A more flexible interpretation of what activities come under corporate social responsibility would be welcome
The much-awaited corporate social responsibility rules have been notified by the Ministry of Corporate Affairs and they allay many, but unfortunately not all, of industry’s concerns. For instance, exempting overseas branch profits from the calculation of net profit is an equitable step.
Similarly, the clarification on excluding independent directors in the formation of CSR committees for private and unlisted public companies is a huge relief for companies that are not required to appoint such directors under the law.
However, when the rules come into force on April 1, 2014, around 8,000 companies in India will fall under the ambit of the CSR provision. This mandate will translate into an estimated CSR spending of $1,954-$2,442 million annually.
Therefore, the implementation aspect of the CSR provision is very significant; if implemented in the right spirit, CSR will facilitate the desired investment in human development.
India is one of the first countries in the world to have legislated this provision; it is a positive step paving the way for the corporate sector to play a larger and more conscious role in shaping communities and participating in the social side of the economy. The areas covered under the Revised Schedule VII such as healthcare, education, gender equality, environmental sustainability and rural development are critical for inclusive growth.
CSR is increasingly being viewed as an important part of business operations. The growing importance of CSR has rewritten the relationship of business not just with shareholders but also with its stakeholders, including employers, supply chain partners, government, creditors, customers and communities.
However, as a concept it will evolve over a period of time. In order for it to be able to make a genuine social impact, it is important to integrate it with the model of ‘shared value’.
An increasing number of companies in India and abroad are making this concept an integral part of their strategy and the benefits accruing from this integration are manifold.
On the one hand, it enhances the competitiveness of a company while simultaneously advancing economic and social wellbeing in communities, therefore increasing the long-term sustainability of the company. On the other hand, it enhances the possibility of cooperation between business, society and government.
Corporate social responsibility in the form of shared value creation is the key to establishing a symbiotic link between corporations and communities and in taking forward the India growth story.
But for that, CSR should be embedded in the corporate culture which, in turn, requires inspiration from the leadership and commitment across the organisation.
Going forward, we hope the concept of ‘shared value’ in the CSR Rules is captured.
The underlying intent of the new Companies Act is to promote self-regulation, non-intrusion and accountability. However, the rules have limited CSR expenditure to the activities listed under Schedule VII.
Even though the list is wide and covers a lot of sectors that have been neglected so far, industry expects that the implementation of the CSR provision will allow boards reasonable flexibility to decide their own CSR activities. Such flexibility will certainly facilitate greater participation and engagement of the private sector.
Industry has been a responsible proponent of CSR, called by whatever name, for decades. However it should be seen in the context of building deeper trust in society through a structured approach; it should also help institutionalise the practice as opposed to discretionary participation.
The Minister for Corporate Affairs Sachin Pilot has, on various occasions, assured industry that all steps will be taken by his Ministry to ensure that CSR expenditure does not impose itself as a kind of tax.
Industry views this with great optimism and hopes that the finance ministry will find it fit to ensure CSR spend remains tax-deductible, more so since this spend is a part and parcel of doing responsible business. India Inc anxiously awaits clarity and certainty on this matter.
While most concerns on CSR provisions have been attended to, there remain practical concerns on flexibility within legitimate boundaries, and how the monitoring and interpretation of companies’ efforts will take place.
The government has, till date, been receptive to legitimate concerns but will need to ensure a conducive environment so that companies can sincerely adapt to the new requirements.
[SIDHARTH BIRLA: The writer is the president of FICCI]