No jail for CSR violation: FM Nirmala Sitharaman to business leaders

In meet with Sitharaman, industry seeks Rs 1-trillion stimulus package and lower lending rates

There will be no enforcement of the penal provisions, including jail terms, recently inserted in the Companies Act for businesses not meeting the corporate social responsibility (CSR) obligation, said Finance Minister Nirmala Sitharaman.

She reportedly said so to delegations from business chambers at a meeting in her ministry. 

The representatives also asked for a Rs 1-trillion ‘quick fix’ stimulus to revive demand and consumption, saying economic growth has slipped to its lowest under the Narendra Modi administration.

Present were members from the Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry, Associated Chambers of Commerce and Industry of India and the Cellular Operators Association of India.

“The penal provisions for CSR were discussed. It was assured to us that jail term and punitive actions will not be taken,” Sajjan Jindal, chairman of JSW Group, told reporters after the meeting.

The legal changes on CSR spending now allow fines for both the defaulting company in question and officers deemed responsible of Rs 50,000 to Rs 25 lakh, with officers also liable for imprisonment up to three years.

Assocham president B K Goenka said his group had sought a  stimulus package to initiate an investment cycle, amid a slowing global and domestic market. “The economy requires a critical intervention. We have suggested a package of over Rs 1 trillion,” he said.

“The minister and all the officials patiently heard what the industry had to say. They were there for three hours. The main issue was raised by us was liquidity in the system. It's not that there is lack of liquidity in banks but lending is not taking place. There are stresses as far as NBFCs (non-bank finance companies) are concerned, and because of NBFCs, what's happening in the other industries, whether automobiles, home loans and medium and small scale industries,” said Ajay Piramal of Piramal Enterprises.

The business groups were unanimous that banks had not passed on the benefits of multiple lending rate cuts by the Reserve Bank (RBI) to consumers. “Compared to a cumulative 75 basis points cut in the repo rate (at which RBI lends to banks), there has been only a 10 bps cut in the median marginal cost of lending rate (MCLR) of public sector banks for a one-year tenor over the period February-June 2019. This weak and asymmetric monetary transmission process has constrained the economic recovery process by impeding the fall in lending rates which could stoke consumption demand,” said CII Vice-President T V Narendran.

CII also wants a reduction in small savings rates, in line with market rates. Not doing so, it says, will shut down efforts by public sector banks to reduce deposit rates and, hence, easing of lending rates. 

With a liquidity crunch in force across sectors, industry groups said, small and medium enterprises remain the most vulnerable. “While it's encouraging that RBI has reduced rates by a cumulative 110 bps, industry is looking forward to some more rate reduction, as real interest rates are still very high,” said Ficci President Sandip Somany.

While demand in the economy has dried over months, rates of domestic investment have slid further.