India forces companies to start charitable giving
from AFP 19 Sep 2013

India's government still struggles to provide reliable basic services to a majority of its citizens, trapping hundreds of millions of them in poverty. Now the country's richest firms have been told they must help.

Under the new amended Companies Act passed last month by parliament, large businesses have been asked to spend 2.0 percent of their profits each year on "Corporate Social Responsibility" (CSR).

"The idea is that if we could divert some corporate energy and the corporate way of doing business into our development sector, for a country like India it could help enormously," the head of the Indian Institute of Corporate Affairs (IICA), Bhaskar Chatterjee, explained to AFP.

CSR is broadly -- some say vaguely -- defined in the law to mean funding programmes for education, poverty alleviation, protecting the environment or tackling disease, among others.

It's one of the first such laws of its kind in the world, promising a cash bonanza for charities and non-government organisations (NGOs) while raising serious concerns the funds could worsen India's endemic corruption.

CSR has been imposed across much of corporate India. Any business with sales of more than 10 billion rupees ($156 million), a net worth of 5.0 billion rupees, or bottom-line profits of 50 million rupees is liable.
. . .
The final law says companies should set aside 2.0 percent of profits for CSR and must report on their activities, but it also gives them an easy get-out by claiming there is nothing suitable to spend the money on.

"We have been given to understand that you could well report that 'I have seen everything and I can't spend it'," Birla said.

The success of the CSR revolution will therefore depend on how companies approach the new rules, says Samir Saran from the New Delhi-based think-tank Observer Research Foundation.

The money could become a sort of "slush fund" channelled into charities and NGOs run by politicians -- "a legal way of bribing," says Saran -- or into foundations run as pet projects by the family members of business owners.

"We have to be sure that this is not another policy with good intentions and horrible consequences," he told AFP. "It is how it is implemented that will decide its success."
. . .
State-run companies have been subject to mandatory CSR for years but they are sitting on cash piles with "no idea how to spend it," he said.

He commended India becoming "probably the first country to have the most broad far-reaching legislation on the subject" -- Nigeria and Malaysia are considering something similar -- but there are obvious flaws.

"One of the biggest issues it doesn't address is corruption. If anything it might even exacerbate it," he conclud


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