What is CSR?
CSR is a corporation’s initiatives to assess and take responsibility for the company’s effects on environmental and social wellbeing. The term generally applies to efforts that go beyond what may be required by regulators or environmental protection groups.
What does the CSR law say?
The CSR law mandates an expenditure of 2% of net profits by the corporates. However, recent estimates have shown that corporates spent only 30-40% of the amount that was expected to flow in.
What activities are allowed under CSR?
- Eradicating hunger, poverty and malnutrition, promoting preventive healthcare,
- Promoting education and promoting gender equality, setting up homes for women, orphans and the senior citizens
- Measures for reducing inequalities faced by socially and economically backward groups,
- Ensuring environmental sustainability and ecological balance, animal welfare
- Protection of national heritage and art and culture
- Measures for the benefit of armed forces veterans, war widows and their dependents
- Training to promote rural, nationally recognized, Paralympic or Olympic sports
- Contribution to the prime minister’s national relief fund or any other fund set up by the Central Government for socio economic development and relief and welfare of SC, ST, OBCs, minorities and women
- Contributions or funds provided to technology incubators located within academic institutions approved by the Central Government and rural development projects.
- Companies can also collaborate with each other for jointly undertaking CSR activities, provided that each of the companies are able individually report on such projects.
What are the issues related to CSR?
A deep analysis of the law and the way corporates handle social responsibility could bring out several reasons:
- Disinterest among the corporates: Many corporates see this as a burden on their manpower and time in a global scenario with tough competition.
- Nature of the law: More than a dozen amendments in the law since its enactment has hampered its effective implementation. Some anomalies in tax treatment still remain in the law.
- CSR in monetary value: Companies have been encouraging its employees towards social work which cannot be measured on a monetary scale. Attaching monetary terms would mean companies to reorient their policies to satisfy the monetary norms of the law.
- Scope of the law: The law mentions activities ranging from eradication of hunger, poverty etc. which account to social spending. However, companies spend substantial amounts on employee welfare programs like school and hospital which has not been accounted for.
- Mandated organisation structure: The law mandates CSR committee which may not be in line with the existing structure in many organisations.
- Companies don’t get the flexibility to carry out welfare programs as the law specifically enumerates the area on which CSR money should be spent . Many companies are already spending more than asked in law but there contribution isn’t counted under CSR as they’re spending in other areas which is not included in law .
- States or local governments have been slow in tapping CSR potential. For effective CSR the government is supposed to show the vision and activities needed
- Ambiguity in taxation: While CSR spends do not qualify for tax deduction, Income tax act provides exemptions on Allowable Business Expenditure (ABE). It opens doors for litigation to decide whether an expenditure falls under CSR or ABE as private sector is motivated to put expenditure under ABE and avoid tax.
- Independent CSR Board: The requirement to establish independent board to monitor CSR not only creates an extra burden but also creates a new conflict between CEO and board.
Thus, there still exists a gap between the law and the aspirations of the company
towards CSR which needs to be sorted out for its effective implementation. More
flexibility in the law could bring more corporates with the ambit of this law and fulfil the purpose of this law.
Related Questions:
- Despite mandated by legislation, it is found that private companies are spending less on “Corporate Social Responsibility” activities in India. Critically analyse why. (200 Words)