FE@CAMPUS MASTERMIND: Response by Disha Shah to question for Feb 25-March03

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SummaryRecently, the Companies Bill was passed with mandate on CSR spending. Is mandatory CSR good?

The Companies Bill re-introduced in Parliament has specified that 2 per cent of net profit of every company must be spent on CSR.

According to me philanthropy, CSR activities should not be mandatory. If it is made mandatory, it becomes another tax in a sense which takes CSR as an add-on to ‘business as usual’ and not as a different way of doing business. India Inc. needs to develop a culture of voluntary CSR.

There are several concerns with mandatory CSR. One of the biggest concerns is the anticipated rise in green-washing. The second is the creation of a monitoring body to oversee the implementation of mandatory CSR. The third is that the bill covers a very small section of the private sector. The additional cost of 2% could further cut into their margins which are already slim. There are arguments therefore; that the imposition of mandatory CSR might see the decline in private industries and the small, medium scale sector could be severely affected. Many corporate have raised the issue of tax benefits for the amount they spend on CSR.

Legitimizing controlled CSR activities should be the focus of the government. Creating a culture of CSR and ensuring that firms include non-financial risk assessment in their annual reports is the best way to propagate an awareness of corporate responsibility.

There are simpler ways to incentivize Companies to contribute to CSR than to add bureaucratic mechanisms like CSR Committees and mandatory CSR. A simple tax based incentive scheme might have worked much better

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