An independent mechanism may be put in place to ensure fair, transparent and full use of the funds earmarked by India Inc for corporate social responsibility (CSR) activities. New corporate affairs minister Sachin Pilot has proposed creation of an entity likely a special purpose vehicle (SPV) for monitoring CSR funds use besides ensuring that corporates dont fail in timely execution of CSR projects. Speaking to FE, the minister said the proposed body would be independent of government intervention and run by corporates/industry bodies, with a wide representation to ensure its neutrality. Pilot has invited industry bodies like the Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry and top corporate executives to discuss the matter on December 4.
The Companies Bill, 2011, slated for consideration and passing by Parliament in the current session, makes it mandatory for profitable government and private companies to allocate 2% of their average profits accrued in the preceding three financial years on CSR programmes. According to estimates, the annual CSR funds corpus could be around R10,000 crore (around $2 billion) or more.
As per the ministry plan, there would also be a national-level CSR body to monitor the activities of the proposed SPV/financial entity. Its mandate will be to ensure that the funds earmarked for CSR projects are fully used up on the designated activities.
Sources said the proposed SPV/financial entity would have legal status and wont aim to make profits. It will need to maintain record books and financial statements and will have to furnish audited financial statements to the Registrar of Companies. Among others, there is also a proposal to allow the corporate sector to work with a corporate partner or a non-governmental organisation to execute their CSR initiatives with the approval of the national-level CSR body.
Pilot clarified that the government has no intention of controlling the proposed SPV or the financial entity. The idea is to keep the CSR funds outside of the governments intervention. Right now, it is a proposal and we are meeting companies and various industry bodies for their feedback and suggestions. The idea is to ensure that the funds are spent on substantial CSR activities, Pilot said.
Stating that his first priority was to get the Companies Bill passed by Parliament, the minister said: "We can always make amendments in the law once it is passed. Of course, this will be done with the active participation and feedback of the corporate sector.
The move to float an SPV for use of CSR funds takes its cue from similar mechanisms in countries like France, Mauritius and Indonesia, among others.
In Mauritius, for example, a company or a group of companies with CSR contribution above a threshold value can use an SPV for the implementation of its CSR initiatives provided it meets certain laid-down riders. As per the norms, the administrative costs of the SPV should not exceed 15% of the total expenditure on projects for a CSR fund of up to 20 million Mauritian rupees. Then the SPV has to work and report to a national CSR committee.
Based on the financial results posted by listed companies in 2010-11, a report by SMC Global Securities had said that India Inc would need to collectively shell out around R9,000 crore as around 1,230 companies had collectively posted profits of R4.38 lakh crore.
In FY12, state-owned oil companies, led by ONGC and Indian Oil Corporation, hired over 4,200 people and spent around Rs 385 crore on CSR initiatives, according to a statement from the oil ministry in October.
The move to float an SPV comes from the fact that there has been a mismatch between the CSR funds generated and used up every year. An analysis of CSR funds of leading PSUs shows this mismatch. Sample this: In the last three financial years 2009-10, 2010-11 and 2011-12 Coal India allocated Rs 860 crore towards CSR activities but used only Rs 230 crore. Similarly, ONGC allocated Rs 1,036 crore but used only around half (Rs 510 crore). NTPC allocated a total of Rs 135 crore on CSR activities but managed to use Rs 100 crore only.