CSR: Now Coercion & Penalty

Overzealous implementation of CSR is a wrong strategy. Why is BJP-led government doing this?


In July this year, I wrote that the United Progressive Alliance (UPA) had stopped just short of prescribing penalties for those corporates who fail to spend the mandatory 2% of their net profit on corporate social responsibility (CSR) projects. The CSR provisions in the Companies Act 2013 (the Act) were clearly structured to introduce such penalties, but had stopped at asking companies to explain the failure to comply.


The Narendra Modi government was expected to put CSR rules under the Act on hold and also rework some of its more draconian provisions. Nothing of that sort happened. In fact, The Economic Times reports that Modi sarkar seems set to outdo the UPA-2 on this front.


The paper reports that the government is already planning to introduce penalties for failure to meet CSR targets for two or more years. This is regressive and contrary to the prime minister’s poll promise to eliminate bureaucratic hassles and unnecessary red-tape and make it easier to do business in India.


Consider how things have played out on the CSR front. In July this year, we applauded the ministry of corporate affairs for expanding the scope of CSR eligibility. We believed that CSR ought to be voluntary, or at least not prescriptive, and must include a company’s core strengths.


Instead of doing this, the Modi government is headed in the opposite direction. Industry continues to lobby against CSR, while an army of consultants, who see this as a lucrative business opportunity, are lobbying for stringency.


Meanwhile, public sector undertakings (PSUs) and nationalised banks are pulling in different directions on the issue. SCOPE, the apex body of Central government-owned units, reportedly made an audacious suggestion that ‘angel funding’ or takeover and revival of sick-undertakings should be considered part of public sector CSR. A clear recipe for massive write-offs.


Meanwhile, banks are being pushed to please the PM by building toilets all over India. The finance ministry and the Reserve Bank of India (RBI) also want banks to conduct ‘financial literacy’ seminars in schools and colleges, leading to much irritation. School managements say that say that election duties and frequent holidays have them struggling to complete their syllabus; they have little time to cooperate with companies wanting to meet CSR ‘targets’ with perfunctory workshops aimed at disinterested students. But nobody seems to care.


CSR is laudable when done voluntarily and diligently. It will only lead to mis-directed efforts, fudging and squandering of precious funds when forced upon reluctant companies. The real losers will be entities that are doing genuine and dedicated work for public benefit. With over 14,000 companies expected to spend Rs15,000 crore on CSR, we hope that good sense will prevail about spending scarce funds.

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