Corporate Social Responsibility in Light of Budget 2020 : A Critical Analysis
CORPORATE SOCIAL RESPONSIBILITY IN LIGHT OF BUDGET 2020: A CRITICAL ANALYSIS
- Siddharth Soni, Symbiosis Law School, Pune
Concern about social and environmental impact of businesses is increasing. The existence of businesses all around the world are based either for earning profits or to serve a purpose in the society. Corporate Social Responsibility (CSR) can be defined as a company’s sense of responsibility towards the environment and community in which it operates. It is an extended model of corporate governance based on fiduciary rules owed to all firm’s shareholders.Corporate social actions are major activities took up by a corporation to support social causes and to fulfill commitments to corporate social responsibility. The World Business Council defines CSR as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. This article focuses on various aspects of CSR in light of Budget 2020.
DEVELOPMENT OF CSR IN INDIA
The Corporate Sector in India has had a long tradition of following CSR activities, which are sometimes even the outside the scope of the fundamental objectives of the organisations. Earlier, companies used to restrict themselves to spend under CSR and the model was not much in use. The idea behind CSR is solely reigned by the idea of philanthropy. The CSR of the modern world can be compared to the philosophy of some famous philanthropists in the country, companies like TATA, IOCL, BIRLA and other organisations have always showed interest in CSR activities as means of giving something back to the society. Over the years, the policymakers as well as stakeholders in various organisations have showed interest in CSR as it had gained importance as a tool that catalyses the efforts of the Corporate and Social sector towards the growth of sustainable development in the country.
CORPORATE SOCIAL RESPONSIBILITY AND COMPANIES ACT, 2013
Following an amendment in Companies Act, 2013 in April, 2014, India became the first nation to introduce CSR into a legislation and make it mandatory for large and profitable companies.These CSR Guidelines issued by the Ministry of Corporate Affairs (MCA) made CSR spending as well as disclosure of CSR activities for specific kind of companies compulsory. These guidelines were implemented vide §135 of the Companies Act, 2013. The views about this §135 are collective in nature amongst policy makers, corporates, government, general public at large. While some applaud the policy makers for the incorporation of CSR into a legislation so that large and profitable companies can give something to the society while also looking for their own profits. While on the other hand, some corporates argue that this CSR implementation on large corporates is just to pressurize them and also that the government wants to do away with its responsibility of serving the society by taking from the rich and giving it to poor while itself doing nothing. Furthermore, §135 of the Companies Act, 2013 mandates the following organisations to spend 2% of the average net profit under CSR that have:
(a) An annual turnover of Rs. 1,000 crore or more, or a
(b) Net worth of Rs. 500 crore or more, or a
(c) Net profit of Rs. 5 crore or more.
These rules as mandated by the policymakers, were made applicable form the fiscal year 2014-15 and corporates falling within the ambit of §135 of the Companies Act, 2013 were required to set up a CSR Committee which would be responsible for all the expenditures made under CSR and the type of activities that should be undertaken by the company.
CSR IN LIGHT OF BUDGET 2020
The Union Budget 2020-21 was presented by Finance Minister Nirmala Sitharaman in the circumstances surrounding a low economy. With one of the longest budget speeches, education got the front seat in this budget. The current budget failed to focus on important CSR goals towards sustainable development. The last time government focussed on CSR goals was in the year 2019. The scope under CSR was expanded in the year vide a notification. Till September 2019, corporates falling under the ambit of §135 of Companies Act, 2013 were allowed to give CSR funds to techno-incubators located within Government approved academic institutions. Through this notification in 2019, the centre widened the scope of CSR activities and big corporates were then allowed to contribute towards research across various fields. The 2% CSR fund was then allowed to be spent on incubators funded by state or union government or any agency or public sector.
The current budget was silent on CSR activities. Expenditure incurred to meet mandatory Corporate Social Responsibility (CSR) is not permitted to be claimed as a tax-deductible expense. This disincentivizes and brings a lack of transparency in CSR plans. Budget 2020 should remove this dichotomy and encourage CSR expenditure by allowing it as a tax-deductible expense. The proposal on Social Stock Exchange announced in the last budget should get implemented with clear tax policy granting tax exemption to investors.
CHALLENGES THAT CSR ACTIVITIES WOULD FACE IN INDIA
Although CSR has gained its importance in India, there still exists challenges that tests its implementation in the country. A survey conducted by Times Group survey elicited responses from participating organisations about various challenges facing CSR initiatives in different parts of the country revealed. These challenges include: (a) Lack of Community Participation in CSR Activities; (b) Need to build local capacities; (c) Problems related to transparency; (d) Non-availability of well organised NGOs.
CONCLUSION
On the global business agenda, the concept of Corporate Social Responsibility is deeply embedded. Concern for the Community is sometimes misunderstood as socialism and this should be a concern for the society. CSR Activities always depend on the size of the organisations. The bigger a company is, the larger it would be funding for CSR Activities. There is a need to increase the understanding and active participation of business in equitable social development as an integral part of good business practice. Some companies have now started to perceive CSR as a business strategy, which helps in the development of the community as well as the company.
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