Column : We also make profits

Written by Sunil Jain | Updated: Sep 16 2010, 05:58am hrs
India is aiming to be the worlds top outsourcing destination, not just in software services but in manufacturing as well, but whats being proposed by the ministry of corporate affairs (see http://www.financialexpress.com/news/cos-must-set-aside-specific-csr-spends/680213, Sept 11) is a bit too much. Its actually trying to outsource governance to India Inc. Sadly, this is not the first time the government is trying this. In recent times, there have been obligations on telecom companies to provide phones in rural areas, on companies to hire people who are SC, ST and OBCCIIs southern companies have declared that around 15% of their workforce is SC/STthe list goes on.

The corporate affairs ministrys proposal, based on the recommendations of a parliamentary standing committee, is to mandate that companies with a net profit of more than Rs 5 crore (thats pretty much everyone) must spend at least 2% of their average net profits on Corporate Statutory Responsibilitythats what Corporate Social Responsibility (CSR) is called when you take the voluntary out of it. The ministry has also set a net worth (Rs 500 crore) and a turnover (Rs 1,000 crore) criterion since, like the original Direct Taxes Code, it seems to think companies habitually lie when it comes to net profits. Given that bureaucracy expands to fill up responsibilities available, its likely that at some point the bureaucracy will want to certify the CSR expenditure is kosher and perhaps even specify what qualifies as CSRno, we dont think extra payments to tribals for their land qualifies as CSR, or maybe it does.

Another recent example of the government wanting to outsource its work is the Right to Education Act (RTE). We all know that education is the single-biggest antidote to poverty, so its good that the government has made education a constitutional right, but why ask the private sector to fulfil this responsibility for it Under the RTE, private schools have to reserve a fourth of their seats for poor children and theyll get paid a fee for this which could be their costs or the costs the government incurs in its own schools, whichever is lower in classic bureaucratese. What this means is that, over a period of time, bureaucrats will monitor schools, as well various caste commissions to ensure, for instance, that an upper caste poor kid doesnt get into Delhi Public School while the OBC kid gets only into Ram Public School, assuming there is one by this name. Worse, since all schools will have to be recognised after three years, this means unrecognised private schools that provide a large part of schooling to the poor will have to pay higher salaries to teachers, have bigger buildings and so onin other words, theyll have to either go out of business or pay higher bribes to school inspectors.

The mandatory 2% figure, presumably, comes from the view that the private sector just makes horrendous profits but doesnt give back to society. This, it has to be recognised, is complete I-cant-find-the-polite-word-for-it. Of the governments total tax collections of Rs 7.46 lakh crore, just Rs 1.20 lakh crore comes from private individuals. The rest all comes from India Inc. Corporate tax collections rose from Rs 1.44 lakh crore in 2006-07 to a budgeted Rs 3.01 lakh crore this year, excise duty collections from Rs 1.17 lakh crore to Rs 1.32 lakh crore, import duties from Rs 0.86 lakh crore to Rs 1.15 lakh crore. Surely all of this is enough for the government to fund its basic governance duties Assuming it isnt, and the high fiscal deficit tells us it isnt, why not go ahead and clean up the tax concessions that are almost as high as the total tax collectionsjust read the Receipts Budget book in the latest Budget document if you dont believe it. Indeed, thats why this newspaper criticised the government for its copout on the Direct Taxes Code (http://www.financialexpress.com/news/fe-editorial-the-muddle-path/673392).

Interestingly, while the government wants more out of India Incmore taxes, more jobsit is doing precious little to enable this. Forget about hire and fire, that old CII staple, the textiles association had an interesting proposal. Since export orders tend to be quite seasonal in this business, textile/garment firms have always wanted freedom to hire temporary workers, after all, Wal-Mart may want those 2,00,000 jeans this month but then may not repeat the order for another 6 months, or may not at all. As government policy doesnt allow firms to have a very high proportion of temps, the association suggested a textile-MNREGA of sortsallow us to hire temps for 200 days a year (MNREGA is for 100) and at higher wages (Rs 100 is the MNREGA ceiling). But, no, the government didnt allow it. And yet it wants more out of India Inc.

Telecom is a great way to conclude this story. Since 1994, when private telecom was allowed, the government has laid down mandatory rollout obligations, so many phones in rural areas, so many in district headquarters and so on. Not one of these targets was met and finally they were scrapped. Yet, as the urban market started getting saturated, private sector telecom firms started getting serious about that market and today firms like Bharti, Vodafone and even Idea/Spice have more rural subscribers than the government-owned BSNL does.

Moral of the story: India Inc will start spending more on CSR when it finds it has no other way to do business, when it finds it needs to develop schools or redevelop land for the local community to trust it enough to sell it land. Manmohan Singh famously quoted Victor Hugo to say no power on earth can stop an idea whose time has come. So why not wait for the time to come

sunil.jain@expressindia.com