In 2013 India enacted a new Companies Act to replace older legislation dating back from 1956, more than three decades before liberalisation in 1991. Although much amended already, it is still a far-sighted Act which attempts to break new ground on accountability – much needed given the trust deficit due to the large corporate-led scams that hit the headlines on a regular basis with bad debts, non-performing assets (NPAs), etc. It imposes greater norms of responsibility on the board and tightens the governance of companies, it defines fraud, lays down whistleblower provisions and reins in auditors and audit functions among other things.
It was not these provisions, however, that caught the public imagination, but the CSR provisions that mandated for the first time that companies with a net worth of Rs500 crores or more, turnover of Rs1000 crores or net profit of Rs 5 crore or more in one financial year spend at least 2 per cent of their average net profit over a preceding three-year period on societal obligations as per the Board approved CSR Policy. These enshrined in law and quantified a financial benchmark on ‘giving’ that was becoming increasingly necessary as conflicts grew and trust dwindled in the corporate sector. Communities and activists were up in arms about issues like the takeover of land, pollution, human rights violations, etc. Mandatory CSR was held out to be the next big ‘made in India’ innovation, which would make available some Rs25,000 crores each year, transform rural India and save it from poverty, disease, etc.
However, the actual spend was less than a fifth of what was projected. To make it worse questions are not being asked of companies, and the potential of CSR and business responsibility in general, and the possibility for good is being undermined in myriad ways. In the meantime, a lack of transparency, conflict of interest and the nexus of business and politics are increasing.
Schedule 7 of the Act details the possible areas of spend including education, health, the Prime Minister’s Relief Fund, sanitation and poverty alleviation. Contributions to the Prime Minister’s Relief Fund are perhaps the most attractive of all as they carry a 100 per cent tax exemption, while other activities carry only a 50 per cent exemption. Never mind that in five years only about a total of Rs50,000 crores has been spent from the mandatory CSR annual legal provision, far short of the earlier estimated amount. Five major oil sector PSUs, ONGC, IOCL, BPCL, HPCL and OIL spent Rs146.83 crores from their CSR budgets on the world’s tallest statue to honour one of the leading lights of the freedom struggle, Sardar Patel. In a country where a third of our citizens are poor and cannot even afford two square meals a day, such a diversion of funds intended for social programmes is unacceptable. Sardar Patel himself would probably have objected!
The poorer states and districts have been left behind in the race as well-off states such as Maharashtra and Karnataka have got a major chunk of CSR spend. Some corporates are also implementing development programmes, forming their own trusts and foundations to run projects, even in some cases getting government funding at a time when funding for the non-profit sector is dwindling!
The cosy relationship between business and politics
Barely three years later, in 2017, the government of the day amended a provision in the 2013 Companies Act that had limited corporate donations to political parties to 7.5 per cent of their average net profit over a three-year period, while promoting electoral bonds that also help political parties raise funds from corporates. Other than a few organisations like the Association for Democratic Reforms (ADR) , which asked questions and took the matter to court, there was hardly any fuss in the media or from civil society. There is no longer any ceiling for corporate donations to political parties; they are not even linked to profitability as CSR is, nor are companies required, as they were previously, to inform shareholders which party they have donated to! So, while social responsibility is pitched at a lower amount, at 2 per cent, the largest corporate donations, amounting to Rs915 cr between financial years 2016-17 and 17-18, according to a ADR report, went to the ruling Bharatiya Janata Party. No surprises there! CSR also mandates reporting annually; this is not required for political donations, something which does not foster transparency. The growing relationship between corporates and the state demonstrates how this plays out and the role lobbying and advocacy plays in getting those corporates who make political donations an unfair advantage, both over other corporates who don’t, and over the social sector. Non-profits also hire and create stable jobs, work to give great value to the country, raise their own resources but are neither valued, nor acknowledged. Worse still, if they take up human rights and environmental issues. they can be on the receiving end of the wrath of the regulators, a position which can seriously prejudice their ability to operate. Forget a level playing field for the non-profit sector without which democracy would be poorer. The double standard is such that an ‘ease of doing business’ index can be compiled with no consideration for the impact that such ease has on labour and environmental rights. In the infamous Sterlite case of Tuticorin, fifteen lives were lost in the firing that followed community agitations against pollution and expansion of the plant.
A total of 5,382 firms were issued ‘call for information’ notices in 2015-16 for not spending the mandated, meagre 2 per cent as well as for non-compliance with CSR norms. The Government has reportedly even sanctioned prosecution in 366 cases for non–compliance with CSR norms for financial year 2014-15. Seminars and articles waxed eloquent about the inadequate capability of the non-profit sector to partner with or implement CSR programmes. Trainings were proposed and run where the corporate sector and consultancy firms could monitor and evaluate social programmes being implemented by non –profits on the ground for ‘visibility’ and ‘ impact’ within a year or two of funding. All of these were provided by consultants for a fee which came out of the recipient company’s CSR budget! What’s more, according to these assessments, social change happens overnight, log frames and timelines substitute for the dedication and passion that non-profits bring through years of work with communities! Probably quarterly and half yearly reports are expected even!
Corporate Responsibility Watch (CRW), a voluntary group of a dozen non-profits, has over the last five years been analysing the Business Responsibility Reports mandated by the Securities and Exchange Board of India (SEBI) for the top 100 companies since 2012, and since 2018 extended to the top 500 companies. This annual exercise attempts to decipher what companies self-report in terms of overall business practices and norms against the National Voluntary Guidelines, now called the National Guidelines. The findings are overall dismal (with a few exceptions), particularly as regards key areas such as employment – permanent workers versus contract workers, decline in employment of women, little or no work for people with disabilities, etc.
CSR cannot be looked at in isolation. It has to be seen within the context of overall business practice, companies’ donations to and lobbying of political parties, their Non-Performing Assets (NPAs), Environmental Notices for Pollution, consumer complaints, redress mechanisms, etc. Before companies can aspire to do good or be taken seriously for the discharge of their social obligations through their CSR practices, they must first follow the maxim ’do no harm’. They are expected to follow the laws of the land and be legitimate corporate citizens. If, in the course of its main business, a company violates the human rights of its workers, does not follow environmental laws, and pollutes or depletes the water table, affecting farming and agricultural livelihoods, a mere 2 per cent as charity will not compensate for it, least of all in the eyes of marginalised communities. How profits are generated is as important, if not more so, than what is given away as charity or CSR.
As for non-profits, they will do well to formulate carefully their non-negotiables when they work with CSR grants or companies and decide on what terms they will cooperate, or not, given their track record of work over so many years with their stakeholders and communities. Or perhaps they should consult these stakeholders and communities before taking any CSR funding, so they can fully understand at what cost to the planet and people this funding comes from and whether it negates their work itself.
Dr. Amita V. Joseph serves on the Governing Body of the Business and Community Foundation (BCF), India (views are personal)