Compulsory CSR – Good or not
POINTS IN FAVOUR
The compulsion on wearing of seat belts may seem an infringement of democratic rights, but it is still imposed. Similar is the case with CSR. Without adequate CSR long term sustainability of these very firms would be a problem. Since companies are not doing this on their own, the government is being forced to step in.
There is a huge potential in this bill. Sure, a lot of companies will try to find the most ‘effective’ ways of doing CSR (effective for themselves) and will try to game the system, but the overall effect will not only be increased corporate spending on development, but also increased partnership from the most ‘efficient’ sector of our society. Companies will also be able to gain from the increased scope of public support and confidence and this competition will drive quality CSR further. Passing this bill might also actually enhance India’s world wide image as being a partner in serious developmental work. India will be looked as a pioneer and might inspire other countries to follow suit.
These are just some of the arguments in favor of this bill. Even though there is a high probability of the final details being vague and full of loop holes, I believe that this is a step in the corrective direction and we are better with it than without.
This is a Game Changer legislation. A must for India where contribution of Corporate houses for Society is so critical. But it can be made meaningful only if all the stakeholders viz. corporate world, NGOs and Government join hands to convert intent into action. It needs mind of corporate and heart of NGO.
This is bound to change ecosystem of development sector and make NGO more professional.
Following is essential to get bet return for the country: Accreditation of NGOs; Professionalisation of NGOs; Moving form Charity paradigm to strategy paradigm for corporate; Innovative projects for CSR; Evolution of CSR Consulting and Evaluation agencies
The concept of CSR is controversial and experts do not even agree on how to define it, but both critics and enthusiasts do agree that CSR is voluntary by its nature. If passed, the confused proposal would mandate that companies act voluntarily!
Mandatory CSR is inherently contradictory. CSR is fundamentally an inspirational exercise, and it is very difficult to legislate aspirations. Laws only set minimum standards; they do not create any impetus for positive action. For example, it would be difficult to mandate that companies “build excellent schools” or be “generous to the community.”
The proposed law can be attacked on the basis of pragmatism as ineffective. It does not even discuss, let alone define, an enforcement mechanism or penalties for non-compliance. The proposal would be an enforcement nightmare, exacerbating an already bad situation where many laws are poorly enforced in India and further undermining respect for law. Curiously, the proposal even includes a loophole. If the 2 percent allocation is not made in a given fiscal year, the CSR committee has to submit an explanation to avoid being penalized. There is no discussion of what explanations would be legally valid, opening up much room for corruption and extortion.
Given the controversy surrounding the concept of CSR, it is not surprising that the proposed law does not define CSR for the purposes of expenditures. The proposal lists only a few genres of CSR activities: “eradiating extreme hunger and poverty,” “promotion of education,” and “ensuring environmental sustainability.” This is much too vague to work as a legal definition.
A mandatory expenditure is a tax. The proposed law essentially imposes an additional 2 percent tax on companies covered by the bill. This is a back-door way to increase corporate taxes without a transparent political debate. The corporate tax rate in India is 32.45 percent—already one of the highest, compared to a global average of 24.09 percent, according to KPMG. Increasing the corporate tax rate will certainly not lead to making India a more “attractive investment destination,” as Pilot claims. Given the emphasis on economic liberalization and economic growth, it is unlikely that the Indian polity desires an increase in the corporate tax rate.