New legislation in India requires companies, including Tata and Birla, to spend at least 2% of their net profits on corporate social responsibility (CSR) projects
Under s.135 of the Companies Act 2013, which came into force on 1 April, businesses with assets of more than Rs 5000 crores (£500 million), annual sales of more than Rs 500 crores (£50 million) or annual profits of more than Rs 5 crores (£500,000) are legally obliged to undertake CSR activities.
The legislation requires companies to not only put in place a CSR policy and ensure board-level responsibility for CSR, but to also spend at least 2% of their average net profits on CSR activities and publish an annual report on those activities.
The Indian government estimates that the new rules will affect 2,500 companies and will result in Rs 15000 crores (£1.5 billion) being spent on CSR over the next 12 months. India’s largest business, Reliance Industries, will on its own spend around Rs 400-500 crores (£40-£50 million).
The mandatory CSR rules are the first of their kind in the world and follow on from existing regulations in India requiring public sector organisations to spend 2% of net-profits on CSR.
IEMA Fellow Lakshminarayanan Ramakrishnan, an environment practitioner in India, commented: “It appears that the government has taken the legislative route to rope in the corporate sector to support its millennium development goals and other social sector initiatives.
“The government itself has generally failed in its efforts to address the nine areas which it identifies qualify as CSR, such as eradicating poverty and ensuring environmental sustainability, and seems to be trying to use corporate involvement as a last resort.”
According to Ramakrishnan, companies in India are likely to see the new legislation as a tax. “2% of net-profits is a significant amount of money, more indeed than many companies spend on research and development. I would not be surprised if Indian corporates manage to find ways to avoid this ‘tax’,” he told the environmentalist.
Although firms are required to report on CSR activities, Ramakrishnan points out that this report doesn’t have to include any information on the nature of the CSR project undertaken or any targets, performance indicators or social improvements it achieves.
For more information on India’s new CSR rules, read Lakshminarayanan Ramakrishnan’s insights by clicking here.
