The new Companies Act, 2013, which proposes that 2% of profits earned by a certain class of companies must be spent on corporate social responsibility (CSR) activities, would mean an estimated Rs. 27,000 crore will flow into grassroots development and social enterprise sectors every year, says a think-tank.
According to the Indian Institute of Corporate Affairs, of the 1.3 million companies in India, about 6,000-7,000 companies are covered under the new CSR rule as it is applicable only to companies that have a minimum net worth of Rs. 500 crore, turnover of Rs. 1,000 crore or net profit of Rs. 5 crore.
It is currently estimated that the average CSR spend currently is 1-1.25% of profits, while the Companies Act, 2013, prescribes 2%. While the new Act does not make this kind of a CSR spending compulsory, it mandates reporting any failure in meeting this target, creating social pressure on companies.
While corporate affairs minister Sachin Pilot insists the new CSR rule is driven by the principles of self-regulation and self-disclosure, corporate leaders like Bajaj Group chairman Rahul Bajaj and Infosys vice-chairman Kris Gopalakrishnan have raised concerns over the government dictating terms on philanthropic initiatives of companies.
On the other hand, many including Kotak Mahindra Bank managing director Uday Kotak welcome the new rule. “There is a very fundamental change in CSR. Making it part of the law is path breaking,” Kotak said at a Confederation of Indian Industry (CII) conference on the Companies Act, 2013, early this week.