp shift is underway in India’s CSR landscape. Regulatory changes in recent years have effectively narrowed the channels through which companies can deploy their mandatory CSR spending. In 2020, an analysis warned that new amendments to the Companies Act “will dismiss a majority of the country’s three million nonprofits from being recipients of CSR funds.” The only entities now fully eligible are Section 8 companies (non-profit companies) and “notified government funds,” while traditional charitable trusts and societies risk being entirely excluded (Pinto, 2020). In practice, this means CSR money is steered toward organizations that either have a corporate legal form or are created/endorsed by governments. Critics noted that the law seemed designed “to almost obstruct the flow of funds into much of the social sector and to redirect these resources into the hands of the government.” (Pinto, 2020)
Section 8 companies deserve a quick explanation. Under Indian law, these are non-profit companies with social welfare objectives. Many NGOs remain registered as trusts or societies, but Section 8 status is now favored for receiving CSR funds — a push that has led even independent NGOs to consider morphing into Section 8 companies to survive. Meanwhile, governments themselves have been setting up or backing Section 8 companies to undertake social projects. The result? The boundaries between a grassroots NGO and a state-run entity start to fade when both must align with government frameworks to access corporate funding.
Corporate Funds for Public Causes: Boosting Infrastructure and Services
Proponents of this shift argue that it can strengthen social impact by combining resources and aligning goals. When corporate funds plug directly into public projects, the scale and speed of execution can be impressive. The Assam hospital is a case in point — a state-of-the-art facility now serving an estimated 100,000 patients annually, managed by a charitable trust but born from a public-private effort. It’s not just one hospital. In September 2023, Power Grid Corporation (a PSU) signed an MoU with AIIMS Raipur (a government hospital) to provide a new CT scanner, ambulances, and other medical equipment worth ₹15.5 crore from its CSR budget (Source: Here). The hospital’s director openly appealed for “PSUs and other giant corporations to come forward and provide help to patients through their CSR funds” to augment public healthcare (Source: Here). These infusions are addressing critical gaps — expensive machines, additional hospital beds, rural clinics — that government budgets alone struggle to fund promptly.
During the COVID-19 pandemic, such corporate-government collaboration arguably saved lives. In Karnataka, when a devastating second wave hit, the state government tapped into CSR to rapidly bolster hospital capacity. Within weeks, “relief aid from private companies helped the state government to quickly upgrade health infrastructure in at least five hospitals.” Over ₹55 crore was committed to add ICU beds and oxygen facilities across government medical centers (Source: Here). The model was straightforward: officials identified which public hospitals needed an upgrade, and willing corporates funded the work directly. This bypassed the red tape of treasury funds and leveraged corporate agility in procurement. “Any company which is willing to partner with the government through its CSR initiatives will be given a suitable place to set up ICU beds,”explained the officer leading the effort. The outcome was a faster, more coordinated response than either sector might have achieved alone.
Beyond healthcare, corporate CSR is bolstering government priorities in areas like sanitation and education. The Swachh Bharat (Clean India) Mission launched a dedicated Swachh Bharat Kosh to attract CSR contributions for building toilets and solid waste systems (Swachh Bharat Kosh, n.d.) (Press Information Bureau, 2014). Likewise, the National Skill Development Corporation (NSDC) — a Section 8 company in a public-private partnership — set up a special CSR cell to funnel corporate funds into vocational training for youth (Source: Here). By 2017, NSDC had mobilized over ₹100 crore from various enterprises’ CSR budgets to skill over 300,000 people. These efforts show that when businesses and government align, resources pool together to amplify impact on large-scale national missions (cleanliness, skills, healthcare, etc.).
Blurring Boundaries: Is the Third Sector Losing Independence?
The flip side of this trend is a growing concern that NGOs and civil society are losing their autonomy and funding — effectively becoming subcontractors for government agendas. Traditionally, many NGOs thrived on the freedom to choose innovative, locally tailored solutions, even if those fell outside official plans. They also served as watchdogs, advocating for communities and sometimes challenging government policies. But as CSR money gravitates toward government-approved channels, independent organizations may be starved of support. Indeed, if a majority of CSR funds must go to Section 8 companies or government funds by law, millions of small NGOs (often registered as societies or trusts) are cut out by design. This short-circuits the three-sector balance: the third sector’s role shrinks as it is subsumed under government-supervised entities to qualify for funding.
