Making CSR Mandatory in India

Making Mandatory CSR reporting in India has been an ongoing debate for almost a year now. With the recent cabinet reshuffle, newly appointed Corporate Affairs Ministers Mr. Veerappa Moily recently said that the new Companies Bill would make it mandatory for corporate to earmark part of their profit for CSR initiatives. Moily said that

India Inc. 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% 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. By being applicable only to the organised sector, mandatory CSR would apply to about 300,000 enterprises or about 0.7% of the approximately 42 million production entities, enumerated in the latest Census. There are several concerns with the introduction of mandatory CSR. One of the biggest concerns in the anticipated rise in greenwashing. The second is the creation of a monitoring body to oversee the implementation of mandatory CSR. The third is that the bill covers a very small section of the private sector. This group will be involuntarily required to undertake mandatory CSR and some of these might cater to the export market. The additional cost of 2% could further cut into their margins which are already slim. There are arguments therefore, that the imposition of mandatory CSR might see the decline in private industries and the small, medium scale sector could be severely affected. Imposing CSR on public listed companies like all central and state government enterprises, large domestic private enterprises and multinationals that perhaps already implement CSR will make monitoring easier than implementing it on the private sector as well. Right now, the Corporate Affairs Ministry does not seem to have a clear idea on how they propose to monitor mandatory CSR and to ensure that there is a fair playing field for SMEs. Legitimizing controlled CSR activities should be the focus of the government. Creating a culture of CSR and ensuring that firms include non-financial risk assessment in their annual reports is the best way to propagate an awareness of corporate responsibility. This will also help related fields like SRI to emerge and grow within the country. Finally the effective creation of private-public partnerships will the most effective move in propelling CSR forward in a country like India.