Channelling CSR spending
CSR activities must now attempt to reach underinvested areas for enhanced impact
W Edwards Deming, the noted American statistician, once said, "In God we trust. All others must bring data." Thanks to the National CSR Data Portal, launched earlier this year, data on CSR spending by companies is now publicly available. In addition to providing state/UT-wise, district-wise and development sector-wise spending details, it also offers information on expenditure by different companies. It sources this data from information filed by companies on the MCA21 registry in their financial statements. A look at the comparative charts on this portal makes three things abundantly clear. Let's take figures for FY 2016-17. First, there is a huge difference in the geographical distribution of money spent on CSR. While Maharashtra managed to get the maximum at Rs 2,222.25 crore, Mizoram, Nagaland, Lakshadweep and Andaman & Nicobar Islands got less than Rs 1 crore. Second, even within a state or UT, spending may not be uniform. In Delhi, of 11 districts, Shahdara did not attract CSR funds. In West Bengal, while Kolkata got Rs 95 crore, many districts including Cooch Behar did not get any share of CSR money. Third, even across development sectors, while the 'Education, Differently Abled, Livelihood' sector got the maximum share of CSR spending at Rs 5,123.83 crore, Clean Ganga Fund got the minimum at Rs 24.23 crore. Many have highlighted this inequality in the geographical and sectoral distribution of CSR spending. Some have raised concerns of duplication of effort in some and exclusion of others.
To put this in perspective, let's look at the legal provisions. Companies Act, 2013 introduced the CSR provision in law. Section 135 mandates companies with a net worth of Rs 500 crore or more, turnover of Rs 1,000 crore or more or net profit of Rs 5 crore or more during the immediately preceding financial year, to set up a CSR Committee of the Board. This Committee needs to formulate a CSR Policy indicating activities in areas or subjects listed in Schedule VII of the Act. In every financial year, these companies need to spend at least 2 per cent of their average net profits made during three immediately preceding financial years on activities as per their CSR Policy. The provision clearly states that "…the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities". Many have held this to be responsible for certain areas being left out.
Schedule VII enumerates activities that companies can pursue. It covers diverse issues like poverty eradication, health, sanitation, education, gender equality, environment, heritage protection and sports. Companies are at liberty to choose from these. It is quite possible that local area preference may also limit the sectors where one can spend. Further, as some point out, companies may not be well versant with needs on the ground.
While the National CSR Data Portal reflects the supply side, the demand side must be known too. There are areas and sectors in dire need of resources that are often overlooked. To check this, Odisha government has undertaken a unique initiative called 'GO CARE' (Government of Odisha CSR Administration and Responsive Engagement) portal. It seeks to "…guide the corporates about the human developmental indices and priority gap areas for various sectors". The state government has constituted a CSR Council and one of the aims of this Council is to reduce the disparity in CSR expenditure across districts. The GO CARE portal provides a list of projects recommended by the CSR Council which are spread across various sectors as listed out in Schedule VII of the Act. It also provides information on state indicators like demographics, education, environment, health, rural development and urban slums. Such an initiative becomes important in light of the fact that during 2014-17, only 10 districts of Odisha attracted a whopping 93 per cent of CSR money.
Learning from Odisha, it might be a good idea to replicate this move across other states and UTs. Each of them can come up with a portal mapping areas and development sectors that need resources. Companies would then have a better idea of where to invest their CSR money most productively. This should only be to nudge companies to spend in underinvested areas; the final decision would still rest with companies.
Such a move would have many advantages. First, it would instil a sense of healthy competition among states and UTs to attract CSR funds. Second, it would provide companies with useful information by mapping the demands of various geographical areas and development sectors. This would help them choose and make an informed decision about how to spend their money. Third, it would encourage eligible companies to meet their CSR quota. The data recently released by PRIME Database shows that in the last financial year, of the money meant to be spent by NSE listed companies on CSR, Rs 17.17 billion remained unspent. This has risen from Rs 15.74 billion in the previous financial year. To tackle this issue, the Ministry of Corporate Affairs has already issued preliminary notices to 272 companies for failing to meet their CSR spending requirement. Thus, state/UT wise portals would help distribute CSR spending across regions and sectors.
Many have drawn parallels between the concept of CSR and Gandhiji's Trusteeship Doctrine. Explaining his principle, Gandhiji said, "Supposing I have come by a fair amount of wealth—either by way of legacy, or by means of trade and industry—I must know that all that wealth does not belong to me; what belongs to me is the right to an honourable livelihood, no better than that enjoyed by millions of others. The rest of my wealth belongs to the community and must be used for the welfare of the community". With this motivation, it's time for the government and companies to work together to channel CSR funds to places that need it the most.
(The author is a lawyer Young Professional, Economic Advisory Council to the Prime Minister and NITI Aayog, Government of India. The views expressed are strictly personal)
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