States Must Not Pocket CSR Funds

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The Chhattisgarh government has asked private companies to deposit the money they spend on corporate social responsibility (CSR) in the chief minister’s fund. It is a bad idea, akin to charging an extra tax on companies when the whole effort should be to cut their burden on taxes.

Raipur-Chhattisgarh-Map_0It must be clear that CSR is neither charity nor philanthropy. The recently-enacted companies law says that firms should spend at least 2% of their profits on CSR projects or explain why they could not, in their annual reports. The point is that every company already contributes to the larger good of society by creating jobs and income, investing in technology and converting people’s pooled savings into productive capital. They create wealth for shareholders and also pay taxes.

Industry bodies such as CII and Ficci should provide a common template to explain how companies are doing corporate service to society. Firms that do not undertake CSR can use this in their annual reports.

CSR activity that does not shore up profits is misuse of shareholder funds. However, if companies can do activities that also raise their own revenues, it fits the bill for CSR. One example is Hindustan Unilever. It educates people about the benefits of washing their hands with soap for better hygiene, improving public health. Similarly, an IT company that provides, say, engineering education and improves the company’s business is also contributing to welfare. But it should be left to companies to decide whether they want to spend on such activities and also how much to spend, if shareholders are fine with the idea.

CSR cannot be mandated. And the money should not be misused to divert funds into the pockets of politicians. The need is to clean up political funding so that companies do not pick up the tab, off their books.

(Economic Times, 17 September 2013)

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