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Wednesday, Sep 18, 2019

Policy anomaly tilts CSR scales in favour of 6 states

The six states host only 11% of 117 so-called “aspirational districts”, yet they appropriated around 40% of the CSR funds actually spent on CSR by companies between 2014-15 and 2017-18.

business Updated: Aug 20, 2019 12:42 IST
Rajeev Jayaswal
Rajeev Jayaswal
Hindustan Times, New Delhi
Just six states — Maharashtra, Karnataka, Andhra Pradesh, Gujarat, Tamil Nadu and Delhi  — have cornered a lion’s share of the Rs 52,208 crore in funds spent on corporate social responsibility (CSR) activities by companies.
Just six states — Maharashtra, Karnataka, Andhra Pradesh, Gujarat, Tamil Nadu and Delhi — have cornered a lion’s share of the Rs 52,208 crore in funds spent on corporate social responsibility (CSR) activities by companies. (BLOOMBERG NEWS)
         

Just six states — Maharashtra, Karnataka, Andhra Pradesh, Gujarat, Tamil Nadu and Delhi — have cornered a lion’s share of the Rs 52,208 crore in funds spent on corporate social responsibility (CSR) activities by companies because of a policy anomaly that needs to be rectified, says an official report.

The six states host only 11% of 117 so-called “aspirational districts”, yet they appropriated around 40% of the CSR funds actually spent on CSR by companies between 2014-15 and 2017-18. Only 9% of the CSR money reached 55% of the aspiration districts located in Jharkhand, Bihar, Chhattisgarh, Madhya Pradesh and Uttar Pradesh, said the report prepared by a high-level committee.

Prime Minister Narendra Modi launched the Aspirational District Programme (ADP) on January 5 last year to rapidly transform underdeveloped districts lagging behind the rest of India on key parameters such as health, nutrition, education, financial inclusion, and basic infrastructure.

The committee, chaired by corporate affairs secretary Injeti Srinivas, admitted that a policy anomaly was partly to blame. “There is a skew in favour of industrialised states such that the least developed states receive the least funds. Their skew may have been caused, inter alia, by the clause on local area preference,” it said in the report, released on August 13.

The law mandates that firms with a net worth of at least ₹500 crore or revenue of ₹1,000 crore or net profit of ₹5 crore should spend at least 2% of their net profit on activities such as sanitation, education, health care, poverty alleviation and the environment, among others.

According to the report, companies should have spent ₹72,222.67 crore on CSR between 2014-15 and 2017-18, but some companies evaded the law on various pretexts and ₹25,014.37 crore remained unspent. On average, companies earmark total of about ₹15,000 crore annually to fund CSR programmes, government officials said, requesting anonymity.

The existing law mandates that a company shall give “preference to the local area and the areas around it where it operates” for spending the amount earmarked for CSR.

“Data suggests that there has been an increasing trend to spend CSR amounts in local areas and local area preference has been interpreted as mandatory and not directory,” the report said.

The report argued that information technology has rendered geographical locations “irrelevant” as there are companies entirely based on Internet platforms “such as e-marketplaces, e.g. Flipkart, Amazon; aggregation model such as Ola, Uber and Zomato ...”

“The committee felt that the companies need to balance CSR spending between local area/areas around where it operates, and, less developed regions such as aspirational districts,” the report said.

It recommended that the government advise companies to engage in CSR activities by balancing local area preference with national priorities.

According to the report, in 2017-18, companies spent ₹2,482.75 crore in Maharashtra, ₹940.26 crore in Karnataka, ₹764.27 crore in Gujarat, ₹606.75 crore in Tamil Nadu, ₹522.80 crore in Delhi and ₹265.70 crore in Andhra Pradesh.

CSR expenditure during the same period in Bihar was ₹41.33 crore, Chhattisgarh ₹65.49 crore, Jammu & Kashmir ₹14.17 crore, Jharkhand ₹45.87 crore and Punjab ₹86.40 crore, the report said. Expenditure in most north-eastern states – Nagaland (₹0.36 crore), Mizoram (₹ 0.23 crore), Meghalaya (₹4.02 crore), Manipur (₹3.71 crore) and Tripura (₹1.83 crore) -- was minuscule.

The government’s policy think tank NITI Aayog told the committee that CSR funds should be channelised into “fund-deficit areas” to promote inclusive growth.

Kaustabh Basu, executive director-social sector at the consulting firm PwC India, said: “The law states that a company shall give preference to the local area/areas around which it operates while undertaking CSR activities. The CSR expenditure is, therefore, largely visible in states which have a higher level of economic and industrial activity.”

“Instead of a preference for the local operating area of the company, companies should be encouraged to consider CSR activities in the most backward districts in the country, and in particular, they should be encouraged to undertake innovative pilot projects which can then be scaled up under existing government schemes,” he said.

First Published: Aug 20, 2019 08:57 IST