Companies Act: How much will CPSEs spend now on CSR drive?

A CSR initiative by GAIL

AFTER the new Companies Act has come into force, it is now mandatory for profit making companies to spend on activities related to Corporate Social Responsibility (CSR). According to a rough estimate, India's top companies including the profit-making Central Public Sector Enterprises (CPSEs) will be spending about...
Rs 5,500 crore annually CSR. Earlier, the Department of Public Enterprises (DPE) issued guidelines on CSR, and sustainability for CPSEs in April, 2013. Under these guidelines, each CPSE shall, with the approval of its Board of Directors, make a budgetary allocation for CSR and sustainability activities for the year, said an official statement.

The budgetary allocation is to be based on the profitability of the company and it is determined by the Profit After Tax (PAT) of the company in the previous year. Thus a company with a PAT of less than Rs 100 crore in the previous year will have to spend three to five percent on CSR activities. Similarly, in case the PAT is in the range of Rs 100 crore to Rs 500 crore, the share will be two to three percent. Finally, a company with a PAT of over Rs 500 crore in the previous year will have to spend one to two percent on CSR activities.

The performance of CPSEs on CSR and sustainability is evaluated by the DPE through the Memorandum of Understanding (MoU) mechanism signed with the CPSE concerned. The guidelines make it mandatory for all CPSEs to have a two-tier structure, comprising a board level committee headed by either the chairman and managing director, or an independent director, and a group of officers headed by a senior executive not less than one rank below the board level, said the release.  This two-tier structure is expected to have the authority and influence to be able to move forward the CSR agenda of the company.  The implementation of CSR guidelines is also monitored by the administrative ministry under which the concerned CPSE comes. An appropriate mechanism is being developed for reporting.

The main CSR activities included in the Act are eradication of poverty, promotion of education, empowerment of women and improving mental health, combating HIV/AIDS, ensuring environmental sustainability, social business projects to name a few. Under the new act, the PSUs will have to spend more on CSR activities. According to a rough estimate prepared by Forbes, 100 top Indian companies will have to spend Rs 5,611 crore annually on such activities.