The Great Indian CSR Bill

On Thursday Rajya Sabha (Upper house of Indian Parliament) passed the much awaited Companies Bill which mandates for-profit companies to spend on corporate social responsibility.

Companies with a net worth of more than Rs 500 crore or a turnover of more than Rs 1,000 crore or a net profit of more than Rs 5 crore during any financial year shall constitute 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. The Board of every company shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, in pursuance of
its Corporate Social Responsibility Policy.

The CSR activities should preferably be near the area which the companies operate. The law also states states that if a company fails to spend such amount, the Board shall specify the reasons for not spending the amount in its report.

India Inc is being widely quoted in the media for being 'happy' with the new bill and the CSR mandate. While speaking to the India head of a US multi-national corporation recently it was quite clear that some companies are not quite happy with this mandate. There certainly needs to be more clarity on mandate which will be clear as the fine print is available.

While there are several projections on the total CSR budget with a 2% mandate ranging from $3 billion to $6 billion. Only time will tell if charities in India have an appetite for this sumptuous pie and the capacity to create some impact. There's also an increasing  trend among companies to start their our corporate foundations which they say will help to 'better manage' fund allocation.

Some companies apparently are spending more than 2% of their profits already and are concerned about the impact of this Bill on their CSR strategy. There also isn't much clarity yet on whether CSR contributions made by headquarters of foreign multinationals to NGO partners would be eligible or not.

India now becomes the first country to have mandated a CSR spend for companies. Development and CSR professionals around the world have their eyes set on the bill and are curious to see how it translates into action. While it is not yet certain if the total CSR budget available will significantly increase it is quite certain that there will be much more active players aiming for it.

Comments

  1. Hi Namit,

    Minor clarification - the law actually states that a company with net worth of Rs. 500 crores or more, or having a turnover of Rs. 100 crore or more, or has a net profit of Rs. 5 crore or more during any financial year shall constitute a Corporate Social Responsibility Committee. It doesn't mandate to spend 2% of the net profit after tax. What it mandates is that the board of directors every company which fulfils the abovementioned criteria shall ensure that the
    company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years.

    Also, although CSR is made mandatory, there is no sanction for non-compalince except for disclosure of the reasons for the same.

    Regards,
    Oishik

    ReplyDelete
  2. Thanks for the clarification Oishik. Nothing can escape a lawyers eye :)

    ReplyDelete

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