Several NGO leaders liken this to turning CSR into an “additional tax” that companies pay to government coffers, rather than a catalyst for independent social innovation(Featherston, 2020). Dr. Ameeta Jain, a researcher on CSR, observes that some businesses would “rather just pay the money to the government” to satisfy the 2% rule, given the complexity of running their own programs. This mindset reduces CSR to a check-the-box compliance exercise — the very opposite of vibrant corporate philanthropy. If companies simply write cheques to government-run funds (like the Prime Minister’s relief funds or missions), the corporate sector’s involvement may end there. The implementation is then in government hands, with NGOs either sidelined or contracted in a limited capacity. Transparency and accountability could suffer too. Analysts have noted that recent CSR rule changes mean companies no longer have to report detailed spend-by-spend information to shareholders (Ground Report, 2023), making it harder to track where the money ultimately goes once it enters a government-controlled pipeline.
Moreover, the independence of civil society can be subtly eroded. When funding is contingent on aligning with government initiatives, NGOs may self-censor or tailor their objectives to fit official priorities. A grassroots organization that once tackled an unpopular issue or advocated policy change might pivot to safer, government-approved projects to attract CSR grants. In the long run, this homogenization of the third sector could dampen the diversity of approaches tackling social problems. There is a reason healthy democracies encourage an independent civil society — it can experiment, speak up for minorities or novel causes, and act as a check on state and market excesses. A CSR ecosystem that largely treats NGOs as delivery arms for state programs risks muting this independent voice.
CSR or Quid Pro Quo? The Question of Motives
It’s also worth examining why corporates are so keen to fund government-backed causes. Beyond the noble intent of nation-building, is there a hint of quid pro quo? Some critics believe so (Sarkar, 2021)(Featherston, 2020). They point to patterns where companies (especially those in regulated industries) make large donations to government pet projects as a way to curry favor with policymakers. For instance, Featherston highlighted that multiple public sector enterprises collectively donated over ₹150 crore to the grand Statue of Unity project in Gujarat — a monument championed by the ruling government — even though India’s Auditor-General later found it did not meet the criteria to qualify as a CSR cultural heritage project. Observers called out these contributions as “politically motivated donations — attempts to earn the goodwill of the ruling party.” In plainer terms, a company that generously supports a Prime Minister’s fund or a Chief Minister’s favorite initiative might hope for a sympathetic ear when it comes to policy decisions, contracts, or regulatory leniency down the line.
The unprecedented corporate response to the PM-CARES Fund in 2020 raised similar questions. The fund was set up to battle COVID-19 and was chaired by the Prime Minister, but it was distinctly under government control and exempt from usual public audits. Nevertheless, companies poured CSR budgets into PM-CARES: in its first year, over half of the fund’s ₹3,076 crore corpus came from corporate CSR contributions (₹1,577.8 crore) (Ground Report, 2023). While supporting pandemic relief is laudable, the concentration of so much corporate charity into one government-administered pot was notable. It led some to wonder if companies felt implicit pressure to donate (to signal patriotism or avoid falling out of favor), especially since many top donors were state-run enterprises themselves. Indeed, an analysis found that government-run companies (PSUs) contributed nearly 60% of total donations to PM-CARES in its initial years – essentially the government directing its own companies to channel money into a government trust. The perception of quid pro quo can be as damaging as an actual one; even if no explicit deal is made, such tight-knit financial embracing between corporates and the state can breed public cynicism.
For its part, the government has at times discouraged the over-reliance on simply donating to official schemes. The Ministry of Corporate Affairs clarified that “The CSR fund of companies should not be used as a source of funding government schemes.” (Source: Here) In other words, CSR was not meant to become a backdoor tax or a substitute for the government’s own budgetary commitments. Finance Minister Nirmala Sitharaman herself has insisted that “it’s not a tax — we don’t want your money, we want your capacity,” urging companies to engage their expertise and innovation, not just their wallets. This highlights an important nuance: done right, CSR should leverage what companies do best (efficient project management, innovation, technical know-how) alongside capital, rather than simply writing a cheque to the nearest government fund. The challenge is ensuring that partnerships with the state harness corporate capabilities without devolving into pay-to-play.
