Corporates will soon get more leeway in deciding the activities on which they would make their CSR (corporate social responsibility) spend.
The Corporate Affairs Ministry will bring changes to an existing Schedule in the company law to enable corporates decide the activities on which CSR spend would be done. Corporate Affairs Minister Sachin Pilot said this at an interactive event organised by Confederation of Indian Industry (CII) here on Friday.
“We (Corporate Affairs Ministry) don’t want to specify the activities on which you (companies) should spend. I would leave it to you to decide for yourself where the spend should be,” Pilot said.
This is seen as a major climb-down by the Government, which had gone in for a prescriptive regime for CSR spends. It could also open the door for political funding by corporates in a discreet manner, critics said.
According to the company law, the CSR committee of a company will have to formulate and recommend to the Board a CSR policy which shall indicate the activities to be undertaken by the company, as specified in Schedule VII, which lists out 10 activities, including “such other matters as may be prescribed”.
Pilot said that this phrase would be replaced with “such other activities that a company may deem fit”.
This proposed change will throw up new avenues for CSR spend, Shardul S. Shroff, Managing Partner of Amarchand & Mangaldas, a law firm, told Business Line .
It will bring flexibility to corporates in deciding their CSR spend, Shroff added.
Dolphy D’Souza, Senior Partner, S.R.Batliboi & Co, said Schedule VII in the new company law was restrictive. “With this proposed move, there will be some degree of flexibility for CSR committees of companies,” he added.
CSR is a new initiative of Corporate Affairs Ministry to ask corporates to contribute to society.
Earlier, there were only voluntary guidelines for CSR. Now, there is a statutory provision in the company law mandating CSR spend.
After the enactment of the law, as many as 15,000 out of the eight lakh companies will be required to make CSR spend equivalent to 2 per cent of their average net profits (before tax) in the last three financial years.
Pilot said that the estimated annual spend on account of the new requirement would be about Rs 18,000-Rs 20,000 crore.