New Companies Bill mandates CSR spending


Recently  the World Corporate Social Responsibility (CSR) Summit in Mumbai which brought together nearly thirty heads of CSR departments and as many NGOs. The primary areas of discussion were the implications of the new 2% CSR policy included in the new Companies Bill in India.

The Indian parliament is currently in the process of passing this bill, which will make it compulsory for companies of a certain size to spend 2% of their profits towards CSR activities. Specifically the bill states:
  1. All companies with revenue greater than Rs. 1000 Cr ($200M) or profits of 5 Cr ($1M) must spend 2% of the average of the last 3 years profits, towards CSR activity
  2. The Board must designate a 3-member CSR committee (including one Independent Director) to ratify decisions on spending
  3. Employee expenses will not be classifiable as CSR spending
  4. Poverty alleviation, healthcare, education and social business ventures have all been included as potential areas of investment
  5. If the spend is not made in that year, the CSR committee would have to submit an explanation for why that has occurred to not be penalized
If the bill passes, India will be the first country in the world to mandate this kind of expenditure across the board. (Some countries, like Malaysia, have mandated spending towards CSR for certain industries such as mining.)

"While the final bill and its provision are yet to be passed, the outlook of the social sector, which needs more early-stage funding to succeed, is positive. Thanks to this groundbreaking new bill, organizations with social missions could soon see a lot more much-needed capital heading their way."

Payal Shah is a Business Development Manager in the India office of ACUMEN

With the Lok Sabha giving its approval for the Companies Bill, 2011, Minister of State for Corporate Affairs Sachin Pilot said the aim of the legislation was to make India a safe and attractive destination for investment and to do away with ‘inspector raj’ on companies.

“The aim is to protect the interests of employees and small investors while encouraging firms to undertake social welfare voluntarily instead of imposing that through ‘inspector raj’ and make India an attractive and safe investment destination,” Mr. Pilot, who put up a spirited show during the passage of the Bill, said. The passage of the Bill is another important part of the reforms process being undertaken by the UPA II government.

Read more in The Hindu

In the coming week the Bill will be tabled in the Rajya Sabha, after being cleared by the Lok Sabha.

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