Amid debates on religious intolerance, the proposed goods and services tax (GST) bill and the alleged Delhi and Districts Cricket Association (DDCA) scam during the much-interrupted winter session of Parliament, there were a number of questions on the Corporate Social Responsibility (wp) Rules 2014, which went largely unnoticed.
While most questions show that the elected members are keen to know how companies spend funds set aside for social initiatives, some sought answers from the government on how it plans to monitor the spending. Such queries stem from the desire of elected representatives to have a degree of control over how and on what companies spend their wp corpus, say experts and analysts.
From 1 April 2014, every company with a net worth of at least Rs.500 crore, revenue of at least Rs.1,000 crore or a net profit of at least Rs.5 crore must spend a minimum of 2% of its average profits for the three preceding fiscal years on charitable activities, says the wp rules that were brought into force as part of section 135 of the Companies Act 2013.
According to a recent report released by Institutional Investor Advisory Services India Ltd (IiAS), a proxy firm which provides voting recommendations and analysis for shareholders, the wp spend of the S&P BSE 100 companies aggregated Rs.5,240 crore in 2014-15.
Both houses of Parliament were in session between 26 November and 23 December and, according to records from parliamentofindia.nic.in, the Lok Sabha (LS) saw a total of 11 questions related to wp, while 16 questions were asked in the Rajya Sabha (RS).
The questions were directed at the ministries of corporate affairs (MCA), heavy industries and public enterprises, sports and youth affairs, skill development, and others.
MCA received a total of 26 questions in the LS, of which eight were wp-related. In the RS, it got 17 questions, of which seven pertained to wp. In all, 34.8% of questions directed to MCA in this session were related to wp.
The questions came from members of Parliament (MPs) cutting across party lines—Bharatiya Janata Party (BJP), All India Anna Dravida Munnetra Kazhagam, Congress, Trinamool Congress and Shiv Sena—and pertained to issues such as government records of wp spends, details of money spent by public sector firms, collaboration of government agencies with companies, and provisions for wp spend on sports, Schedules Caste/Scheduled Tribe welfare, war veterans and war widows. They also dealt with impact assessment of work done and money spent so far.
The answers were largely limited to a reiteration of wp Rules, eligibility criteria of companies and that the process of data collection was ongoing. “There is bound to be (interest) because wp activities are largely in the social space and directly impact the people on the ground—the very same people who make up the constituency of the elected representatives,” said Chakshu Roy, who leads the legislator and citizen engagement initiatives at PRS, a not-for-profit working on parliamentary and governance processes.
However, the interest of MPs goes beyond seeking information on wp expenditure. For instance, Raksha Nikhil Khadse, one of the youngest BJP MPs in the 16th LS, believes the success of a social development project is dependent on the collaboration between people’s elected representatives and companies operating in that area.
Elected from the Raver constituency in Maharashtra, Khadse, on 15 December, asked the ministry of heavy industries and public sector enterprises to furnish details of the amount collected/contributed by public sector firms and private companies towards wp during the past three years.
Parliament records show the answer she was given was vague.
In a phone interview, Khadse stressed the need for government monitoring of wp and said, “MPs and MLAs work at the ground level and have their finger on the pulse of the people. We know better what works for communities; so if companies work with us, it will help them in turn make better use of the money.”
The interest is not new. In July 2015, Shiv Sena’s Gajanan Chandrakant Kirtikar, representing the Mumbai-northwest constituency in the LS, asked the ministry of corporate affairs about how it monitors wp spend of companies.
“Government control and oversight on wp expenditure is a must and should not be left to the companies. If there is no government control, corporates will spend the money as they please and this will lead to skewed allocation of wp funds… Some areas get more and some get nothing. Largely, rural areas will get left out. Only with a government agency or committee in place to oversee distribution of this large corpus will we see real impact on the ground,” he said in a phone interview.
But the government view differs. In January 2015, the union government set up a high-level committee headed by former urban development secretary Anil Baijal to look into the monitoring of wp expenditure.
The committee submitted its recommendations on 22 September and suggested that wp spend should not be monitored and companies should be given more time to establish proper processes.
Most answers in Parliament emphasized this view—that government should not monitor wp expenditure.
As for the companies, most are willing to partner with government agencies, but with abundant caution.
S.K. Jain, executive director, wp, at NTPC Ltd, India’s largest power producer, said the company receives between 50 and 100 requests every year from elected representatives to channel wp funds to certain projects.
“In the past year, we have received at least one request per week for the use of the company’s wp funds from MPs and MLAs,” he said. Open to collaboration, Jain added, “There is no harm in collaborating… as long as marginalized sections of society are being helped and as long as they also happen to be the company’s own constituency as well—as in the population around company plants.”
According to Khadse, the available wp corpus can reduce government spending by 30% and is easier to tap than MP/MLA local area development funds.
“MP and MLA funds come with many riders, can only be used for a limited number of activities and procedurally take a long time to be released… wp money has fewer strings attached and can help the communities quicker,” said Khadse.
To be sure, the wp corpus cannot even begin to match the government’s budget, reach and scale. For instance, the budget estimate for just the rural development ministry in FY16 is Rs.73,269.77 crore—14 times the amount spent by 100 companies on wp in FY15.
Yet, ever since the wp Rules were rolled out, both state and central governments are keen that firms channel their funds through the government or work in partnership with existing government initiatives. From Swachh Bharat to Skill India, Prime Minister Narendra Modi had urged companies to pitch in and help realize the government’s vision. It’s no surprise then that MPs extrapolate this approach to their constituencies.
But industry insiders say that the wp corpus should not be devoted to government-run or monitored social schemes.
The architect of the wp Rules, Bhasker Chatterjee, director general and CEO of the Indian Institute of Corporate Affairs, under the ministry of corporate affairs, believes that the MPs are justified in asking “which company is spending how much in their constituencies”. “At present it seems at odds with the stated intent of the law, the course of action selected by the government and the high-level committee’s recommendations of no monitoring,” he says.
He added that while it is legitimate for MPs to ask for information, “involvement by MPs beyond seeking information could lead to politicizing of wp and must be carefully weighed against the pros and cons of such involvement”.
Agreeing with this view, NTPC’s Jain believes the proper implementation of wp is ensured by the levels of transparency required under the rules—companies have to publish a wp report as part of their annual report as well as mention the expenditure incurred on the head in the profit and loss statement.
“The government has little need to oversee the money because the governance by the board of directors ensures the implementation of the rules,” said Jain.
This view is echoed by consultants like Sathosh Jayaram, director-sustainability practice at consulting firm KPMG. He said that all information is available in the public domain and monitoring takes place automatically with the involvement of senior management.
“Why should any one other than the companies themselves have a say in the way wp is spent,” asked Jayaram. He suggests that elected representatives and governments should work towards seeking collaboration instead of directing companies on what they should spend on.
Niraj Seth, director-wp at auditing and consultancy firm EY, said, “MPs’ involvement in the planning stages is most welcome because, as is evident from the first year of the implementation of wp rules, collaborative efforts yield best results.” But he added that it is too early to start monitoring wp expenditure. Besides, any collaboration with MPs needs to be entered into with caution.