The pattern of spending on corporate social responsibility is likely to be impacted with the amended CSR law which came into effect from September 19.
Companies will have to consider only their previous year’s net profit for spending on social causes as compared with two per cent of a `three-year average annual net profit’ mandated previously. Under the Companies Act, 2013, certain class of profitable entities are required to spend on CSR every year.
As per the relaxed criteria a company is now not required to appoint ‘independent director’ on CSR committee but can have any two directors, who can even be part of the promoter group. Also, the term activities referred to in the earlier laws has been widened to mean activities, areas or subjects.
The Centre will have further powers to prescribe rules that will allow companies to exclude ‘sums’ from net profit for the purpose of calculating profit for CSR purpose.
“The rules will bring in a sea change in CSR activity of companies in India as the profit criteria has been amended. It is likely that CSR spend in the next couple of years may not see a sharp rise as it did the last year,” said an expert involved in CSR projects of leading listed companies.
A recent study of 1,186 eligible and listed companies by CRISIL, credit rating agency, showed that over the past two financial years the amount spent on CSR surged at a compound annual growth rate of 14 per cent, despite lukewarm five per cent growth in net profit. Nearly, 74 per cent of eligible companies, including two-thirds of the small ones, used implementing agencies as NGOs last fiscal when spending on CSR, CRISIL study showed.
Government data showed that companies had spent more than ₹ 4,719 crore towards CSR during the first eight months of last fiscal that ended on March 2018 and private sector entities accounted for a major chunk of the expenditure. Of the total amount, ₹3,393.17 crore was spent by private sector companies while ₹1,325.83 crore came from public sector undertakings.
Reportedly, data compiled by the Corporate Affairs Ministry showed that a total amount of ₹28,111.63 crore was spent on CSR activities in last three years by eligible companies during the period from April 1, 2014 to November 30, 2017.