Problematic mandate

Flaws inherent in the CSR law becoming apparent

The Corporate Social Responsibility (CSR) mandate, via Section 135 of the Companies Act introducing a spend-or-explain stipulation for companies meeting certain criteria on net worth, turnover and net profit, was one of the poorer ideas of the United Progressive Alliance government. It stemmed from growing allegations that the regime was colluding with large businesses to acquire land for industrial purposes and deceiving land-losers on compensation. As a means of political signalling it has proved a useful tool, which is why the current government, perpetually struggling to shrug off the suit-boot ki sarkar label, persisted with the mandate, periodically adding to the list of “socially desirable” sectors to which such CSR should be directed. Indeed, the fact that the corporate affairs ministry stated in Parliament this August that it had sent preliminary notices to 272 companies for non-compliance suggests that this law has the potential to become one more possible ruse for governmental harassment of companies. 

Now, as the mandate enters its fifth year, an 11-member high-level committee is being set up to draw up a “coherent road map” for CSR policy. That, too, implies that despite a 50 per cent increase in CSR spends since the norms came into force, the stated objective of transforming society through corporate spending has not been satisfactorily achieved. This is ironic because, if nothing else, the past four years have seen a rapid expansion of the “CSR-industry complex”, with non-profit institutions specialising in CSR mushrooming by the month. Several NGOs have documented the reasons for the underwhelming performance of the CSR mandate — with some honourable exceptions, of course — as poor implementation, a reflection of the routine approach to compliance, and unsatisfactory monitoring. Many projects begin with considerable fanfare, figure prominently in annual reports and colourful brochures, only to wane when managerial interest is directed elsewhere. This is largely on account of the somewhat cynical attitude of companies to align their spending with the reigning concerns of the government of the day. Thus, projects on hunger, poverty, education and health care top the list of CSR spending, since these have remained constant concerns of every government since independence. 

But it is worth noting that allocations to Swachh Bharat, the government’s signature sanitation programme, and Ganga-cleaning projects fell 10 and 47 per cent, respectively over the past two years. In addition, CSR spending does not enjoy tax breaks — unless the money is invested in non-profits that offer such deductions — which adds to the reasons for poor corporate compliance. That perhaps explains why the Prime Minister’s Relief Fund, which offers tax benefits, has seen allocations more than double between FY17 and FY18. Fulfilling the CSR mandate merely by writing cheques defeats the purpose of the law. Instead of forcing business and industry, which is profit-oriented by nature, to engage in philanthropy, the government would do better to focus on improving the ease of doing business in realistic ways beyond the World Bank’s matrix. That will create the virtuous circle of expanding investment and, therefore, employment, enabling people to invest in their own welfare.