We Do Have Mandatory CSR: Taxation Will not Create Better Corporate Citizens

By Manish Sabharwal

Creating jobs is the hardest thing anyone can do in India. And that is why it is patronising at best and ignorant at worst when civil society or policymakers berate entrepreneurs or companies for only creating jobs. This thought world underlies the mandatory 2 per cent corporate social responsibility (CSR) allocation proposed in the new Companies Bill.

The point is, investment and ventures that legally and ethically create jobs are both impactful and social. And there are five reasons why it is wrong to berate entrepreneurs and companies for only creating jobs.

India is a hostile habitat for entrepreneurship

Economic reforms since 1991 have attacked the sins of commission but not the sins of omission. An absconding state means that entrepreneurs have to generate their power, provide their transport, dig for their own water and often manufacture their employees. This biases success in favour of big companies and ensures that most Indian entrepreneurship creates dwarfs (small companies that will stay small) rather than babies (small companies that will grow).

Business cannot substitute the state

‘Social expectations’ from the private sector arise from a superior execution track record over the state in the last two decades. But corporate India has delivered because it had clear and finite objectives. Public policy goals are — and must be — more complex and broad. Forcing corporate India to take on multiple objectives ignores the wisdom in Socrates’ quip that a slave who has three masters is free. Entrepreneurs can’t do the state’s job. It is also a myth that a smaller state is good for jobs; Waziristan in Afghanistan and SWAT valley in Pakistan have no state and they are not exactly hotbeds of entrepreneurial activity.

Myth of big companies

Mandatory CSR makes a wrong assumption that most companies are big and established like the Birlas, Tatas, Godrej, etc, with large revenues and established profits to allocate. As good as 100 per cent of net job creation in India since 1991 — and indeed in most parts of the world — has happened in companies with less than 20 employees. It is unrealistic and unfair to expect them to focus beyond the immediacy of circumstances (survival and growth) that is the life of most small entrepreneurs.

India needs non-farm jobs to explode

Policy, over the last few years, has focused on rights and a big state. But this Diet Coke approach to poverty reduction — the sweetness without the calories — is not working. Nearly 58 per cent of our labour force on farms that produces 15 per cent of our GDP is condemned to poverty. Additionally, 10 lakh children will join the labour force every month for the next 20 years. Creating non-farm jobs is No. 1 policy priority because giving someone a job changes the family’s health, their children’s education, their family size and their self-esteem in ways that no subsidy or right ever can.
Being an entrepreneur is hard

No amount of researching, regulating or talking can give somebody a feel for the agony and ecstasy of being an entrepreneur. Deciding which opportunity to pursue, converting employees/customers/investors, facing rejection, begging for money due to you, paying salaries, raising debt against personal guarantees and dealing with India’s inspector raj are very hard. Most people talk about jobs in third person and aggregate numbers but job creation is the ultimate act of individual creation in defiance of the status quo. And defying the status quo is hard.

Author Rohini Nilekani believes that companies may be adopting CSR or the social venture label to differentiate themselves from crony capitalists. But just like the checklist view of corporate governance did not unlead to better companies, the checklist view of CSR will not create better corporate citizens. What are we going to give socially-responsible enterprises? If they qualify for cheaper money, less taxes or a T-shirt, one would be happy to cross-dress as a social venture.

Our three institutions are struggling with birth defects: the government an execution deficit, the private sector a trust deficit and non-profits a scale deficit. But fixing their birth defects does not mean substituting or cross-breeding: you don’t use a horse in the desert or make a camel faster by mating with a horse.

Every life form has its role and purpose. It is dysfunctional for steel or aluminum companies to run schools or hospitals. Thankfully, Azim Premji is not forcing Wipro to set up a university but doing it in a new organisation out of personal wealth. Companies should create jobs and pay taxes.

Ticking a CSR checklist or writing a cheque out of profits is a poor substitute for being a good corporate citizen because how companies make profits (ethically and legally) is more important than what they do with them (dividends or taxes). But mandatory CSR over and above taxation forces companies to do the government’s job. And trying to outsource the state’s primary job is a bad idea.

(The author is chairman of Teamlease Services)

Source: Economic Times





Previous articleParents Meet DAV Vedanta School Management for Sustainable Function
Next articleSpend 2% Profits on CSR, Pilot Tells Firms
India CSR Network
India CSR Network is India's biggest and most trusted news portal in the domain of CSR & Sustainability. India CSR welcomes stories, statements, updates, reports on issues that interest you. Feedback, comments will make it more purposeful and resourceful. It is designed and maintained by India CSR Group. Contents are non-fiction. Though all efforts have been made to verify the accuracy, the same should not be construed as a statement of law or used for any legal purposes. In case of any ambiguity or doubts, readers are advised to verify with the source(s). Statement, articles, views and contributions can be sent to editor@indiacsr.in