Focussing onCSR whose Sense is Flawed

The Companies Act 2013 brought focus on Corporate Social Responsibility (CSR) using the logic – Companies take resources in the form of raw materials, human resources etc from the society. By performing the task of CSR activities, the companies are giving something back to the society.

The term CSR has been defined under the Companies (Corporate Social Responsibility Policy) Rules, 2014 that came into effect from 1 April 2014, which includes but is not limited to:

  • Projects or programs relating to activities specified in the Schedule; or
  • Projects or programs relating to activities undertaken by the Board in pursuance of recommendations of the CSR Committee as per the declared CSR policy subject to the condition that such policy covers subjects enumerated in the Schedule.

The activities that can be done by the company to achieve its CSR obligations include eradicating extreme hunger and poverty, promotion of education, promoting gender equality and empowering women, reducing child mortality and improving maternal health, combating human immunodeficiency virus, acquired, immune deficiency syndrome, malaria and other diseases, ensuring environmental sustainability, employment enhancing vocational skills, social business projects, contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women and such other matters as may be prescribed.

An objective analysis of the above shows that the government has attempted to transfer part of its developmental responsibility to the corporate sector; surreptitiously levied an additional corporation tax in the garb of mandatory CSR expenditure; and is simultaneously subsidising such expenditure through making CSR expenses tax deductible.

Government has no control over such haphazard expenditure of CSR funds. A parliamentary question (Lok Sabha Starred Q 373; 11 Aug 2017) proves the point.

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PETER DRUCKER had explained CSR thus:

The proper social responsibility of business is to tame the dragon, that is, to turn a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth.

CSR was thus social entrepreneurship which the great Indian polity and bureaucracy have reduced to obligatory expenditure. For business, it is turning out to be just another tax and cost of doing business in India.


 

The above was first posted on FaceBook on 23 January 2018. A report on 05 March 2018 in Indian Express substantiated the slapdash expenditure of CSR funds.

csr_Indian Express


 

Change the Paradigm of Indian Economic Policy

(A Humble suggestion to the Hon’ble Finance Minister of India on the 2018 Budget Day Eve)

The paradigm of Indian economic policy was last changed during the Budget presentation for 1992-93. Popularly touted as LPG – Liberalisation, Privatisation, Globalisation, the policy reforms and changes in 1992 and thereafter appear to have triggered a drastic divergence in incomes and wealth.

India has been very happy with economy as a whole growing at 5.6% over the last 25 years. But at the ground level, income for 90% of the citizens grew merely at 2.0% while income of the top 10% people grew by 11.5%.  There is no global competition going on for being the highest growth economy. If at all there is one, it should be for the economy where bottom 90% of the population registers the highest growth rate in income. It might be better economics and better politics to change policies where income for 90% of the citizens grows at 4.0% even if the economy as a whole registers a marginal decline in its growth rate.

LPG paradigm shifted the economic policy from full employment to inflation targeting; the pursuit of “flexibility”, often through deliberate weakening of worker organisations, became the watchword for labour markets.

A new emphasis on shareholder value triggered a move from retention and reinvestment of earnings to cost-cutting and distribution in corporate allocation strategies; and these combined with technological advance to launch a wave of globalisation activated a very different cycle, than the previous growth cycles, in which jobs and wages were at the heart of what can now be seen as a virtuous circle. In such virtuous circle, wage growth led demand which fuelled investment, employment and higher productivity, feeding back into higher wages. When this was followed by redistributing the wealth created, employment was also a powerful vehicle of social mobility and inclusion.

Liberalisation has delivered the opposite of inclusion – inequality, insecurity, and the feeling of being excluded from global and technological advance is beginning to simmer below the ground. There is a choice, and it is up to you as part of the leadership of government. As gatekeepers of the investment decisions that determine how the larger trends play out both macroeconomically and where it counts for individuals, in jobs and pay. Your decisions and measures envisaged will have to go far beyond conventional supply-side adaptation, such as investment in education and infrastructures, to include the much-neglected demand side of the labour market equation and what drives it- the incentives which have fuelled short-term focus, national finance as the descriptor of real economy and the race to the bottom in pay and conditions that have done so much to fuel insecurity and inequality.

Business has to be a positive-sum game – value creation rather than appropriation – and reframes companies, in the late Sumantra Ghoshal’s words, as “society’s main engine of discovery and progress”. In like vein, businesses can be seen as society’s problem-solvers and growth as a measure of the rate new solutions to problems become available. The genius of capitalism, in this view, is not allocation or efficiency but creation and effectiveness – evolutionary processes in which companies that fail to innovate eventually succumb to the rising tide of the market.

“Free enterprise cannot be justified as being good for business. It can only be justified as being good for society”. Corporate responsibility is to deliver growth and prosperity for everyone, period. And that changes almost everything. The CSR spend as incorporated in the Companies Act is a cess on profits – just an increase in cost of doing business and a cleanser for guilt of being good only for shareholders and customers but not being good for the society.

The big task before you Hon’ble Finance Minister is to make “the economy work for everyone”, to quote UK premier Theresa May, and this will require everything but business as usual.

 

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