Doing good by diktat

Charity may begin at home, but come April 1, for more than 1,800 Indian companies it will become serious business. This is when the new corporate social responsibility (CSR) rule, which mandates select companies spend 2 per cent of their net profit for the betterment of society, will take effect.

The rule, notified recently, says that any company with a turnover of over ₹1,000 crore or net worth of over ₹500 crore or profit of over ₹5 crore in a financial year will have to spend on compulsory CSR.

So what is the amount of corporate donations we are looking at? Based on the numbers of 5,000 leading companies, around ₹12,000 crore may be a reasonable estimate.

Sector wise, banking and financial services companies would likely contribute the most money among listed companies, followed by refineries and oil exploration. Over a third of the CSR pool will likely come from the top 30 listed companies. Corporate biggies — the Tatas and Mukesh Ambani — will be the sizeable donors with the former contributing around ₹500 crore a year and the later ₹400 crore.

If you thought PSUs were already doing their bit for society, they are mandated to do more, with PSUs including banks expected to spend a chunky ₹2,700 crore. While the intention is to have all corporate behemoths doing their bit for society, the ₹5 crore profit threshold brings many tiny firms into the CSR fold.

The tiny Bluestar Infosystems with a ₹100 crore turnover falls into the ambit of mandatory CSR. Nor is the obligation to do good restricted only to profit-making companies. Thanks to the turnover and net worth thresholds, quite a few firms which made losses in the latest fiscal fall into the ambit of this rule too. Oil giant MRPL is one instance of this.

Basing the spends on the ‘average’ profits for three years also means that a company may, in practise, spend much more or much less than the mandated 2 per cent of its profits in any given year. For instance, Bharti Airtel, which saw its consolidated profits cut in half during 2010-11 and 2012-13, may fork out nearly 4 per cent of its profits for this fiscal, while Wockhardt, which saw huge leaps in profit over the past three years, will shell out just 0.8 per cent.

But if you thought finding cash to give was the big problem companies, think again. They seem far more worried about the paperwork.

When has a new regulation ever come about without yards of red tape? Having spent their CSR money, companies are also required to furnish elaborate compliance reports on how it was spent, quantify the impact on the beneficiaries and have independent Board members verify these disclosures.

Currently, while a number of companies dutifully drop the catchphrase ‘CSR’ somewhere in annual reports, their disclosures on how they discharge their CSR obligations are quite sketchy.

According to a KPMG survey of the top 100 companies, only 31 per cent provided comprehensive reporting on corporate responsibility. Most of the reports dwelt on positive achievements rather than the challenges and dilemmas of CSR. IT companies were ahead of the game, with all 12 companies producing detailed and ‘high quality’ reports.

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