Scrap mandatory CSR which serves no purpose
India is the only country in the world that has forced do-gooding on companies, by law; that is, mandatory and targeted spending on corporate social responsibility (CSR). On the face of it, this is yet another bleeding-heart decision of the decade long Congress-led government that will serve no purpose for those intended to benefit. It will only create exasperation and bitterness among companies.
Despite hectic corporate lobbying, the Narendra Modi government has decided not to scrap mandatory CSR. However, in a tacit acknowledgement of the hasty, restrictive and badly drafted provisions, it has been issuing a flurry of clarifications some of which are withdrawn with the same speed at which they were issued.
A talk by Noshir Dadrawala, philanthropy expert and CEO of the Centre for Philantrophy, at Moneylife Foundation, on 20th October, opened our eyes to all that is wrong with this hypocritical attempt to funnel corporate funds to NGOs. Mr Dadrawala’s wide experience of helping corporates and NGOs provides the best possible snapshot of what is wrong with this legislation that has become operative in the current financial year. Take a look.
• Even a philanthropy expert like Mr Dadrawala repeatedly referred to companies subject to the CSR compulsion as ‘affected’ by the Act. The number is around 16,000 but the estimate of funds that would be available has rapidly been revised from Rs20,000 crore (that was originally estimated) to just around Rs15,000 crore or much less. But, for those companies that fall in the CSR zone, 2% of profit before tax is significant income that is hard-earned and should only be spent voluntarily. Consequently, Mr Dadrawala says, CSR has been reduced to ‘mere arithmetic’ or compliance, taking the heart out of the provision. This is neither good for those who selflessly devote time to various causes nor for companies who are forced to fork out funds against their wish.
• “Christmas is not around the corner,” he told a room packed with activists and NGOs looking for funding. Large public and private sector companies within the CSR ambit not only spend over 2% or even more on sustained support to their chosen projects and will continue to do so.
• The CSR mandate needlessly forces companies to set up their own NGOs/foundations for ‘managing’ the CSR initiatives. This is money needlessly squandered in administrative expenses, instead of reaching specific projects. Worse, the law has only spawned an army of CSR consultants who are collecting fat fees, instead of money going towards deserving social causes.
• A lot of the CSR advice being given is about how to buy time and delay spending the money. In many cases, the funds available are too small, while the statutory restrictions and reporting requirements too onerous (utilisation reports, no funding of administrative cost, only funding of projects and not ongoing activities and so on) to structure a project to get the funds. Joining up with other companies to fund a CSR project has its own set of difficulties.
• Since project implementation agencies (NGOs) have to be in existence for at least three years, it shrinks the donation pie for new NGOs. Mr Dadrawala also says that onerous reporting requirements make it a win-win for companies to simply make a donation to the Prime Minister’s National Relief Fund to fulfil their mandate. Others, with larger funds to donate, would prefer to give it to NGOs who enjoy a 100% or 175% tax exemption because of the nature of their activities.
• The large NGOs have discovered an excellent revenue generating activity in holding seminars that promise to tell people how to get a share of the CSR pie by pitching their project proposals correctly. These seminars charge anywhere between a few hundred to a few thousand rupees, which only squanders the scarce resources of NGOs.
All this begs a simple question: Why make CSR mandatory when it will end up pleasing nobody—neither donors, nor beneficiaries, nor the implementing agencies? Instead, voluntary donations of time and effort in areas where companies have domain expertise ought to be encouraged. Will the Modi sarkar see sense on CSR?