Legally speaking, CSR is to be carried out by firms with a net profit or net worth or turnover of more than Rs 5 crore or Rs 500 crore or Rs 1,000 crore, respectively, and such firms need to spend 2% of their average net profit for the last three years in CSR activities for the current year. Although, as per the Companies Act, a firm can do without spending by stating reasons for the same, the existing norm is more on the line of conforming rather than deferring such commitments. According to some estimates, for 2014-15, the available CSR fund for the 500-odd qualifying large firms counts to around Rs 10,000 crore.
A glance at section 135 suggests that the objectives are truly novel, as those include a variety of social and developmental issues including poverty alleviation—both income as well as capability issues like education, health and sanitation, gender, and responsible production, promotion of national heritage, etc. In case a firm wants to avoid all these choice-related challenges and yet wants to contribute, then such a fund can be donated to the Prime Minister’s Relief Fund.
However, at the end of the day, a business entity will rightfully see every move from a purely business angle and will tend to maximise returns from CSR. The law does not permit providing benefits to employees, even if they deserve special support on many occasions. Probably, as the next-best alternative, companies have appropriately targeted their business catchment areas, where they have substantial stakes, and are largely concentrating their activities in those geographic locations. Incidentally, apart from the contribution to the Relief Fund, there is no way of getting any tax benefit from such expenditure.
The government has also appropriately not burdened any small and micro units into this near-compulsion, since majority are already finding it difficult to meet the bottom line. However, significant potential can be unleashed if we can redefine voluntary CSR by MSMEs by (1) further encouraging group efforts by MSMEs through simplification and detailing of norms in that respect, (2) including more direct stakeholders like labourers as beneficiary, and (3) simultaneously providing appropriate tax incentives for the same. Imagine if 40 million MSMEs spend on an average Rs 5,000 per annum towards this cause, it unleashes a budget of R20,000 crore, twice the amount envisaged from the large firms.
To give an idea, air and water pollution is a major issue with micro-enterprises. If a group of micro-enterprises create a common effluent treatment plant or shift to wind energy from diesel sets, then it definitely improves the overall welfare of the society as also its labourers and other neighbourhood families who stay in the vicinity. Micro-insurance is a need for most labourers. If a labourer below a certain monthly income in MSMEs finds it difficult, for whatever reason, to invest a minimum amount in the Pradhan Mantri Jeevan Jyoti Bima Yojana (life insurance) or Atal Pension Yojana (pension policy), and his/her factory owner has the goodwill to contribute to it, even partially, then it is a great contribution to the labourer and his/her family and hence the society at large. Again, if a group of micro-enterprises come together to create educational opportunities or a hospital for the use of their labourers and their families and communities in the vicinity, it is an excellent step.
Many such excellences came to the limelight during a recent all-India competition organised by the Foundation for MSME Clusters (under an EU project), to identify such group approaches for CSR. These are mostly conducted by micro-enterprises coming into formal groups led or created by local industry associations, also known as business member organisations (BMOs).
If firms jointly investing voluntarily in such causes can be given the desired tax incentive and also the BMOs initiating and leading such ideas are given the desired national recognition, say in the form of “best sustainable BMO award”, such efforts should further pick up. Going by the trends, since managing a development fund and its associated leakages can be sometimes as high as 50% or more, it makes good sense for giving the tax incentives and encouraging BMO led and managed process to promote such joint CSRs by MSMEs. It will also lead to an even spread of welfare as against seeing it getting concentrated in and around the operational hubs of large enterprises, barring a few (mostly banks) who go beyond such catchment areas. Needless to say, such efforts by MSMEs must be voluntary and not compulsory.
The author is director, Foundation for MSME Clusters. Views are personal