Corporate Social Responsibility (CSR) norms, which were originally introduced as a voluntary ‘best practice’ for large companies seem to be fast turning into an onerous responsibility for India Inc. The latest regulatory tweak — a Ministry of Corporate Affairs’ diktat requiring companies to furnish a 11-page report in form CSR-2 to the Registrar of Companies — will only add to the existing compliance burden on companies. The form is to detail the constitution of CSR committee, their meetings and confirm if the company has undertaken the impact assessment mandated in the Companies (CSR policy) Rules 2014. This will, in all likelihood, lead to duplication of work as it was only in January last year that the MCA spelt out the format of a comprehensive disclosure on CSR activities to be included in the Board report forming part of financial statements. The changes then were ostensibly done to reinforce compliance, curtail abuse and strengthen governance, transparency and flexibility. Given this, the new requirement appears superfluous and adds to the difficulty of doing business.
When the Companies Act first brought in provisions requiring companies to spend 2 per cent of their net profits on CSR, if they reported a net worth of ₹500 crore or more or a turnover of ₹1,000 crore or more, India was only the second country after Mauritius to have such provisions and companies were assured that this would remain a purely voluntary exercise. Firms were only required to state their reasons for falling short, if they failed to meet CSR targets in any given year. But the concept of CSR has since then evolved from a purely voluntary and philanthropic endeavour to a mandatory exercise with the government magnifying both the bureaucratic and legislative oversight on CSR. The law today doesn’t just lay down the quantum of profits that companies are expected to spend but also the list of approved activities that can be undertaken in the name of CSR. It is possible that the government was prompted to act by the fact that the CSR spending of India Inc fell sharply in 2020-21 to about ₹8,828 crore from a level of ₹24,688 crore in the previous year. While the pandemic may have been a reason for this, it would be a good idea for India Inc to do some soul searching on this issue because it was precisely during this difficult period that higher CSR spending was called for.
The government plans to use technology tools such as Artificial Intelligence and Machine Learning to do data mining of the mandated reports to refashion its policy on CSR. But given that detailed progress reports on CSR are already available in the Business Responsibility Reports of large corporates and in their annual report disclosures, it is moot as to why it would like to accumulate further paperwork to undertake this exercise. MCA leveraging technology to improve its oversight of India Inc is welcome, but this should be applied to the financial and governance aspects of companies before moving on to their social obligations.