All you need to know about CSR Policy of Government in India.

CSR SERVICES – SOCIAL ACCOUNTABILITY OF COMPANIES OR BAGGAGE OF RESPONSIBILITY ON COMPANIES?? 

Corporate social responsibility (CSR) is a self-regulating business model. It ensure that a company must be socially accountable to itself, its stakeholders, and the public. It differ from company to company and industry to industry. Through CSR programs, philanthropy, and volunteer efforts, businesses can benefit society while boosting their own brands.

 By practicing corporate social responsibility,( corporate citizenship) , companies become conscious about kind of impact they are having on all other organs of society, including economic, social, and environmental.

In other word, CSR is the procedure for assessing an organization’s impact on society and evaluating their responsibilities. It begins with an assessment of the following aspects of each business:

• Customers;

• Suppliers;

• Environment;

• Communities; and,

• Employees.

The most effective CSR plans ensure that organizations comply with legislation established in the country. Their investments also respect the growth and development of marginalized communities of the society and the environment. CSR should be applied in sustainable means. It must involve activities that an organization can uphold for society and the environment without negatively affecting their business goals.

CSR AND INDIA

India is the first country (in the world) to make corporate social responsibility (CSR) mandatory, following an amendment to the Companies Act, 2013 in April 2014. Businesses can invest their profits in different areas such as poverty, education, gender equality, and hunger as part of any CSR compliance.

Some important provision of this Act are:-

• Earlier, the CSR clause was voluntary for companies, though it was mandatory to disclose their CSR spending to shareholders. But after the amendment was notified in the Companies Act, 2013, it requires companies with a net worth of INR 5 billion (US$70 million) or more, or an annual turnover of INR 10 billion (US$140 million) or more, or net profit of INR 50 million (US$699,125) or more, to spend 2 percent of their average net profits of three years on CSR.

• Companies have to set up a CSR committee with at least 3 members. Listed companies have to include one independent member.

• Company have to draft a yearly CSR report and publicise their actions on their website.

• Earlier, if a company was unable to fully spend its CSR funds in a given year, it could carry the amount forward and spend it in the next fiscal, in addition to the money allotted for that year. Now it require companies to deposit the unspent CSR funds into a fund prescribed under Schedule VII of the Act within the end of the fiscal year. This amount must be utilized within three years from the date of transfer, failing which the fund must be deposited in to one of the specified funds.

• The new law prescribes for a monetary penalty as well as imprisonment in case of non-compliance. The penalty ranges from INR 50,000 (US$700) to INR 2.5 million (US$35,000) whereas the defaulting officer of the company may be liable to imprisonment for up to three years, or a fine up to INR 500,000 (US $7,023), or both.

Due to such strict rules, Organizations in India have been quite sensible in taking up CSR initiatives actively and integrating them into their business processes. Companies now have specific departments and teams that develop specific policies, strategies, and goals for CSR programs and set separate budgets to support them. Most of the time, these strategies, policies are based on well-defined social beliefs or are carefully aligned with the companies’ business vision and Mission.

CSR spending by corporate India has increased significantly because of the applicability of mandatory CSR provision in 2014. Various contribution by companies are:-

• In 2018, companies spent 47 % higher as compared to the amount in 2014-15, contributing US$1 billion to CSR initiatives.

• The companies (in Category) in India spent INR 100 billion (US$1.4 billion) in various programs ranging from skill development, educational programs, social welfare, healthcare, and environment conservation, while the Prime Minister’s Relief Fund saw an increase of 139 % in CSR contribution over last one year.

• The education sector received the maximum funding (38 % of the total) followed by hunger, poverty, and healthcare (25%), environmental sustainability (12%), rural development (11%).

• Programs such as incubators, sports, technology, armed forces, reducing inequalities saw negligible spends. Taking into account the recent amendments to CSR provisions, industry research estimates CSR compliance to improve and range between 97% to 98% by Financial Year 2019-20.

Let’s us understand the concept with help of examples of ‘Havells India Limited’

Havells India Limited, a leading manufacturer of FMEG and power distribution equipment, is a globally renowned Indian brand today. The brand is presently valued at USD 1.4 billion, which shows the success and growth of the company from a local brand to becoming a global entity. Some of the CSR activities of this company is as follows :

• The brand joined hands with the Rajasthan government to initiate a mid-day meal program in various government schools of the district. Food was prepared and distributed in form of mid-day-meal. The mid-day meal program brought a significant improvement in the conditions of the people in Alwar. It improved the overall health of the children.

• WASH (Water, Health and Hygiene) Program—To improve the sanitation condition, Havells constructed more than 4000 eco-friendly bio-toilets in around 400 government schools, across the Alwar district, under the WASH (Water, Health and Hygiene) program. These toilets used the technology of DRDO (Defence Research and Development Organization) to transform human waste into water and biogas, with the help of special bacteria.

• Preserving Heritage- The company connected with the AKFI (Aga Khan Foundation India) to donate funds for the construction of the Humayun’s Tomb Interpretation Center at Delhi; and also for the preservation of the ‘Sabz Burj’, a national monument in Delhi.

• Havells has also contributed towards environment protection by creating a ‘Kanya Upvan’, for planting a tree on birth of a girl child, in Alwar, Rajasthan. Moreover, the brand has planted more than one lakh trees in Bhopal and Neemrana. Along with fifty thousand plus trees in Alwar and Baddi.

There are many such programme which is conducted in compliance with CSR policy of government like Bench Donation, Skill Development Programmes, Kerala Relief Fund etc.

But, Indian government, is reviewing CSR rules after the industry objected to the strict provisions. Why? what all are loopholes present in this policy?

• This law lists only a few genres of CSR activities: “eradicating extreme hunger and poverty”, “promotion of education”, and “social business projects”. This is much too vague to work as a legal definition.

• The Rules state, “CSR projects/programmes of a company also focus on integrating business models with social and environmental priorities and processes in order to create shared value.” The concept of ‘shared value’ blurs the boundary between business activities and CSR activities.

• ‘This Act mandates that every company which is having a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more or a net profit of Rs 500 crore or more during any financial year shall constitute a CSR Committee of the Board consisting of three or more directors, out of which at least one director must be an independent director. A clarification is required on whether a company that is not otherwise required to appoint independent directors is required to appoint an independent director only to comply with the requirement.

• Activities which are related to 'environmental sustainability' are also classified as CSR activities. Some companies undertake research projects/activities to improve their existing products or processes to make the product environment friendly. Whether such research expenses will be considered as CSR spend?

• The Rules state, “CSR Policy would specify that the corpus would include 2% of the average net profits; any income arising therefrom; and surplus arising out of CSR activities.” This implies that every year, companies should transfer two percent of average net profit before tax of the previous 3 years to the CSR corpus and then spend money for CSR activities from that corpus. whether companies should transfer the amount to the corpus at the beginning of the financial year and invest the corpus fund outside the business to earn an income that will form a part of the corpus??

Conclusion

Almost all companies which fell in Category have a CSR policy. They declare their fund allocations and utilisation for CSR. Those companies or organizations which are more evolved are supporting the government of India in achieving its Sustainable Development Goals (SDG) pertaining to reducing maternal and child mortalities, by investing in health programmes for populations that need focused interventions, and other such programme .” But, government should give detailed clarifications as early as possible to enable companies to formulate the CSR policy. In the absence of clarity, unscrupulous companies will take advantage of loopholes and honest companies will get harassed.