Trust in India's 'Growth Ambassadors' –
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India, in 2013, under the United Progressive Alliance (UPA) regime had enacted section 135 of the Indian Companies Act which prescribes that the companies having a net worth of Rs. 500 Crores or more, or turnover of not less than Rs. 1,000 Crores or net profit of Rs. 5 Crores or more in any financial year have to spend 2% of average net profits made during the three preceding financial years on Corporate Social Responsibility(CSR) activities. It is to be noted that any one of the above-mentioned criteria is to be met to fall under the ambit of CSR law.
Five years down the line, under the BJP rule, India has gone a step ahead and made CSR a mandatory practice by inserting punitive norms. Under the new rules, a company has to reserve a part of its profit towards social programmes and transfer all of its unspent amounts to a newly opened account in a bank called ‘unspent CSR account’. Violation of the CSR law will now attract fines for both the company and defaulting officers ranging from Rs. 50,000 to Rs. 25,00,000. But it doesn’t end there and the other provision has distressed the corporate circle of the country. The defaulting officer will also be liable for imprisonment of up to three years. The government can also disqualify the directors accountable for the evasion of CSR for 5 years from taking positions anywhere else.
Since the last few days, corporations falling under the above-mentioned criteria have been openly raising their voices against the new rules and the legal fraternity has also supported their corporate friends with an open mind. And after almost a week of remonstrance, Finance Minister of India Ms. Nirmala Sitharaman assured everyone that the penal provisions including the jail term will not be enforced. This can be looked at as an unnerving yet wonderful example of the functioning of a democracy. A government with a majority mandate could come up with such an autocratic law. The community affected by it could openly dissent against such arbitrary and unreasonable provisions. The government was then impelled to consider the opinions of the people and had to fine-tune and take back such draconian rules.
The understanding of the government behind such provisions is for it to be a deterrent since the last many years’ corporations have failed to accomplish their CSR responsibilities. In FY2019, about 60 NSE-listed companies did not spend their whole spending earmarked for CSR activities. About one-third of the companies falling under the scope of CSR did not spend at all. But it does not mean that it was a deliberate attempt at evading CSR by the corporates. For some it was due to the lack of infrastructure such as appropriate projects, a network of well-established NGOs capable of executing initiatives of such extensive amount and many more. The non-compliance of the rules by a few corporates has been perceived by the government as a deliberate manipulation and reflected the intentions of all the corporates to be malicious.
Which brings us to the question of why are corporates made to comply with such a law which has nothing to do with their objects especially in today’s age when the corporations are already burdened with a slew of compliances. And what makes the government so sure that the corporates shall not be harassed by the government officers. After all, we are well acquainted with the working of the government institutions, which has instilled apprehensions in us through years of experience. The government refuses to incentivize CSR law which can be a very good motivation for a corporate, but the government’s ideology is that it will be a subsidy and not incentive.
A well-run corporation is a factory of creation. A company is already giving back to the community by creating employment, creating wealth for its shareholders, creating value for consumers by providing them with products which make their life better, it creates a space for growth for everyone involved with its functioning, creates technology and inventions required for future growth and evolve humanity in a sustainable way.
Also, why not give corporations the freedom to choose any field of activity. Under current rules, there is a limited set of activities that can be counted as a CSR activity. For example, a project of employing persons with disabilities in the company or buying electric vehicles which are good for the environment shall not be counted as a CSR activity. The government intends that anything which profits the corporate directly cannot be counted as a CSR activity. But then by making such rules, isn’t the government delegating the work it ought to do and putting the onus on the corporates and making them accountable for something the government couldn’t achieve. Instead of making such archaic laws the government could have itself taken up initiatives and asked for cooperation from the corporations.
The main object of any corporation is the growth of itself along with the growth of its stakeholders and, understandably, any corporation shall voluntarily do something for the society it thrives in because even though a company may be legally a separate entity but it is perhaps run by humans which makes humanity a major part of it. The Government should focus on the creation of value and space for improvement rather than creating disruptions and burdens for the Corporations. The web of trust between the government and corporations will enrich the lives of millions of Indians, restore confidence in the economy and lead to prosperity for all.
Question still remains unanswered: Will the state and India Inc play as a team to create the India we can be proud of?