India Inc, get ready for mandatory CSR!

Regretting that the concept of voluntary CSR has not picked up in India, Corporate Affairs Minister Veerappa Moily on Wednesday said the new Companies Bill would make it mandatory for corporate to earmark part of their profit for corporate social responsibility (CSR) initiatives.

India Inc, the new Minister said, "needs to develop a culture of voluntary CSR...CSR cannot be considered only as a charity it is more of a social business...As my predecessor has said that 2 per cent mandatory provision (for CSR spend in the Companies Bill 2009), will stay."

The government is in the process of replacing the half-a-century old Companies Act, 1954 with a new law.

The Companies Bill 2009 is expected to be taken up for consideration and passage in the monsoon session of Parliament beginning August 1.

Noting that CSR culture is yet to find favour with India Inc as in developed countries like the US and the UK, the Minister told PTI in an interview, "all the 60 years we tried the concept of voluntary CSR. Unfortunately, it did not catch up."

The suggestion for earmarking a part of a company's profit for CSR was floated by the Parliamentary Standing Committee on Finance, which scrutinised the Companies Bill, 2009.

Subsequently, the MCA proposed that every company having (net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more) or (a net profit of Rs 5 crore or more during a year) shall be required to formulate a CSR Policy.

"In case any such company does not have adequate profits or is not in a position to spend prescribed amount on CSR activities, the directors would be required to give suitable disclosure/reasons in their report to the members," the Bill says.

The industry has for long been opposing this provision as according to them they should be allowed to monitor implementation of CSR themselves without the government intervention.

At present, spending on CSR activities is part of the voluntary guidelines laid out by the MCA and it draws no penal provisions.

However in case of PSUs, those government companies whose net profit is less than Rs 100 crore (Rs 1 billion) have to contribute 3- per cent of their income for CSR, PSUs with profits between Rs 100-500 crore (Rs 1-5 billion) would be required to earmark 2-3 per cent.

Futher, those companies earning a profit of Rs 500 crore and above, CSR spending should be between 0.5 to 2 per cent of the net profit.