The transfer of unspent CSR money to bank accounts is a bad move. We need a framework that marries national goals with CSR—we must involve India Inc in co-achieving national goals by creating an enabling framework
By Sanjeev Nayyar
The laws governing corporate social responsibility (CSR) were introduced by the UPA-2 and became effective from April 2014 onwards. Every company with a net worth of Rs 500 crore or revenues of Rs 1,000 crore or net profit of Rs 5 crore during the immediately preceding financial year should spend 2% of their average net profit in the last three years on activities like social development, eradicating hunger, promoting education, empowering women, ensuring environmental sustainability, conservation of national heritage, rural development projects, etc.
According to a news report in the HBL (https://bit.ly/2kSq7xd), “CSR spends by companies have touched Rs 50,000 crore in the four financial fiscals to 2018, the unspent amount is higher at Rs 60,000 crore during the same period.” The reasons for not spending could be delay in identifying projects, lack of in-house expertise and intent.
So far, a company that did not spend the CSR expenditure in a given year could carry this amount forward and spend it in the next 12 months. According to Budget 2019, any unspent amount will have to be deposited into an escrow account within 30 days of the end of that fiscal. This amount will have to be spent within three years from the date of its transfer, failing which it will be put into a fund as may be directed by the government. A mandatory transfer of unspent CSR to an escrow account adversely affects cash flows. When transferred to the government account, it assumes the form of tax.
Instead of using the stick, Modi 2.0 could get inspired by Mahatma Gandhi, who got the common man involved in India’s fight for freedom, and design a user-friendly framework for contributing such that CSR spends are integrated with national goals and also involve the people of India. Thus, CSR needs to be renamed as corporate national responsibility (CNR). Here are some ideas.
One, create Bharat Suraksha Trust (BST) whose objectives may include:
> Setting up schools, health and vocational training centres all along India’s border with Chinese-occupied Tibet. The focus should be Ladakh, Uttarakhand and Arunachal Pradesh, especially border areas not accessible by road. The trust will also employ those who live in border villages. This should reduce migration—important because border residents are India’s first line of defence.
> Making an ex gratia payment of, say, Rs 5 lakh to the family of every fauji who makes the supreme sacrifice, level Jawan to Subedar Major. This would be in addition to what the Indian Army pays. The army currently has an Army Welfare Fund Battle Casualties.
However, donors do not get tax deduction and the process of donation/receipt is cumbersome. A similar site exists for paramilitary forces under the ministry of home affairs.
> Supporting existing schools run by the army in border areas. This trust would allow the Indian Army to receive direct financial support for these strategic and compassionate objectives. The BST would essentially be run by retired armed forces personnel employed on contract. It would have offices in major towns.
Two, create Bharat Pragati Trust (BPT). The Chandrayaan-2 mission attracted unprecedented national attention. Can the projects of national importance (say, five), in the fields of science and technology, be identified? Projects that the common man can relate to and make Indians proud. For example:
> India must target to have 10 supercomputers in the top-100, from two now. According to this ET report (https://bit.ly/2kszJyM), India has two supercomputers in the top-100, both used for weather forecasting and built at a cost of Rs 438.9 crore. Pratyush, ranked 39, has a peak speed that is 45 times less than the top-ranked US-made Summit.
> Technology to reduce the use of costly chemical-based fertilisers and pesticides.
> Deployment of Agni-V missiles having a range of 5,000-plus km.
> Artificial intelligence solutions.
> Tejas Mark 1A (medium weight combat fighter).
How will the above work?
India Inc, resident Indians and persons of Indian origin can contribute for individual objectives and against the name of the deceased fauji whose name shall appear on the site. The first under CNR and others under Section 80(G) of the Income-tax Act.
The technology backbone of BST and BPT websites, their running and online citizen interface should be outsourced to the private sector, a bit like how the passport office is managed. Each site would have project details and a framework for association.
Funds collected by both the trusts should be used only for the purposes for which the money was raised. If people see results, success or failure, money shall pour in. Conversely, if the government used these funds elsewhere or for conspicuous consumption, the idea will become a non-performing asset.
Trust and transparency are key. The government will have to provide updates, at a predetermined frequency, on the status of each mission-critical project.
Actually, what Indians need is a change in mindset. Sanjay Hegde, who took premature retirement at 55 from a Big Four firm to become director, Seva Sahayog Foundation, Mumbai, says, “Let us not expect governments to bring around every change. If corporate and civil society participate with full conviction and commitment, change in society will be enduring, deeper, faster, broader.”
Three, each state should have a CNR website that lists projects India Inc could associate with. NGOs who wish to associate can register, indicating areas of expertise. Thus, an NGO database is available.
Every state would have a CNR nodal officer who is the single-point interface for corporates. The areas of focus could be drip irrigation, healthcare centres under Ayushman Bharat Yojana, education and creation of forests, urban and rural.
Here are typical projects that could be funded by India Inc:
In Dantewada, Bastar division, the Chhattisgarh government runs Chu Lo Aasman, a residential training school for girls and boys, from classes 9 to 12, who want to pursue professional courses. About 75% of students are adivasis. Besides contributing, India Inc employees can teach at these schools, a bit like Hindustan Lever management trainees (the author did) once did rural development work in the villages of Uttar Pradesh’s Etah district.
Reduce depletion of water levels and high cost of inputs. According to this Forbes India article (https://bit.ly/2lVhMZY), “CV Kumar of village Holalu in Karnataka’s Mandya district is happy since yield doubled to more than 80 tonnes per acre and input costs reduced significantly. Fertiliser requirement dropped 50% and water 40%. This is thanks to thousands of water of plastic pipelines that drip water and water-soluble fertilisers in a controlled and concentrated manner near the roots of his crops.”
The Seva Sahayog Foundation runs projects that are creating meaningful impact. Its Samutkarsha inculcates interest in learning among children from slums and rural areas. Science Education and Technology is run in rural and urban schools. Under this project, a mini science centre is set up with different science experiential learnings models. It provides school kits consisting of school bags, books and accessories annually. The possibilities are enormous. The above ideas will reduce government expenditure.
Like we have best banker, fund manager of the year awards, can the Indian Express Group organise CNR awards? Public recognition of India Inc and NGOs boost morale and enhance brand equity.
The mandatory transfer of unspent CSR amounts symbolises negative energy and will get lost in the Consolidated Fund of India. Conversely, involve India Inc in co-achieving national goals by creating an enabling framework.
India Inc must realise that its prosperity is intertwined with the progress made by India and Bharat. Modi 2.0 must realise that nationalism cannot be a substitute for sound economic and taxation policies. Commitment to the poor is laudable, but it is India Inc that creates jobs and profits.
Instead of trying to extract more revenues from corporates, bring lawyers under GST. They are amongst the highest paid service providers in India today.
The author is a chartered accountant, and founder of eSamskriti.com. Twitter @NayyarSanjeev