Corporates are Expected to Spend over Rs 25,000 crore on corporate social responsibility: Study

IndiaCSR News Network

AHMEDABAD: Corporate charity is not new to India. But now that this voluntary act has been made mandatory by the New Companies Act 2013. Indian corporates are expected to spend over Rs 25,000 crore this year on corporate social responsibility (CSR).

According to a working paper by the Indian Institute of Management, Ahmedabad (IIM-A), corporate tax — in line with the Union budget of 2015-16 — will amount to Rs 470,628 crore for the financial year 2015-16.

“Perhaps time is ripe to compare the exact CSR expenditures as companies would complete filing their returns for the financial year 2014-15 in the near future,” the paper says. The paper, by Prof Satish Deodhar, is titled ‘India’s Mandatory CSR, Process of Compliance and Channels of Spending’.

Companies that are covered under the new Act must form CSR committees from among the board members; formulate CSR policies; and announce, execute, and monitor their CSR activities. If companies fail to do so, penalties will result.

The study reveals that it was felt that industry may view the imposition of the provision as coercive, impinging on profitability and hence on stock prices. “However, event analysis conducted on big and small food companies shows that the imposition of the CSR provisions has had no negative impact on stock prices,” the study says.

Highlighting another apprehension about the Act, the study points out research conducted by Prof Deodhar’s IIM-A colleagues Naman Desai and Viswanath Pingali that if firms were spending more than 2% of net profits during the pre-Act period, they may now anchor their spending on the legal requirements. And thus become content with spending only 2% of net profit in the post-Act period.

According to the Indian Institute of Corporate Affairs, around 16,352 companies fall within the purview of Section 135 of the Companies Act. According to sources, before the new Companies Act was implemented, the total spend by Indian companies was less than Rs 10,000 crore.

Effective 1 April 2014, India’s newly amended Companies Act made it mandatory for certain companies, private limited or public limited, listed or unlisted, to spend a certain minimum amount on corporate social responsibility activities.

The Act applies to companies which have had a net profit of Rs 5 crore or more or net worth of Rs 500 crore or more or a turnover of Rs 5,000 crore or more in any financial year. Such companies must spend a minimum of 2% of the average net profit made during the three immediately preceding financial years.

The Act applies to a holding company, its subsidiary, and even a foreign company with a branch or project office in India. Companies like Tata Group, Infosys, Ambuja Cement, Persistent Systems, are among the companies that are known to be best in fulfilling CSR.