Govt’s CSR attack on companies a cruel joke when economy is tanking; don’t force social service at gunpoint

Union Finance Minister Nirmala Sitharman must give a serious rethink to the counsel she sought before making the recent amendment in Corporate Social Responsibility (CSR) rules. At a time when the economy is showing no signs of recovery, companies across sectors are struggling with plummeting sales and low business confidence, the Narendra Modi government is supposed to lend a helping hand. Instead, it is adding fuel to the fire by imposing a totally unavoidable penal provision on corporates if they fail to meet their CSR commitments that even include throwing executives behind bars. The move is wrong and badly timed. This will send a wrong message to the business community and even act as a turn-off to those who want to set up shops in India. Under the pretext of bringing in more accountability in the business community, the government is actually throwing the baby out with bathwater. What started in 2013 as a call to corporates to help the government strengthen socially and economically weaker sections in the society under the tag of the CSR, has now morphed into a draconian tax. The CSR is no longer a responsibility but an obligation, failing which the company executives can face up to Rs 25 lakh fine and up to three years of jail term. Untill the amendment, if a company failed to fulfill its CSR responsibilities, it only needed to explain the reason in its annual report to shareholders. [caption id=“attachment_6984531” align=“alignleft” width=“380”] File image of Union Finance Minister Nirmala Sitharaman. PTI[/caption] This is what the recent amendment to Section 135 of the Companies Act states: “If a company contravenes the provisions of sub-Section (5) or sub-Section (6), the company shall be punishable with fine which shall not be less than Rs 50,000 but which may extend to Rs 25 lakh and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than Rs 50,000 but which may extend to Rs 5 lakh, or with both.” Passing an amendment to the Companies Act on Tuesday in the Rajya Sabha, the government also said unspent CSR funds by companies should be transferred into an escrow account with the corpus to be utilised within three years of the transfer. Any unspent annual CSR fund must be transferred to one of the funds under Schedule 7 of the Companies Act, such as the Prime Minister’s Relief Fund, within six months of the financial year. Forcing corporates to carry out their CSR activities with the threat of a jail term takes away from the very idea of encouraging honest participation of the sector. The company/employee participation in such activities could then become an unpleasant exercise. This will then make companies find ways to manipulate the law like many do to evade taxes. Also, as mentioned before, the government’s CSR attack is coming at a time, India Inc is struggling with dwindling sales and funding woes. Persisting demand slump across verticals such as auto, fast-moving consumer goods (FMCG) and real state have hurt the toplines of even market leaders. For instance, Maruti Suzuki India posted a steep 36 percent decline in sales in July at 98,210 units, selling less than 1 lakh units in a month for the first time since June 2017. The story is not so different for others too. Declining sales of companies also indicate lower tax collections and job layoffs. This is the time when the government should be handholding entrepreneurs and aiding them to stay afloat in the business. Instead, the government is on a confrontational path with the industry. This is unfortunate. The Modi government should realise what it is doing wrong and where its focus should be at this juncture.