Who gains the most from corporate charity?
Businesses have steadily increased spending on charity but beneficiaries have largely been states that are fairly ahead in living standards while the ones lagging behind get only a fraction of the funds, official data suggest.
Data released by the corporate affairs ministry shows that states where poverty levels are low such as Maharashtra, Karnataka, Gujarat, Andhra Pradesh, and Delhi account for 40% of the corporate social responsibility (CSR) funds that businesses have spent over the last four years, while states with the highest concentration of backward districts have received just 9% during the same period.
Spending on developmental projects garners businesses goodwill of the people most affected by such activities, whether it is a factory or a mine, although macro data suggest that states ahead of others in development get the big chunk of companies’ CSR spending.
For companies, spending more locally also has the advantage of having the benefits of their CSR activities reach families of their workers. It is not that companies do not spend in states where they do not have factories or operations, but net CSR funds received by a state after accounting for funds local companies spend in other states and the funds coming from companies based in other states, it is the most developed states that get the highest share.
Maharashtra, Karnataka, Andhra Pradesh, Gujarat, Tamil Nadu and Delhi have received 39.9 % of the ₹52,208 crore that companies spent across India on CSR activity during 2014-15 to 2017-18. On the other hand, Jharkhand, Bihar, Chattisgarh, Madhya Pradesh, and Uttar Pradesh, which together have more than half of 117 most backward districts in the country, received only 9% of the total CSR spending during the period, data showed. The group of states that got the highest CSR funding, however, accounted for only about 11% of backward districts.
According to data from the ministry, CSR spending between FY15 and FY18 has been the highest in education, health, fight against poverty and malnutrition, access to clean drinking water, livelihood and for the differently abled.
CSR activity recently became a controversial subject when the government amended the Companies Act 2013 to ask businesses to transfer unspent CSR funds to a designated government corpus, defaults on which would fetch punishment including jail term. The law is now in force, but has triggered sharp criticism from the industry.
However, a high level committee on CSR led by Injeti Srinivas, secretary in corporate affairs ministry, which gave the CSR data in its report submitted to finance minister Nirmala Sitharaman earlier this month, recommended that such spending be made tax-deductible for companies, and the jail term for executives who failed to transfer unspent amounts to the state fund be scrapped.
Allowing CSR spending as a deduction while computing taxable income will come as a big relief to businesses. To implement this, the Income Tax Act will have to be amended to include CSR spending among other classes of expenditure that get the same benefit.
As per law, companies with a networth of ₹500 crore or more, or sales of ₹1,000 crore or more, or net profit of ₹5 crore or more in a preceding financial year are required to spend 2% of their average net profit of the preceding three years on CSR. Such spending has gone up from ₹10,066 crore in FY15 to ₹13,327 crore in FY18, the report said. Of the over 21,300 companies liable to report their CSR activities in FY18, over 10,800 have complied.