Everyone Wants A Slice Of The Pie

Where the centre wants CSR to go:

Against extreme hunger and poverty; promotion of education; gender equality; combating illnesses, environmental sustainability, vocational skills, social business, state funds for SCs/STs/women.

…and what the states are keen on

Approvals for CSR; keeping money within their borders; making sure loss-making firms that are profitable in their state still do CSR; sending money to CM funds; engaging in PSU tenders using CSR money

The timing is perfect: a few months before a hotly-contested national election, the ministry of corporate affairs clears a lofty-sounding law that forces companies to spend their profits on socially useful projects. However, those who framed the new Companies Act, 2013 didn’t foresee that money has a mind of its own—not to mention many suitors.

The new law sets up the Prime Minister’s National Relief Fund as one place for private profit to wind up and get benevolently classified as ‘corporate social responsibility’ (CSR) expenditure. The Act also accommodates MP’s, MLA’s and chief minister’s “development funds” as appropriate places entitled to a slice of private profit.

What’s happening, however, is that states are pitching for all this cash—perhaps a $1 billion a year—with an eye on 2014. Independent CSR policies are increasingly in vogue as chief ministers eye this cash cow. In Chhattisgarh, donating CSR money to an MP, MLA, or the CM’s Development Fund isn’t just an “option” but a necessity. Companies that don’t play ball stand to lose concessions for land, electricity, tax and so on.

“We want companies to get CSR plans cleared—we don’t want CSR of the poori-sabzi variety. We want transparency and better outcomes,” says N Baijendra Kumar, who heads Chhattisgarh’s industrial development corporation. The state’s new CSR policy sets up committees, adorned by MLAs, MPs, Panchayat Presidents, even the CM, to clear projects best suited for CSR.

“It’s true that companies always interact with district officials before doing CSR. I’m not sure such state policies are strictly practical though,” says Anirban Roy, who runs SEED, which helps companies identify CSR-worthy projects. “I haven’t seen this rule being implemented yet,” Roy adds. “If states frame rules that encourage electoral funding under the guise of CSR, it will add to the problems,” adds Anurag Mittal, national coordinator, Association for Democratic Reforms. “The timing of the central Act raises concerns—elections are around the corner.”

Corporate affairs minister Sachin Pilot said last fortnight that concerns over potential conflicts between the central act and state policies have been raised with Chhattisgarh. Oddly, Chhattisgarh officials say they haven’t received his missive. “But there’s no question of conflict,” says Kumar. “After all, companies benefit from being here. It’s only fair if CSR money goes where it’s most productive.”

The anxiety this has caused among companies is interesting. They fear public audit, of course, but also raise concerns that donations to “development funds” will alienate them from their own CSR projects. “We have requested the state to relax the rules,” says the head of a prominent industry association. “Industry wants to do CSR near its units, not far away and on unknown projects,” he says.

Chhattisgarh’s CSR rules are quite different from the amended Companies Act. The centre wants companies with net worth of Rs 500 crore or more and net profit of Rs 5 crore or more to spend two per cent of average net profit during three previous years, on CSR. In Chhattisgarh, the thresholds are lower, starting at Rs 100 crore, and spending goes up to three per cent where net worth exceeds Rs 500 crore.

While the centre is yet to frame CSR rules under the new act, states are bashing on regardless: Madhya Pradesh CM Shivraj Chouhan has said the state needs its own policy. Andhra Pradesh’s government-run housing company has approached corporate profits for a new project; Haryana has pitched for CSR-funded healthcare centres. New Delhi may issue diktats, but states have their own way to keep cash at hand.