On the Course to Mandatory CSR in India

Final Draft of Companies Bill Affirms Mandatory CSR

After much opposition to mandatory CSR by India Inc, the ministry of corporate affairs is still going ahead with it. They are currently in the process of  finalising the draft of the Companies Bill. The provision that CSR will be made mandatory for private sector enterprises is going to be retained.

The ministry feels that it is a stable provision and it is something that is required. They have further declared that shareholders will have an option to decide how their money for CSR activities should be spent.

Further to this the Public Advisory Committee  of the Institute of Chartered Accountants of India (ICAI), has been set up with the view to protect public interest. The newly-appointed president of this body has been quoted saying, "We have formed a Public Advisory Committee with the view to help public interest, even for the CSR.  A good viable project will be identified by ICAI and we will play the role of an advisory between the corporates and the public."

CSR Projects to be Industry Specific

ICAI will advice companies to take up CSR projects specific to the industry they belong to. Companies in the chemical industry for example, would be advised to take up projects relating to environmental protection according to them. They hope that this will provide a balance.

The Companies Bill of 2009 has proposed that companies should earmark 2% of their average profits of the preceding three years for CSR activities. In addition to this, they also have to made a disclosure to shareholders about the policy adopted in the process. The government has accepted that industry should be allowed to monitor implementation of CSR without intervention.

The suggestion for allocating a part of a company's profit for CSR was floated by the Parliamentary Standing Committee on Finance, which scrutinized the Companies Bill. In spite of the announcements made on public and private sector organizations, there are still some details to be worked out.

Right now the MCA has announced that, "every company having (net worth of $1bn or more, or turnover of $2bn or more) or (a net profit of $1m or more during a year) shall be required to formulate a CSR policy as may be approved and specified by the company."

Private sector units are expected to contribute between 2-5% of their profit depending on their earnings. Public sector units are to spend between 0.5-2% of their net profit on CSR. It is thought that there will be some relaxation with regards to subsidiary layering in the works.  The ministry of corporate affairs is looking to introduce different provisions for listed as well as unlisted companies because it feels that two types of organizational structuring have different requirements.