Companies law set to mandate 2% CSR spend

NEW DELHI: India Inc should brace to set aside a specified portion of its profit on corporate social responsibility (CSR).

The ministry of company affairs ( MCA), which is finalizing the new Companies Bill, has accepted a Parliamentary Standing Committee's recommendation on the issue. The standing committee on finance headed by former finance minister Yashwant Sinha has proposed that companies with a turnover of Rs 1,000 crore or net profit of Rs 5 crore or more earmark 2% of their net profit for the preceding three years on CSR.

Though corporates and industry chambers had lobbied hard against the move, the government has decided to go ahead with the proposal. It is, however, unclear what really constitutes spending on CSR. The standing committee had said that companies would decide the policy and the spending.

While mandating CSR spend, the government had decided against policing and will leave it to companies to implement what is being prescribed in the law. In case a company fails to meet the prescribed spend, it will have to spell out the reasons for the shortfall to its shareholders.

The CSR spending proposed to be mandated in the new Companies Act would be in addition to what is being prescribed for companies in the mining or the coal sector. For instance, in case of Posco, the environment ministry has asked the Korean company to spend 2% of its annual profit on CSR.

The coal ministry is also toying with the idea of mandating a CSR levy on miners who dig for the mineral in the so-called No-Go areas that are environmentally sensitive.

The proposal for mandating a CSR spend was first discussed by the corporate affairs ministry around two years ago but it had to be turned into a voluntary exercise in the wake of protests from companies. But armed with a recommendation from parliamentarians, the ministry is now set to implement its plan.

The revised Companies Bill will be placed in Parliament during the Budget session that starts later this month. The bill has been sent to law ministry for vetting, corporate affairs minister Murli Deora said. Corporate India has, however, got one last chance to present its case when the ministry meets industry representatives next week.