Top listed firms will have to shell out hundreds of crores each in social sector initiatives if the new companies bill takes effect. The bill has been passed by Lok Sabha and is likely to be tabled in Rajya Sabha in the Budget Session. Officials are targeting the beginning of the new financial year(April 1, 2013) as the effective date for the new Act.
According to clause 135 of the bill, “Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year” shall make “every endeavour to ensure that the company spends, in every financial year, at least two% of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility (CSR) Policy.”
|Potential top 10 CSR spenders|
|3Y Average Profit CSR|
|State Bank of India||9,712.62||194.25|
|Source: BS Research Bureau|
Applying these criteria, a Business Standard analysis of balance sheets of BSE 500 companies showed that some 457 companies will have to make provisions for spending. Based on the average profits of the preceding three financial years, these firms will have to spend a whopping Rs 6,751 crore in the first year after the act comes in to force. Over half of this amount has to be spent by the top 30 firms alone. Fifteen of these firms will have to allocate spends of at least Rs 100 crore. State-owned explorer ONGC has to allocate Rs 405 crore, while Reliance Industries has to spend Rs 377 crore followed by State Bank of India (Rs 194.25 crore), NTPC (Rs 180.36 crore) and TCS (Rs 161.1 crore).
Business Standard Research Bureau arrived at these numbers based on the average net profit of these firms for the financial years 2009-10, 2010-11 and 2011-12 on a stand alone basis.
The bill prescribes specific activities which may be included by companies in their Corporate Social Responsibility Policies. These include activities relating to eradicating extreme hunger and poverty, promotion of education, promoting gender equality and empowering women, reducing child mortality and improving maternal health, combating HIV/AIDS, malaria and other diseases, ensuring environmental sustainability, employment enhancing vocational skills, social business projects, contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women.
Experts are not very sure about the preparedness of the corporate sector to comply with these provisions. A senior official with Indian Institute of Corporate Affairs said “At present the corporate sector is spending about 0.2% of their profits in CSR activities, even substantial portion of these spends may not fit in to the specific sphere of activities that are prescribed in the bill.”
The bill however requires that each of these company forms a Corporate Social Responsibility Committee of the Board “consisting of three or more directors, out of which at least one director shall be an independent director.”
This committee is responsible to formulate the CSR policy of the company, recommend amount of expenditure and monitor the performance.
The board has to give reasons if the company falls short of CSR spending targets in a particular year in its directors’ report.