I haven't read the finer print of the Companies Bill. But what I have so far gathered from news analysis in various newspapers, the Companies Bill calls for companies having a net worth of Rs 500-crore or more, or a turnover of Rs 1,000-crore or more, or a net profit of Rs 5-crore or more to have a Corporate Social Responsibility (CSR) spending of at least 2 per cent of their average net profits of the past three years. In an interview with The Times of India (Aug 12, 2013) the Corporate Affairs Minister Sachin Pilot calls it a "positive, forward-looking, reform-oriented, and investor-friendly legislation."
A day later, news agency PTI said that given the criteria that has been spelled out in the Companies Bill, only 1 per cent of the active companies need to follow CSR spending norms. Further, what is peculiar to India's new law is that the 2 per cent spending on CSR is not mandatory but reporting about it is mandatory. "Now the essence of the bill is self-reporting and self-disclosure. At no point it is my objective to create an inspector Raj where the government is the sole authority and we decide what is right and what is wrong. That's the company's money. They have full freedom to choose how they want to spend that money," Sachin Pilot said in an interview (Companies have full freedom in spending CSR money: Sachin Pilot TOI Aug 12, 2013. bit.ly/15sm70Z ).
Well, Sachin Pilot has reasons to have unlimited faith in the Corporates. After all, he is the Corporate Affairs Minister. But left to the Corporates, India would have been gobbled up by now. The widening economic inequality across the globe is a clear-cut pointer to the extent of greed that prevails among the rich and beautiful. Sachin Pilot therefore seems to be living in a make-believe world. He is no exception. It happens to all those youngsters whose foray into politics is just because they happen to be the sons/daughters of known politicians.
While the issue of tax-benefits for CSR spending is still to be resolved, already many suggestions have started pouring in. Says another news report (CSR spends to get Cos varying tax benefits, TOI, Aug 13, 2013): "For instance, writing a cheque towards the PMs National Relief Fund would entitle the donor company to a deduction, from taxable profits, of the entire donation amount. On the other hand, if a company has constructed a school building in a village, no tax benefit may be available -- at least not without a drawn out litigation."
Some studies point to Rs 12,000-crore (or $2 billion) of corporate money flowing into the social sector. For a sector reeling under terrible resource-crunch with less money available across the globe for social, voluntary and charitable activities, and with the Indian Government tightening the FCRA rules to stifle NGO activity, the clamour for CSR funding will increase in the days to come. In my understanding, CSR funding will change the direction of social activities, driving more towards activities that actually end up benefiting the Corporate sector. In the absence of clearly defined guidelines, CSR money will come in handy to lay out a strong foundation for the Corporates to encash on eventually.
Let me illustrate. Schedule VII of the Companies Bill (as per a news report) prescribes wide-ranging activities that could be part of a company's CSR policy, such as eradicating hunger and poverty, promotion of education, women empowerment, reducing child mortality and improving maternal health, environmental sustainability, employment enhancing vocational skills or contributions to central or state government set-up funds, including the PMs Relief Fund. These activities look perfectly suitable for CSR activities. But when it comes to actual operations, it is the way the programme is structured/designed that is going to matter. Company's underlying commercial interests will always remain the primary focus.
Take the case of of hunger and poverty. Let us assume Mahyco/Monsanto, the agribusiness technology giants in India, launch a CSR project on improving agricultural practices to fight hunger and malnutrition. Without doubt, it is going to focus on bringing in genetically-modified seeds, chemical fertilisers/pesticides and thereby encourage an industry-driven farming model of agriculture. It will be in the name of eradicating hunger. Since more money will be available for this kind of initiatives, I can see NGOs making a beeline before the company. At no stage will Mahyco/Monsanto promote ecological farming or ask farmers to go in Low External Input Sustainable Agriculture (LEISA) practices. Take another example. The much hyped e-Chaupal initiative of ITC was aimed at laying the foundations for terminal markets for corporate agriculture. Of course, there are some honourable exceptions. But the number of such companies is very limited.
My suggestion therefore would be to have a clause in the CSR rules that ensures no company can make CSR spending in a domain of its own commercial interests. There has to be a strict regulatory regime established (no IAS please, and no ex-Corporate honcho) that oversees the working of the CSR projects to ensure that companies follow the norms that the regulatory body spells out for sustainable development. If you leave it free for all, as Sachin Pilot is suggesting, a majority of the companies will go on rampage, and we will actually end up creating conditions, knowingly and unknowingly, for the emergence of another Company Raj. Corporate funding has to be therefore very strictly regulated and monitored.
CSR spending however should not be seen as an open license to exploit the natural resources. It is not a license to loot, and then demonstrate social responsibility by opening a school or a hospital somewhere. It is for this aspect that the setting up of a National Investment Board is a bad precedence. It must be scrapped as soon as possible. Corporates too have to be made socially and environmentally responsible in their basic business operations. CSR is not a route for social repentance for the sins the companies normally indulge in.