In yet another move that may only widen the consensus gap between the government and India Inc, the new Companies Bill has made spending on corporate social responsibility (CSR) mandatory. True, by ensuring that only the profitable corporate make this contribution, the Bill does not pressurize loss making entities. However, the mandatory spend may irk corporates that have been waiting for some pertinent reforms to improve their profitability.
As per the legislation, corporates who meet certain financial criteria are required to spend 2% of their net profits on CSR. Activities on CSR may include spend on education, rural skill development, environmental protection etc. If corporates fail to do the same they may attract penalty although there are conflicting reports regarding the penalty provision.
We do agree that CSR spend can help improve the society. However, making it mandatory without appropriate guidelines in place, may not serve the purpose. Needless to say, if there is indeed a penalty provision the fear of law would seek in. Also, since companies pay taxes, a portion of it could be earmarked for social responsibility initiatives.
It is the prerogative of the government to spend the money collected via taxes in best possible way. Rather it is trying to burden corporates even more with mandatory CSR. In short, while the thought of CSR can go un-debated the mandatory provision is something which may attract debates from many corporates. It may be noted that India is probably the only country in the world which will have mandatory CSR spending requirements henceforth.
Thus, overall while the new Companies Bill has included many new provisions that vouch for transparency and better governance, the CSR aspect is something which will remain a matter of open debate.