Compliance to CSR codes a big block

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: One of the biggest challenges we are facing in exports is meeting newer and stricter demands from our buyers under corporate social resp-

onsibility (CSR) codes. Whereas there is lure for greater volumes, their demands are becoming frustrating. What is the way out of this complex problem because we cannot take on these large buyers alone?

—Several exporters from Jalandhar, Ludhiana & Tirupur

This is the challenge that increasingly will be faced by Indian SMEs supplying to value chains of global production networks whether buyer-driven chains—garments, footwear, toys etc., or producer- driven chains—auto, air craft etc. The competition at SMEs’ doorstep is global and participation in the globalised economy is no more a choice. Large integrated supply networks is the growing trend. SMEs are responding by becoming vendors to these complex networks owned by large international supply chains. These networks have increasingly come under the pressure of ‘anti-globalists’ pushing the social agenda.

The challenge for SMEs has become compounded because this social agenda is ‘top down,’ demands conformance to standards in a fashion ‘one size fits for all’ and does not consider the SME perspective. SMEs are, however, the second name of heterogeneity: from size to formality and from level of expertise to access to resources. Whether majority of firms in a country would be in the formal sector, or would be functioning in the informal sector, would depend on host of factors—society’s attitude to entrepreneurship, cost of compliance of regulatory environment, level of economic development, judicial system, laws related to land and ownership, banking and financial system etc.

Moreover, the multiplicity of codes or standards is expanding at a frightening pace. Standards differ across buyers, products, sectors and even countries. The expectation of compliance ranges on issues from labour standards to environment; from bribery to poverty reduction; from human rights to technology. A few years ago, OECD mapped some 246 codes; SMEs are still counting. Cost of compliance is a major issue.

The way forward is to reconcile CSR obligations with SME constraints. Towards this, I had proposed the following for CEOs of MNCs at a World Bank Institute seminar: To eradicate multiplicity, efforts need to be made to develop common codes multilaterally along the lines of ILO. The underlining principle should be: CSR means more opportunities, not new burdens. The codes must take into account SME perspective and compliance should be voluntary. Organisations driving change and supply chains should be willing to lead the process of change and share the responsibility of equipping SMEs. CSR ought not to be protectionist, but should have an inclusive approach.

We are a small industry, manufacturing leather shoes and sandals. We have been selling to the local market, but are now interested in exports. How can we start? Which organisations can help us?

—Parvesh, Gupta Leather Industries, Agra

The first steps are: get the Import Export Code number and apply to the Council for Leather Exports for membership. To get more details I would advise you to follow “How to Export: Guide for beginners” at http://www.sme network.net/marketing/ exportimport.htm. It will help you complete all the formalities. Second, you should get in touch with SISI, Agra. The Office of Development Commissioner of SSI participates every year in dozens of international trade fairs and display goods produced by SSIs. The SISI office would help you display your products without any cost. Further, you could also participate in trade fairs organised by the Council for Leather Exports. You may also avail market development assistance and participate in international fairs directly. However, you need to be a registered SSI unit to avail these benefits.

With reference to your column on April 29, we have a query regarding retail grocery stores. Earlier, we had to pay 0.5% turnover tax. But, after Vat, there is some confusion. Do we have to still pay the turnover tax? And also what would be our tax incidence now?

—Ramesh Nagda, Mumbai

You may avail of composition scheme (applicable in Maharashtra) if your turnover was below Rs 50 lakh. The rate of tax will be 8% on the difference of the total of all sales and of all purchases (including tax, if any) during the return period. But, you will not be able to claim set-off of any Vat you may pay on your business purchases, nor will you be able to issue tax invoices to your customers. You may kindly refer leaflet MVat 109 which provides full details about the composition scheme and also refer the web site of Maharashtra Sales Tax—http://salestax.maharashtra.gov.in.