Mumbai, Nov. 28: The government will soon frame the rules that will underlie the legislative provision on corporate social responsibility (CSR) embedded in the new company law that Parliament passed in August.
Bhaskar Chatterjee, director-general and CEO of the Indian Institute on Corporate Affairs and a well-known former bureaucrat who was instrumental in drafting the CSR guidelines for the public sector when he was secretary in the department of public enterprises, said the new statutory provision isn’t mandatory. The institute is an independent think-tank established by the ministry of corporate affairs to advise the government.
The law requires companies with a net worth of over Rs 500 crore, turnover of over Rs 1,000 crore, or net profit of more than Rs 5 crore, to spend at least 2 per cent of the average net profit in the immediate three preceding years on CSR activity.
“But it isn’t mandatory,” Chatterjee insisted. “The board of the companies will only have to report how much they spent on CSR and explain why they couldn’t meet the commitment. The government will not ask them to amplify on that explanation.”
Companies will have to set up a corporate social responsibility (CSR) committee at the board level that must be headed by an independent director on the board. The committee will frame a CSR policy for the company or group and recommend expenditure on various projects. It will also monitor the CSR policy of the company from time to time.
India is the first country in the world that has embedded a CSR provision into a statutory legislation.
Addressing a programme on CSR organised here today as part of the Belgian Economic Mission presided over by HRH Princess Astrid that swung through Delhi and Mumbai over the past six days, Chatterjee said the threshold spelt out in the law meant that only 16,000 of the 8 lakh companies registered in the country — or the fat cats of the corporate sector — would be covered by the proviso.
He added that India Inc’s combined spending on CSR in the initial period won’t exceed Rs 16,000-17,000 crore, which is about a fifth of any major government department.
The company will have to provide information on their CSR policy and the attendant spending on the website and in the directors’ report, putting all the relevant information in the public domain that can be accessed by the company’s shareholder, the media and social activists.
The idea is not to regulate too much, Chatterjee added, which is why the entire principle of CSR has been encapsulated in just one section – section 135 of the Companies Act 2013 – with five sub-sections. He added that there won’t be more than 12 to 14 rules that are currently under formulation.
While Chatterjee insists that by putting details of the CSR programme and spending in the public domain, the companies that choose not to spend on such activity would be easily identified and perhaps “shamed” into conforming with the statutory provision even though it isn’t mandatory.
“The CSR principle is not about charity, philanthropy or distributing goodies to the poor,” Chatterjee said. Corporates will have to devise sustainable, long-term projects with clearly measurable outcomes.
The provision is designed to foster a tripartite relationship between the government, corporate India and the non-governmental organisations (NGOs) who espouse social causes and programmes.
The law is designed to remove the “trust deficit” between corporate India and NGOs since it permits funding of NGO projects to be counted as CSR spending, he added.