Mandatory spend on CSR and its collateral benefit

On December 18th, 2011, the Lok Sabha approved the long-awaited amendments to the Indian companies bill act 2011 which for the first time has a section on Corporate Social Responsibility (CSR). The bill states that organizations with a net profit of Rs.50 million (5 crores) or more or a net worth of Rs.5 billion (500 crores) or more are required to set aside at least 2% of their average profit of the preceding three years on CSR activity.

The period leading up to passing the bill met with mixed response with the likes Sunil Mittal, Azim Premji, Nitin Paranjpe opposing the provision. The opposition was largely based on a belief that government intervention might not actually have the desired effect of more number of CSR programs; instead it could result in organizations using the provision as a tick mark. There is definitely food for thought here because many of these industry leaders spend more than the required 2%.

The bill, prima facie, seems well-intentioned with the idea of the government and private sector working in tandem on the national development goal for inclusive growth.  Time will tell whether the well-intentioned mandate yields results in the area of growth or in the area of “creative accounting”. What this bill will certainly do is compel organizations to take a look at their CSR programs and assess its impact.

Many large corporates across the country are conducting laudable CSR programs that have far-reaching benefits. Very few of these corporates actually invest into impact assessment even though an assessment could help them plug gaps and surge ahead.  Impact assessment could actually be the “collateral benefit” from the 2% CSR provision that corporate India was reluctant about.

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