CSR: Mandating without mandating

The final decision of the Indian government on what to do about CSR regulation was announced yesterday. They have removed the clause which makes it mandatory for all companies to spend about 2% of their profit on CSR. The revised bill proposed that companies only need to have a policy that targets to spend 2% of its profit on CSR.

According to Corporate Affairs Minister, Salman Kurshid, "Companies will have to have a policy as to how they will spend 2% of their profit on CSR and there must be a disclosure if the money has been spent. You can say it is not entirely voluntary, might say it is not mandatory. It is in between somewhere."

This grey area might be cause for concern because the Government does not stipulate exactly where CSR focus should be. Traditionally, India Inc. confuses charity and philanthropy with CSR and the worry is that this trend will continue. Another worry according a Times of India report is that the new announcement "will exert a heavy moral pressure to stipulate disclosure if not actual expenditure."

The Confederation of Indian Industry (CII)  has demanded that the new law should not specify an amount to be spent on CSR. It has said that the decision on the actual spend on CSR should be left to company boards.  However, since the central public sector has a policy that requires them to spend 0.5-5% of net profits on CSR, it is about time the private sector makes a contribution as well.

The Corporate Affairs minister is in the process of defining what actually constitutes CSR.  Many industry leaders say that CSR is self-willed and there should be 'CSR tax breaks' to give companies an incentive. This itself goes against the grain of CSR which for a large part is voluntary. However, expecting tax breaks for something that is essentially streamlining business operations and creating a better brand value negates the whole idea of CSR. Industries already do receive tax breaks for charitable contributions which is probably why there is a wide-spread misconception that charity is CSR.

Actual spend on CSR by the private sector is well under the currently stipulated 2%. If strict definitions are applied, it does not fit the bill of what constitutes CSR in terms of sustainability, transparency and accountability. This is what the government wants to boost and CII opposes.

The potential for CSR in India is enormous. There are avenues available for widening the profile of CSR within the SME sector as well other innovative measure like including biodiversity protection, Fairtrade and other globally renowned CSR standards. It is about time that the private sector begins to recognize the limits to growth and accepts certain norms that have been laid down.

In the long run 2% doesn't seem like much...