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India's CSR law, will it mean much?

(05/03/13 Update: I may have made a factual error in the below post, see the comments at the end. I am looking into this)
 

The BBC is reporting that India’s CSR law is set to pass a parliamentary vote any day now.

In brief, the new law, if it passes, will say that companies making more than $250,000 per year in net profits must spend 2% of that on “Corporate Social Responsibility”, whatever that means.
  
I met the senior civil servant who is pushing this through in Delhi last year. He seemed sure it will pass. He indicated that when he and his colleagues wrote the relevant financial section of the new companies bill as “should”, a parliamentary group of MP’schanged it to “must”.
So some influential MP’s are keen on the idea. (Whether they are charged with crimes, or have been convicted of some, as so many MP’s at a state and national level are, is not clear)
What impact it will have though, remains to be seen. 
It may well be just another law to be broken or fudged, I would suspect. It won’t be hard to find a way around it, and I cannot see it being enforced in any way. 
India has bigger governance challenges than enforcing a CSR law.
It’s quite nihilistic over there in a legal sense. Money = power.
Accountability-related institutions seem quite weak. We’ve all seen the corruption news. This is not new.
However, this law will at least raise awareness of the notion of social responsibility among some companies.
The larger firms are already quite active in many ways though, so I doubt this new law will really have a lot of impact on them. They are no doubt already compliant, or can be easily. 
Then there’s the rest of the companies in India making more than $250,000 per year. Most will no doubt simply view this as a compliance issue and at best, most will just create a small philanthropy programme and call it CSR. 
I can’t see this causing any “road to Damascus” moments in India’s CEO community. Laws don’t tend to do that.

You can’t legislate effectively for ethics and social responsibility, beyond minimum standards (which of course, must be rigourously enforced and updated with the times, and so often are not)

Active business membership groups, better journalism, savvy NGOs, civil society groups and institutions, and technical training for suppliers by big companies will make more of a difference than this law will. 
It does raise an interesting question of what constitutes an effective catalyst for further business action on CSR where that is currently lacking. But the answer to that is far more complex than passing yet another law.

More on this in a separate post. Here’s a report on the subject which I co-authored a few years ago.
Here’s also a post I wrote last year after a trip to India, where I met 50 odd business folk and others to discuss the subject of CSR in India:

Perhaps what’s really interesting about all this is not this law or its enforcement per se.

It’s what it represents: A major step towards business being told forcefully to chip in and help solve social and environmental problems in a large emerging economy.

We may look back on this period one day as one during which business had much less social and environmental pressure than is coming in the near future.

3 Comments

  1. Anonymous

    Hi Tony,

    Saw the interview with the current corporate affairs minister on bbc, the emphasis is on the word 'social' than on Responsibility, social work done around factories or places of work, which according to the minisister has been done by a number of industries. I personally feel that once the bill becomes a law more money will be spent on Social Activities or community activities. Great news for ngo's.
    CSR will become philanthropically strategic. Embedding CSR will be a dream, and their will be less use for CSR Consultsnts and CSR Teaching.Does one really need advice on how to give money to an ngo, India probably has the largest amount of them.

  2. Dear Toby,

    Let me first correct the figure of income of $250,000 which according to you is the base line for setting up CSR in a company. Well that is absolutely incorrect. There are three conditions laid in the law and all companies meeting any one of the conditions shall be required to setup the CSR committee and undertake CSR activities.

    Conditions are

    (i) Net worth of $92 million or more, or
    (ii) Turnover of $185 million or more, or
    (iii) A net profit of 0.93 million or more during any financial year

    (exchange rate of Rupees 54 per US dollar used for conversion).

    As far as the rest of the content and tone of your post is concerned, it seems to be written with some prejudiced motive. There is no research on the subject matter, no hard facts presented to prove your point and not so ever any understanding of Indian business and politics.

    Also your prove a point in your bio that the law you co-authored for your country is being poorly implemented. Well it must have been written poorly in the first place leaving loopholes for implementation.

    If a developed country like yours is facing issues, I have no doubt that India will have its share of issues as well, and I also sure we Indian can fix them over the course of time. The law may not be perfect at the outset but see the intent.

    Finally 2% of profits are mandated by the law to be spent on CSR activities, but average Indian company spends more!

  3. Thanks for your comments Vidyabhushan. I will look into this and I think you are right in one way: I will correct the piece.

    The key word though is one that you use: "Implementation", which is the key problem many countries have.

    Just as in the UK we have failed to implement the notion of "responsibility deals" properly, so I have concerns about India and many other countries when it comes to implementation and enforcement.

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