India inc slams making CSR spend mandatory

Attempts by corporate affairs minister Murli Deora to make corporate social responsibility (CSR) spending mandatory in the new Companies Bill has come in for sharp criticism. While accepting the significance of CSR activities, leading members of India Inc said that any attempt to make it mandatory would be a “retrograde” step.

Rahul Bajaj, chairman of Bajaj Auto and an industrialist vocal on policy issues, said that since corporate houses were already engaged in various CSR initiatives, there was no case for making it mandatory. “I have spoken to Murli Deora (corporate affairs minister) on the issue. Since CSR spending is a question of conscience, there is no case for making it mandatory,” Bajaj said.

He also dismissed the government’s view that the industry was divided on the matter. “No responsible industrialist can ask for making it mandatory,” he said. Bajaj also said that since there was no acceptable definition for CSR, the move is not in the right direction.

Agrees Tata Communications chairman Subodh Bhargava when he says that since CSR spending was entirely a corporate entity’s personal choice, no legislation was needed. Bhargava said that if the government finally decides to make the clause mandatory, then it could also lead to manipulation. “If a company’s intent is not to invest in CSR, then no law in land could change that,” he said.

Maruti Suzuki chairman RC Bhargava said that distribution of net profit should be decided by shareholders and not the government. He questioned the government’s ability to monitor how companies were spending on CSR and what constitutes CSR. “The issue really is on the practical side of making the proposal mandatory. Today, the government wants to pass a law on how companies should distribute profits. Tomorrow, it may be on something else. How does the story end?”

On Thursday, corporate affairs minister Deora had said that he was “personally” in favour of making it mandatory for companies to set aside 2% of their net profits on CSR activities.

His deputy in the ministry RPN Singh had also said that the government was trying to reach a consensus on the issue.

Moser Baer chairman Deepak Puri said that while he was a supporter of CSR, any move to make the proposal mandatory would be counterproductive. “Within Moser Baer, the board of directors have approved CSR investments of up to 1%. While CSR is a necessity, it should not be thrust upon companies. That’s not right,” Puri said.

Senior corporate lawyer Lalit Bhasin termed the government’s proposal as a retrograde step. He argued that industry was within its rights to oppose the move. “There has to be a legal basis for implementing such a move. Let the proposal be voluntary; otherwise, companies can misuse it by finding a way around the law,” Bhasin said.

An industry leader who did not wish to be named said that the government's stand on the issue would take India back to the licence raj. “The government should not dictate how companies are going to plan out their expenditure. If the proposal does become law, then it would be unfortunate,” he said. The issue first came to light when the parliamentary standing committee on finance headed by senior BJP leader Yashwant Sinha proposed mandatory implementation of CSR spending. The committee argued that companies which have a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore should set aside 2% of their average net profits for the last three financial years for CSR. Sinha told FE that the proposal had the support of the ministry of corporate affairs as well. “Every company must spend 2% of their profits on CSR. We are trying to employ social responsibility for the corporate sector. If voluntary action has not worked, then it has to become mandatory,” he said.