ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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India's 2% CSR Law

The First Country to Go Backwards

Business persons have always been concerned with their own ends, but multiple pressures from society and polity over time have forced them to sit up and worry about their means of profit as well. The need today is genuine business responsibility and societal trust in business. Mandatory corporate social responsibility may prove inadequate to inculcate either. The new legislation to mandate expenditure for social causes is both meagre and one whose time had long passed - almost as if India has progressed, but "backwards".

The new Indian Company Law that received the president’s assent in August 2013 includes a novel provision which mandates that companies spend 2% of their profits on “corporate social responsibility” (CSR). Expectedly, there is a buzz about matters of detail, such as what will classify as genuine CSR expenditure and how will it be certified. “CSR consultants” are emerging as champions of this provision, seeing new opportunities for themselves. Philanthropic trusts, as well as politicians sense opportunities to cajole corporations to direct CSR funds towards their corpuses and pet causes.

This legislation is a novelty no doubt. The critical question must be, is this a good novelty or a bad one. The impact of this first-in-the-world national legislation can be examined from two perspectives: looking at the woods or the trees. Or, using another metaphor: how the deck-chairs must be arranged now, rather than what effect this legislation will have on the direction of the ship. The buzz about what the 2% can be used for is a buzz about the arrangement of the deckchairs. Whereas we must examine the effect this mandatory expenditure of 2% of profits will have on the direction we want the ship to take – the improvement of genuine business responsibility and societal trust in business.

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