Striking a Balance: Collaboration Without Co-option
Is the third sector becoming an arm of the government? In some ways yes, the lines have undeniably blurred — but it’s not an irreversible fate. The current trajectory shows both promise and peril. On one hand, corporate-government partnerships have proven they can deliver big-ticket projects and urgent services with speed. From new hospitals to clean water initiatives, millions of citizens are benefiting from facilities that might not have existed (or would have taken years longer) if corporates weren’t directly investing CSR funds into public infrastructure. When a rural village gets an ambulance or a school building courtesy of a CSR program, it hardly matters to the beneficiaries whether an NGO or a state agency facilitated it. In that sense, social impact is being strengthened in the immediate term — needs are being met.
On the other hand, a vibrant third sector is like an ecosystem: it needs diversity, freedom, and sometimes a healthy distance from government to thrive. The risk today is that CSR’s evolution could homogenize that ecosystem, aligning it too closely with government agendas and cycles. This might yield efficiency now, but what do we lose in the process?Potentially, the very qualities that make civil society powerful — the ability to experiment at small scale, to represent niche issues or marginalized groups, to act as a conscience for both government and business. If every CSR project must have a government stamp of approval (directly or indirectly), we may see fewer innovative pilots tackling, say, mental health stigma or LGBTQ+ rights or environmental activism — areas where independent NGOs often take the lead before the state catches up.
Finding the right balance is key. Rather than viewing it as an absolute choice (CSR only through government vs. CSR only through independent NGOs), India can aim for a middle path. Transparency and accountability should be improved for CSR contributions to state bodies — companies and governments must disclose outcomes so the public trusts this model. Simultaneously, policy could ensure that a share of CSR funding continues reaching truly independent, grassroots organizations (perhaps via pooled funds or matching grants) to keep the third sector robust. Corporates might adopt a portfolio approach: some projects in partnership with authorities for large-scale impact, and some with agile NGOs for innovation and community connect.
So What?
The increasing direction of CSR funding towards government-backed entities is a double-edged sword. It can supercharge development goals, or it can short-circuit the spirit of independent social action. Is this trend strengthening social impact or just stretching the government’s influence into the third sector? The answer, it seems, is both. A hospital wing built with CSR money in a government facility undoubtedly saves lives, but if it comes at the cost of crowding out a dozen community health NGOs, the net long-term effect is debatable. CSR began as corporate India’s chance to be a third force for good — beyond its profit motive and outside state mandates. As it transforms into a closer partnership with government, all stakeholders must guard against it becoming a mere “shadow tax” or political toolkit. The true promise is a collaborative triangle: public, private, and civil society working in harmony yet holding each other accountable. To achieve that, we must keep asking the hard questions — just as we did here — and ensure that the third sector remains a distinct, independent voice, even as it joins hands with the other two. Only then will CSR’s new direction translate into sustainable, equitable progress and not just a convenient realignment of power.
Pinto, A. (2020, March 25). India’s CSR law: From good, to bad, to worse. India Development Review. https://idronline.org/indias-csr-laws-from-good-to-bad-to-worse/
Swachh Bharat Kosh. (n.d.). Swachh Bharat Kosh official website. Government of India. Retrieved March 10, 2025, from https://sbkosh.gov.in
Press Information Bureau. (2014, November 25). Government announces Swachh Bharat Kosh operational guidelines; To come into force with immediate effect. Government of India. https://pib.gov.in/newsite/PrintRelease.aspx?relid=111856
Featherston, E. (2020, February 24). Section 135: How is India’s mandatory CSR spending working out? The CEO Magazine. https://www.theceomagazine.com/business/philanthropy/is-indias-mandatory-csr-working-out/
Ground Report. (2023, April 24). List of government company donors to PM CARES Fund. Ground Report. https://groundreport.in/list-of-government-company-donors-to-pm-cares-fund/
Sarkar, S. (2021, July 15). Using CSR funds for political gain. The Wire. https://thewire.in/business/modi-government-csr-political-gain
