Gyanendra Kumar Kashyap
It’s a Rs. 120 billion question - Does it make sense to
thrust upon CSR spending on India Inc., or should they be allowed to take a
voluntary call on it…
In the new Companies Bill that was passed in the Lok Sabha
towards the fag end of the winter session, it is precisely the Clause 470 of
the Bill that aroused interest and skepticism in equal measures. As per the
clause it has been made mandatory for corporates that make an average profit of
at least Rs. 5 crore or have a worth exceeding Rs. 500 crore, or their turnover
exceeds Rs. 1,000 crore in the last three years to spend 2 % of the net profit
on CSR. It is herein that the debate on conscience versus action, heart versus
mind and numbers versus results sets in. What is the worth of CSR kitty that
the government decided to make it mandatory? A report by SMC Global Securities
Limited states that in the last financial year the combined net profit of
listed companies in India was to the tune of Rs. 4, 37,167 crores, at 2% the
CSR kitty amounts to Rs. 8,700 crores. The March issue of Forbes India categorically
states that the government expects Rs 63 billion to flow in from India’s top
500 listed companies, going by the government’s 2% norm. If this list is
further expanded to the top 1,000 corporations, add MNCs, co-operative banks
and SMEs, and then we are talking about at least Rs 120 billion. Undoubtedly
such a large sum generated year on year has the potential to alleviate many social
as well as environmental issues ailing the nation.
While there may be an overlap between philanthropy and CSR,
Indian corporate led by Tatas and Birlas have been voluntarily investing in
CSR. Hence, the provision to make CSR spending mandatory is more of an
intrusion and it is apparent that by doing so the government is trying to
abdicate itself of its social responsibilities. Will not the mandatory
provision disrupt the business plans of a many companies? Going by an ETIG
research, India Inc will have to scramble to meet the target as only two
companies in the Nifty - Ambuja Cement and ITC - currently spend 2% of net
profit towards CSR. While not all Tata group companies have disclosed their
expenditure on CSR, Tata Steel's sustainability report mentions that the Tata
group companies spend 4% of their net profit towards CSR. In fact, the new
imposition takes out the sanctity of CSR making it more of a forced exercise
and more so a new form of tax on profits.
Does it not make sense that corporations take up social
responsibilities on a voluntary basis rather than making it mandatory? Those in
support of the move argue that by mandating CSR in the Companies Bill, the
government has created a process whereby companies are forced to spend on
social returns along with financial returns and they are forced to report on
such spends. Such a mandatory provision, however noble its intentions may be,
could lead to irregularities in revenue accounts and perhaps more corruption. The
other point worth considering is will not the mandatory clause give government
officials a strong tool to harass companies. Jagannadham Thunuguntla,
Strategist & Head of Research, SMC Global Securities Limited, says “While
the objective behind CSR is noble, but proper system and procedures need to be
implemented for effective usage of such massive amount. Else, there is always a
risk of misuse of noble intentions.”
Is there a way out? There are a few who argue that if the government
wants, it can increase the rate of corporate tax to 32 percent from the current
30 percent rather than making it mandatory for companies to spend 2% on CSR.
According to media reports, a number of companies are lobbying for tax breaks
on CSR investment.
While reporting CSR spends in their annual reports and
making it public is a measure of good corporate governance, enforcing spending
on CSR would perhaps not motivate companies to become more socially
responsible. In essence CSR should be done with passion and dedication, and not
because it is thrust upon.
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