By Winnie Dholakia, Director at HelpYourNGO
A High-level Committee was set up in 2015 to review the CSR regulatory framework. This Committee had recommended that another Committee be set up after three years to revisit the CSR framework. Then in 2018, another High-level Committee was set up under the chairmanship of Mr. Injeti Sriniwas to review the CSR framework and make recommendations to develop a more robust and coherent CSR regulatory and policy framework, and underlying ecosystem.
In this blog, I have covered the key findings of the Report submitted by the High-level Committee in August 2019. Let’s see how Companies complied with the CSR Rules from FY 2014-15 to FY 2017-18.
This table highlights the status of compliance in terms of the CSR expenditure as a percentage of the prescribed CSR for all Companies for each financial year. It can be seen in column D that the compliance in terms of % has been moderate, except for FY 2015-16 when it was quite high and the compliance percentage shot up to 85% from 59% in FY 2014-15. In the subsequent years however, the compliance percentage has decreased.
The above table gives a clear picture of the number of liable Companies reporting on CSR. It can be seen in Row A that majority of the Companies have incurred zero CSR expenditure. However, this number of liable Companies having zero CSR expenditure has decreased from 2,950 in FY 2014-15 to 2,583 in FY 2017-18 (refer row A(ii)). Another notable observation is that the number of Companies with CSR spending more than the prescribed amount has increased from 1,611 in FY 2014-15 to 4,103 in FY 2017-18 (refer row D).
In the above graph, the orange line indicates the Total CSR expenditure in the year and the blue bars indicate the % of Companies having positive CSR expenditure in that year. It can be seen that 45% of the liable Companies are reporting on CSR in FY 2014-15 and contributing around Rs 10,000 crore – this percentage has increased over the years to 71% for FY 2017-18. Hence, it may be inferred that even though the amount of CSR expenditure may be moderate, the culture of being responsible towards society is being adopted by more Companies.
Reasons for Non-compliance
The Board of the Company is required to give reasons for non-compliance with the CSR provisions in the Director’s Report if CSR is applicable to that Company. The High-level Committee noted that even after five years of making CSR mandatory, Companies continued to cite delay in project identification, delay in implementation plan and lack of prior expertise as key reasons for not incurring the prescribed CSR expenditure. The Committee has also stated that merely giving reasons for not spending is not sufficient and the Companies must express the intent to spend the stipulated CSR amount. The explanation for not incurring CSR expenditure, despite being eligible must be substantive or due to unavoidable circumstances.
To ensure compliance with CSR norms, the Government imposed penal provisions for Companies and its officers failing to comply with the CSR provisions. The penalty is at least ₹1 crore for the defaulting Company and at least ₹2 lakh for each defaulting officer.
Preferred Mode for Implementation
There are various modes available to Companies for discharging their CSR obligations. The pie chart below indicates how Companies complying with CSR norms actually implemented their CSR projects between FY 2014-15 and FY 2017-18. Maximum projects are implemented through other implementing agencies followed by projects directly implemented by the Company. Projects implemented by trusts or societies set up by the Company itself are lower than these two modes. Implementing agencies are an obvious and convenient choice for Companies for execution due to their presence in the target areas, knowledge of the community and community connect, and most importantly, experience in executing projects. The least used mode is contribution to trust/society or Section 8 Companies set up by the Central or State Government.
Out of the total expenditure incurred on Schedule VII areas, education and health have received the maximum CSR funds. Fortunately, there has been a steady increase in the contribution to the environment sector over the years. It is important to note that the contributions to funds set up by Central Government like PM National Relief Fund and Swachh Bharat Kosh exceeds the contribution to art and culture, slum area development and even women empowerment.
Sec 135 states that the Company shall give preference to the local area and the areas around where it operates for spending the CSR amount. As a result, a lion’s share of the total CSR funds is getting distributed to a few states and this draws attention to the role this provision might be playing in increasing the skew of the CSR expenditure across states. Please note that it is not mandatory to incur CSR expenditure in the local area of the Company.
States like Maharashtra, Karnataka, Andhra Pradesh, Gujarat, Tamil Nadu and Delhi have received approximately 40% of the total CSR expenditure whereas the north eastern region has barely received 1.5% due to infrastructural gaps.