The Ministry of Corporate Affairs in India has made a series of clarifications about what activities would be considered CSR as defined under the Companies Act, 2013 which requires “every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year” to spend “in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years” on CSR activities. The Act then provides a list of activities that would constitute a “CSR activity”. Such rigidity obviously made clarifications necessary during the pandemic when many companies wanted to include their responses to it as a CSR activity. Ultimately the Ministry of Corporate Affairs (MCA) issued an order in March 2020 stating that companies’ responses to the pandemic could be classified as CSR. While the decision seems logical, the real issue is that the rigidity in the CSR requirement caused unnecessary confusion and delay.
Here’s how I had concluded my OBLB post on this issue:
The lesson to take beyond the pandemic is for the Indian government to resist the urge to intervene in how companies comply with the CSR provision in the law. Allowing companies to be creative and using their CSR activities to gain reputational capital is not a bad idea. In fact, this should be further encouraged by letting companies disclose their social activities along with the CSR disclosures (relating to the required spending) required by the law.
Unfortunately the lesson was not taken and the Ministry of Corporate Affairs has more clarifications on the matter particularly with respect to Covid-19 vaccines.
A notification in August 2020 allowed companies to classify investment in R&D activities related to Covid-19 vaccine as CSR. An official is reported to have explained this as follows: “The decision was taken in line with the Prime Minister’s directive to encourage new drug discoveries for Covid-19, and a top official of the PMO [Prime Minister’s Office] played an active role in this”.
A notification in early January 2021 clarified that companies providing vaccinations for their own employees would not be considered a CSR activity; although providing vaccinations for their supply chains would be considered as CSR activity. A few days later, a clarification about the notification issued in March 2020 was issued. In essence, it clarifies that Covid-19 vaccine awareness campaigns would be considered as CSR activity.
Apart from creating delay and confusions about what activities might be considered CSR, this level of specificity allows the government to essentially dictate the terms of corporate philanthropy. As I’ve said in the quoted text above, companies should be given freedom to leverage their CSR activity creatively in order to build reputational capital. Taking away this incentive will only create check-the-box CSR activity from companies and in the bargain, both companies and societies stand to lose.