REMIUMThe issue is that there has been a concentration in
three activities: education, health and rural development.
The ministry of corporate affairs has raised some concerns related to
the money spent by companies on corporate social responsibility (CSR)
activities. Companies above a threshold level of profit, sales or net worth are
mandated to invest 2% of their average profit for the last 3 years on CSR
activities, which are defined. This could be capital spending or otherwise.
The first issue is that there has been a concentration in three
activities: education, health and rural development; 77% of the total amount spent
between 2014-15 and 2020-21 was on these three. CSR activities, therefore,
aren’t covering adequately other important areas such as poverty eradication,
gender equality, climate change, etc.
Second, there has also been a concentration of spending in some large
states: Maharashtra, Gujarat, Andhra Pradesh, Karnataka, Uttar Pradesh, Tamil
Nadu, Rajasthan and Madhya Pradesh. The money is not being spent equitably
across geographies, as it tends to flow to states that are better-off to begin
with, relative to states in the Northeast, for example. It is seen that
companies are investing their funds in states that are more developed and have
better infrastructure, as this makes the administration of funds easier.
The fundamental question that arises is whether or not companies have
any core competence in these areas. They are set up to do business and have to
reward their owners, who are shareholders. While doing business, they make
profits and pay taxes on it. Asking them to undertake responsibilities that are
alien to their core function leads to a fundamental contradiction. Invariably,
they deploy internal staff that is not competent to do this work. Some hire
experts from industry to look after these operations. But low-effort exercises
like distributing water coolers or laptops to schools are more typical. This is
not the best way to carry out CSR activities.
The belief that all companies can get involved in CSR is misplaced
because when the threshold is, say, ₹5 crore, the company will be too
small to have the wherewithal for CSR programmes. In fact, the rule also says
that there has to be a board-level committee to administer the chosen CSR
activity and regular reporting of it. This can get onerous and it is not
surprising that companies look for easy ways out. In fact, transferring the
money to a centralized fund like the Prime Minister’s National Relief Fund
always looks appealing. Otherwise, a lot of management time has to be expended
on CSR compliance.
The premise here is that companies are not cut out to do social work,
which is the responsibility of the government. While some companies have been
doing it for decades, there is usually a personal level of commitment among
business leaders who deploy dedicated outfits and staff. The impact of their
work is powerful. At times, they even develop townships where such work is
carried out and worthy goals, such as empowering women or educating girls, are
pursued. But not all companies have the competence for it.
A sample of around 1,200 companies with net profits of above ₹5
crore in each of the last 3 years had an average profit-after-tax of
around ₹8.8 trillion, which translates to ₹17,600 crore of CSR
spending. This is a large sum that can bring meaningful change. Two choices
exist here.
The first is for the government to set up a separate organization to
work on the deployment of these resources. If setting up a new organization is
too bureaucratic and costly, the Niti Aayog could be entrusted with this
responsibility. There is abundant expertise in most of these targeted areas,
which can be deployed to make the spending of resources more effective.
As corporate tax is a central tax, the prerogative would be with the
Centre how to deploy these funds. To make funds flow more smoothly, the
corporate tax rate can be increased by 2% or an equivalent cess can be imposed
on companies. Alternatively, the amount can be paid by companies once they
announce their final results in May so that the money is available to the
government as a lump-sum to deploy based on its social-sector priorities.
The other option is for the government to draw up a list of all CSR
projects underway in the country. Since the universe of companies involved
would be not greater than 2,000, the list would not be all that long. Then
there could be a system of directed or suggested CSR spending, with advice
given routinely to firms on where money should be spent and for what exact
activity. For example, a hospital in need could let the government know its
requirement, so that companies are informed of it. This way, businesses would
be relieved of the time and effort taken to identify CSR projects even as the
broader objective of the programme is met.
Presently, the concept of CSR is appealing but the route being taken may
not be the best. It needs to be recognized that CSR activity is not something
everyone has expertise in. There are several NGOs that would like to get
involved, but it is hard to sift through them. Therefore, there is a good case
to let the Niti Aayog handle CSR activities. The whole exercise should be
aligned better with what the ministry expects of it.
No comments:
Post a Comment