Ever since the Companies Amendment Bill 2019 was introduced in the Lok Sabha a month back, there has been so much of time and effort of the corporate world and the government going into one item of Corporate Social Responsibility, we seem to have lost its fundamental objective – empathy for the society. Last Friday, the Finance Minister reiterated that the proposed amendments had not been notified and will be relooked, there will be no penal provisions and above all no harassment in the name of CSR. Now that the dust has settled, it is time to note that through all the discussion, there has hardly been any talk of where the CSR mandate fits in with the national, larger objectives of making India an easier place to do business.
The fundamental point that we all should accept is that corporates do have a larger purpose in society than just looking after their commercial interests. In 1931, Gandhiji had said that his principle of trusteeship was difficult to understand, but was not intended to “destroy the capitalist, we seek to destroy capitalism”. The stakeholder vs shareholder debate has been in legal academia for long – Adolf Berle (1931, Harvard Law Review) arguing that profit was the sole purpose of a corporation with the rejoinder by E. Merrick Dodd that profit-making and social service both formed the purpose of a corporation. There are ample examples of companies engaging voluntarily with society, even in India. ESG – Environmental, Social and Corporate Governance –is already a global trend, making CSR an accepted principle in the modern corporate world, valued positively in the market. But unfortunately, fulfilling CSR norms as mandated have brought in a high compliance burden.
Looking at trends from the CII CSR Tracker 2017, KPMG Survey 2017 and Prime Database, unspent funds for the median company were around 57.66% in 2014-15, this fell to 30.02% in 2017-18. The Finance Ministry has a centralised scrutiny and prosecution mechanism to monitor compliance with CSR norms and has given sanction for prosecution in 366 cases for FY 2014-15 and 5,382 calls for information notices have been issued for FY 2015-16.
Almost all companies comply with procedures such as forming a CSR committee, formulating a CSR policy etc. The KPMG survey found non-compliance mainly in expenses disclosure, and ensuring that overheads were less than 5% of total CSR spends as mandated. The point is that even if the expenses are tax-deductible, as suggested by the high-powered panel headed by Injeti Srinivas, compliance costs will rise and there is scope for scrutiny by tax authorities. We still do not see any analysis on how much time and effort is going on compliance and monitoring, both within companies and by the government.
While the government rightly wants companies to do their bit towards society, why not relook the CSR mandate that increases compliance costs. After all, Gandhiji himself said, “Such a thing coming from below is easy to swallow. Coming from above it is liable to prove a dead weight.” CSR should be made voluntary again, the government will earn a tremendous amount of goodwill, companies can focus on doing their business to invest, produce, employ and grow. The economy and society will benefit best when each does the job they are best suited to.
Reference: https://economictimes.indiatimes.com/blogs/artha/csr-in-india-high-on-compliance-low-on- Sumita Kale| ET