The Govt should go beyond making amendments and verify that schemes are yielding results in line with the legislative intent
The concept of Corporate Social Responsibility (CSR) was first inserted in the statute books by the Companies Act, 2013, in which Section 135 mandated a certain class of companies to spend two per cent of their average net profit on social causes. In 2014, India became the first country to legally mandate CSR and this issue was highly debated. There were arguments that a firm already pays taxes on its taxable income, therefore, these provisions were in the nature of additional levy. It was also argued that corporates are already engaged in social activity by way of creating jobs and assisting in economic progress, therefore, social welfare being the Government’s job should not be shouldered by them. However, there is another view that since businesses take resources from society and they have to deal with society for exchanging their goods/services, they must participate in social uplift.
The Government notified the new CSR rules on January 22 and these are going to have major implications. Earlier, if a company failed to spend money on CSR activities, then it was only required to disclose this in its annual report. Now, corporates will be required to deposit the unspent amount in the fund specified by the Government. Apart from this, CSR activities can now be undertaken only through entities which are registered under the Income Tax Act and with the Ministry of Corporate Affairs. This change will bring programme implementing agencies under scrutiny also.
Also, as per Rule 8(3), certain companies will have to submit impact assessment reports of their CSR projects. This is expected to bring transparency into the process because several instances have been reported in the past where executing agencies were used to either channelise funds for illegal activities or money was routed through the banking channel only to meet the regulatory requirements on paper. Even though there is no hard law in the West which enforces mandatory CSR spend but firms are already invested big in this area because society there is more mature and their customers are conscious about the public image of the entity.
If a closer look is taken at the recent changes in Indian CSR rules, it is evident that legal scrutiny is being heightened not only on the corporate bodies but equal stress is given on implementation partners, too. An implementation partner, which is usually an NGO, is registered as a charitable organisation and it receives donation from outside India also.
The Government started tightening the noose on NGOs from 2010 when the Foreign Contribution Regulation Act (FCRA), repealed the erstwhile Foreign Contribution Regulation Act, 1976, and subsequent amendments to it were made by the Modi Government.
In the last few years, the Home Ministry cancelled the FCRA licences of various NGOs which were non-compliant with the laws related to foreign donation and in some cases, though the licences were not cancelled outright but their ability to receive funds was curbed severely as the CSR route was allegedly used by various NGOs to carry out their operations which were allegedly not in compliance with the law.
NGOs must adhere to the laws of the land and the changes made in CSR rules are a welcome step. The Government officials should go beyond merely making amendments and verify that CSR schemes are yielding results in line with the legislative intent.