BY: TARUN KHANNA
The prospect of mandated corporate social responsibility (CSR), as directed by the India’s Companies Act, 2013, prompts revealing reactions from all and sundry. For the sceptics of organised, especially large-scale, enterprise, CSR is an oxymoron. For those who fear the encroaching hand of the state, it smacks of an incremental tax by another name (and, worse, another one that people will evade).
Nonetheless, CSR mandated by law is now a fait accompli, under the new Companies Act. Publicly traded companies exceeding certain size and profitability thresholds must spend 2 per cent of their net profits on CSR. Even prior to this, Indian corporations, like others worldwide, engaged in a spectrum of activities they deemed their social responsibility, for better or worse. Virtually all the websites of the top 10 (by revenue) publicly traded enterprises in each of India’s public and private sectors trumpet their CSR efforts. Companies feel that a stated commitment to CSR will burnish their brands and attract talent, or it might just be a managerial perquisite, that is, a licence for managers to spend on their favourite activities in the guise of doing something seemingly legitimate.
The amounts under the new law are large, conservatively estimated at Rs 15,000 crore annually by Minister of Corporate Affairs Sachin Pilot. An annual flow of this amount ($2.5 billion), suitably levered, represents a game-changing fund dedicated to infrastructural investments, anywhere in the world, certainly in India. Some introspection about how this money is used seems sensible, notwithstanding ambient scepticism about the wisdom of the mandate in the first instance. Therefore, the World Bank and the government of India’s department of public enterprises organised a seminar on CSR in Mumbai in February, under the auspices of Harvard University’s South Asia Institute. The workshop was directed towards the large PSUs, including the navratnas and maharatnas, which do spend, and stand to spend, vast sums.
A week of immersion with luminaries from the PSUs, along with some senior managers from Indian and multinational private sector enterprises, and a collection of NGOs, left me with a renewed appreciation of how much wastage is already inherent in the dispensation of CSR funds. Companies have no knowledge of other organisations’ related activities. A stylised example might be of a medical centre being established with little knowledge of pre-existing facilities that could be more usefully augmented, or knowledge of impending duplicative plans that might well be launching concurrently.
Information sharing can help here. Publicising details on individual company websites is a simple step. This can be done more effectively if one can organise a pre-existing body that would collate such information, perhaps under the auspices of the ministry of corporate affairs, or under an …continued »