With a new law making it obligatory for India Inc to conduct Corporate Social Responsibility (CSR) activities, this could soon become a benchmark for others to emulate, a top functionary says.
Beginning April 1, a new law under the Companies Act will require entities with a net profit of Rs.5 crore ($800,000) or net worth of Rs.500 crore or an annual turnover of Rs.1,000 crore or more to spend two percent of their profits on real-time CSR activities. Parliament passed the law last month.
"This is the first legislation of its kind in the world. India is a pioneer in this field. What we do and achieve will be watched very closely by other countries. India will become a benchmark in this," Bhaskar Chatterjee, director general and CEO of the Indian Institute of Corporate Affairs (IICA), told IANS here.
"So far, CSR has many models like the European and American ones. Our CSR model is very Indian," Chatterjee, who retired in 2012 as secreetary (Heavy Industries), added.
Over 16,200 entities will be required to undertake CSR activities from this year under Section 135 of the Companies Act. The communication to these companies will be sent in the next few weeks. The IICA, which is under the corporate affairs ministry, will monitor the implementation of the new law.
In the first financial year (2014-15) itself, over Rs 20,000 crore will be spent by companies on CSR activities. These companies account for just 1.6 percent of India's total companies.
Merely writing cheques for religious or social organizations or events will not constitute CSR activities, nor will welfare measures for employees.
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"Companies will have to carry out real CSR work on the ground. They will have to report their spending and activities to the ministry of corporate affairs. What each one of them has done will be put up on the ministry's website and anyone can go and cross-check if that work has really happened at the ground level or not. We hope that the companies will spend on CSR rather than make excuses," Chatterjee said.
Since the CSR concept is new for the majority of the companies covered, the IICA is helping train professionals in the sector to guide companies on how to undertake genuine work. Companies can conduct CSR work themselves by engaging professionals or outsourcing this to NGOs.
"The intent is not to transfer government responsibility to the corporate sector. Rather, it is to supplement and complement what the government is doing. The government sometimes has many constraints in spending money. The private sector has far more freedom and leeway in doing that. The corporates can bring greater efficiency and innovation and also ensure that the money spent reaches the target. This will help in socio-economic development, especially for the poor, marginalised and deprived sections," Chatterjee said.
Corporates who fail to comply with the new rules and also do not explain why they failed to implement their CSR obligations will face punitive action - which could be a penalty of Rs.25 lakh and even imprisonment.
"The IICA will maintain the single biggest database of CSR activities of companies. This will include where and how they are spending their money," Chatterjee said.
(Jaideep Sarin can be contacted at jaideep.s@ians.in