New Delhi – The recent amendment in the Companies Act, 2013 with regards to Corporate Social Responsibility (CSR) regulations are “stringent”, Charities Aid Foundation (CAF) India chief executive officer (CEO) Meenakshi Batra told India CSR.
The new amendment will goad companies to spend 2 percent, she said.
The Indian Parliament in July passed amendments to the Companies Act under which the unspent CSR allocations would have to be transferred to a fund specified by the government.
The amended rules also invite a three-year jail term and a penalty of Rs 50,000 to Rs 5 lakh or both for company executives and a penalty between Rs 50,000 and Rs 25 lakh for its employers for breach of the CSR rules.
“This transfer of unspent CSR money to a Schedule VII fund goes against the essence of CSR where corporates are required to have a well-defined project in identified locations,” the CEO said.
Transferring the unspent fund into a government account will likely eliminate direct involvement of corporates, defeating the purpose for which provisions of CSR were brought into the law, Batra said.
“CSR was intended not just to make companies disburse their funds towards socio-economic development, but to harness the energy and skills of corporate India for social good,” she added.
The amendment alone cannot address all the challenges that are currently being faced by businesses in effectively carrying out their CSR duties, Batra said.
CAF’s reading of the situation, through its direct engagement with the businesses, is the “significant lack of understanding and expertise of Schedule VII among corporates”, Batra said.
The companies are required to spend at least 2% of the amount of the net profit for the last 3 financial years under the Companies Act 2013.
The Act prescribes 17 areas of CSR activity in Schedule VII of the act. Section 135 of the Act lays down rules for CSR activity in India. The policy which became effective from 1 April 2014, mandates those companies for CSR activity which have net worth of Rs 500 crore or more; or turnover of Rs 1,000 crore or more; or net profit of Rs 5 crore or more during any financial year.
“Many don’t have the network or the talent pool to formulate and execute CSR policies. In many cases, CSR committees are non-functional,” she pointed.
Failure to choose right projects and implementing partners in right areas have compromised the impact of the programmes and also the sustainability, she added.
Batra lauded the efforts of the business houses over the past five years arguing that they have had a positive social impact on the lives of the people.
Batra said that the prescribed expenditure of Rs 56,000 crore during this period has been short of target by Rs 6,000 crore.
“Most companies have cited lack of means and good avenues to invest as reasons for failing to achieve the target when government notices were sent to them, the CEO said.
Batra, however said that the scenario in India for CSR was still evolving and the government was “particular” about how the businesses engaged towards the growth of the development sectors.
She said three years was a reasonable time period to deliver the results.
Part of an international network with offices in nine countries, CAF (India) is not-for-profit organisation which helps companies formulate and implement CSR policies. The NGO clams to have provided consultancy services to more than 300 companies since its inception in 1998, in India.