It is good that Corporate Social Responsibility (CSR) has come under the lens of Jharkhand Government and the State has formed the Jharkhand State Corporate Social Responsibility Council (JSCSRC). Very few people know that CSR spending and CSR disclosures have become mandatory after the issuance of CSR Voluntary Guidelines in 2009 by the Ministry of Corporate Affairs. India is the only country to make CSR activity mandatory for large and profitable companies corporate under law. In most of other countries it is a voluntary issue. Other countries are still debating whether disclosures should be mandatory or voluntary.
There is a general thinking among the corporate that CSR is a recent phenomenon foisted on them. But there are references to it even in Kautilya’s Arthasatra which stated “In the happiness of his subjects lies his happiness; in their welfare his welfare; whatever pleases himself he shall not consider as good but whatever pleases his subjects he shall consider as good. Hence the King shall ever be active and discharge his duties; the root of wealth is activity and of evil its reverse”.
The maiden attempt in India was the issuance of CSR Voluntary Guidelines in 2009 by the Ministry of Corporate Affairs. The Guidelines were followed in 2011 by the National Voluntary Guidelines of Social, Environment and Economic Responsibilities of Business also issued by the Ministry of Corporate Affairs. The transformation from a voluntary CSR to mandatory CSR happened when SEBI asked the top listed hundred companies to mandatorily disclose their CSR activities in their Business Responsibility Reports incorporated in Annual Reports.
The most important development came with the enactment of Section 135 of the Companies Act 2013 which made CSR spending as well as reporting mandatory for the first time in the country. All the details cannot be mentioned here but it is important to mention that the law requires expenditure of at least two percent of the average net profit made during the three immediately preceding financial years.
Annexure VII of the Companies Act mentions the CSR activities to be undertaken by the Companies. Such activities includes eradication of hunger and poverty; promotion of education; promoting gender equality and empowering women; ensuring environmental sustainability; employment enhancing skills; social business projects; contribution to Prime Minister’s Relief Fund and so on.
Coming to the CSR spending of the top companies during 2012-13, Tata Motors ltd and Tata Steel are the only ones to spend more than required two per cent. Hindalco just spent 1.48 per cent during 2012-13 and ACC made an expenditure of 1.90 per cent during the same period. The leading banks like State Bank of India, Punjab National Bank, Bank of Baroda, etc have not crossed 1 per cent.
The main activities in CSR in Jharkhand are concentrated in the areas of drinking water, sanitation, health, and skill development training. The increased incidence of CSR by the companies in the state was triggered mostly by the district administration and some of the influential politicians where the companies existed. It is for the first time that the State has stepped in their shoes for greater role of the companies in the defined fields.
A major limitation that comes in the implementation of CSR is that many companies do not have the expertise and core competency in the areas of CSR. As a result they utilize services of the NGOs, and Trusts to carry out assigned activities. It is high time the companies should try to develop expertise and core competency to implement the related projects.
Another challenge comes when some of the companies consider the running expenditure on existing schools and hospitals as CSR expense by just extending the facility to the people of nearby areas. Such incident took place in Pakur district where the Emta Company ran small schools and opened hospitals to show their sincerity towards CSR. As already stated earlier the banks such as State Bank of India think that their CSR work in Jharkhand is over just by distribution of water filters in selected schools.
Selection of CSR projects is also a major issue in the state. Absence of government coordinating body among the companies at present is bringing about in a lot of duplication of resembling projects. Going by the CSR activities of different companies in Jharkhand, they are spending maximum amount in areas relating to health, sanitation, employment related vocational skills and education. But many other important areas like eradicating hunger and poverty, promoting gender equality and empowerment of women, ensuring environmental sustainability and social business projects which need the attention of the companies. Hopefully the newly formed JSCSRC may be able to fill the gap.
The JSCSRC should be seen as a state mechanism to monitor the efficient utilization of CSR funds with balanced selection of defined projects under the Company Act and checking duplication of projects. All this is bound to lead to improved CSR expenditure for better project delivery.
(The writer is senior IAS officer in Jharkhand)