Ways to make CSR funds more effective

Since funds have their own limitations along with that of corporate houses, a chunk of CSR funds should be spent on financing higher and professional education of students from deprived social sections

Corporate Social Responsibility (CSR) funds have a great importance in our country, not just because of their quantum but also because of the fact that multiple critical micro deficits, which persist in our socio-economic, health and educational sector, can be addressed with the help of these funds. At present, most corporate houses and other entities use CSR funds for the promotion of health care including preventive health care and sanitation, education, disaster management and making other basic facilities available for the needy sections of society. From giving wheelchairs to ambulances, most of the companies are found to be generous enough to share their CSR funds for a multitude of welfare works, though these tasks need to be carried out by the concerned government agencies in toto. It is, however, always welcome if the corporate houses are keen to supplement the state efforts in improving people's ease of life!

According to the Ministry of Corporate Affairs, Rs 21,231 crore was spent by 21,349 companies on CSR funds in 2019-20. All data related to CSR filed by companies in the MCA21 registry are in the public domain. The Section 135 of the Companies Act, 2013 mandates every company having net worth of Rs 500 crore or more or turnover of Rs 1000 crore or more, or net profit of Rs 5 crore or more during the immediately preceding financial year to undertake CSR activities. The Act, inter-alia, stipulates that companies exceeding the threshold limits, as specified in the Companies Act, 2013, have to allocate at least two per cent of their average net profits of the company made during three immediately preceding financial years for the CSR activities. The board of the company is empowered to plan, decide, execute and monitor CSR activities of the company based on the recommendation of its CSR Committee.

There is nothing to be objected to or doubted so far as the commitment of eligible companies to CSR funds is concerned. It is fair to assume that they spend the stipulated amount by sticking to the best practices, befitting corporate probity and sanctity. It is also fairly assumed that works done under CSR funds are well audited and their impact assessment is also being done. It is, however, a different matter that most of such things never ever become a part of the country's politico-economy discourse, which is not encouraging at all. People need to know how the money being spent by companies is impacting the targeted groups' lives and the kind of contributions being made to these activities to improve the ease of their lives.

At least, top hundred CSR funds should be discussed and debated vigorously so that a kind of awareness is generated among the stakeholders – poor people, needy ones and those living in deficient conditions for whom CSR funds are meant. There is a perennial communication gap between the holders of CSR funds and the key stakeholders. Barring a few exceptions, the majority of CSR decisions, though taken through diligent deliberations by the committees concerned, are not in sync with the need of the hour and aspirations of those for whom CSR funds are meant. There is a difference between thrusting decisions upon them and making them a partner in what is being decided for them by others. It is here where the custodians of CSR funds critically err and end up getting bare minimum value for the amount spent on CSR funds.

In reply to a question in the Lok Sabha on November 29, 2021, Union Minister of State for Corporate Affairs Rao Inderjit Singh stated that in the CSR legal framework, the word 'non-governmental organisations' (NGO) has nowhere been defined. However, Section 135 of the Act read with Rule 4 of the Companies (CSR Policy) Rules, 2014 prescribes that the board of the company is empowered to undertake its CSR activities either by itself or through implementing agencies as mentioned in the said rule. The Companies (CSR Policy) Rules, 2014 were amended on January 22, 2021 and the registration of implementing agencies with the Central government is mandatory with effect from April 1, 2021. The CSR architecture is disclosure based and only CSR mandated companies are required to file details of CSR spent annually in the MCA21 registry. Today, a major chunk of CSR funds are spent through NGOs in the country.

An analysis of CSR filings made by the companies reveals that of the total annual CSR spent, approximately 60 per cent of the CSR expenditure has been done through implementing agencies. As per the Act, companies are required to hold Annual General Meeting (AGM) within six months from the end of financial year. Thereafter, financial statements and board reports containing disclosure about CSR are to be filed in MCA21 within 30 days of the AGM. Notwithstanding so many checks and balances, the impact of works having been done with CSR funds is not widely felt. It is perhaps because of the fact that India is too vast a country and CSR works are too small to create an impact to be felt at a macro level.

How to make CSR funds more effective and bring them closer to people's hearts? There should be a dedicated Department of CSR in the Ministry for Corporate Affairs at the Central level and the one in the Finance Ministry of the State. Its annual report should be tabled and debated on the floor of the House in Parliament and State assemblies as well. Even if the discussion is brief, a lot will come out and ensure more accountability and fairness in the utilization of CSR funds. At the same time, the welfare of poor people from weaker sections of society such as SCs, STs, OBCs, women and minorities should be at the core of CSR principles. Since funds have their own limitations along with that of corporate houses, a chunk of CSR funds should be spent on financing higher and professional education of students from deprived social sections. It will not only transform their lives but will lead to generational change as well.

(The writer is a senior journalist, author and columnist. The views expressed are strictly his personal)