India CSR: 2% Spend No Longer Mandatory, Govt Rules

CSR Not Mandatory in India

The latest announcement in the long line of indecision by the Indian government rules against the introduction of mandatory CSR. The newest addition to the Companies Bill will make a mention requesting companies to spend upto 2% of their net profits on CSR but it may not make CSR spend mandatory. However the Parliamentary Standing Committee has  underlined the need to mandate firms to spend on philanthropic activities.

The objective of this new change is to "invoke the spirit of corporate philanthropy as a matter of intent rather than as legislation." Officials have understood that making CSR mandatory could result in malpractice or increase in cases of greenwashing.  In addition to this, the mandatory push for CSR has resulted in opposition from Indian industry.

Although India Inc feels that spending on CSR is critical, making it mandatory may not result in best practices. Very few companies actually include CSR in their business models and this is something that mandatory CSR will not change. The Institute of Chartered Accountants of India is set to chalk out plans for a new accounting system to keep a record of all company spends on CSR.

What Indian CSR Needs

Indian CSR currently needs a better top down structure and education about what the process entails. First of all Indian industry needs to understand that CSR is an extension of corporate governance. Corporate governance and by proxy CSR, is not something that government can mandate.

The government should be talking about educating companies on CSR. Corporate executives should not be arguing over whether CSR should be made mandatory but look deeper into the reason for the proposal of the law in the first place. India is a country with a myriad social and environmental problems which the corporate sector can tackle.

CSR is no longer charity or philanthropy but valid corporate strategy. This is something that the government needs to emphasize. A Milton Friedman-esque model of business without societal give-back is dead. The sooner corporate India understands this, the better. There are many misconceptions about CSR that even those in the corporate field are unable to dispel. There are still others that use this knowledge black-hole to push their own agenda.

India Inc. Needs Corporate Regulation

Indian companies need guidelines that ensure corporate regulation. They need guidelines that ensure proper CSR is in place. These should shift away from the traditional notion of charity-based CSR and move forward towards strategic CSR that fits into the company's long term objectives.

Top managers and CEOs need a mind-shift in the way that they think about business. Alleviating supply chain issues through socio-enviro measures, pollution abatement, streamlining production - all of these have real eco-solutions which industry needs to focus on.

Indian business will have a better long-term future if such issues are robustly tackled with holistic approaches rather than mandating CSR spend.