Papa don’t preach

CSR is usually associated with social/ moral obligations of companies. But in India, CSR has taken a mandatory flavour and has a definition. As I said in an earlier post, India requires companies of a certain size to donate 2% of their profits from the preceding three years. Despite this, corporate India has responded to the Covid crisis by going beyond the legislative definition of CSR and tried their best to ensure that employees continue to get paid. (Unlike in other countries, India has not provided subsidies to all businesses to tide over the crisis.) There have been other instances of Indian companies stepping up and helping the nation-wide covid fight in other ways. I’d discussed these innovative actions by companies in my previous post and concluded that excessive government regulation on CSR would curb such innovative approaches.

Since then, the Indian government has done exactly the opposite.

The Ministry of Corporate Affairs (MCA) issued an order stating that companies’ responses to the covid crisis could be classified as CSR. The companies Act only allows spending on designated categories to be classified as CSR. Since one of the designated categories is “combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases”, the order from the MCA was not too surprising. Obviously, India’s rigid definition of CSR means that innovative responses from companies that offered their resorts to be used as temporary care facilities will not be considered CSR.

While it is laudable that some companies have responded to the need irrespective of whether such a response will be accepted as CSR, it is to be expected that most other companies would seek to clarify whether their efforts would be classified as CSR. (Let us not forget that amidst this crisis, large companies have an added obligation of spending a certain amount of their profits on CSR.) As it turns out, they have indeed sound various clarifications and the MCA has responded with answers to those questions. One interesting answer is to a question asking whether payment of “salary to employees and workers, including contract labour, during the lockdown period can be adjusted against the CSR expenditure of the companies? The MCA’s answer is no but it has also indulged in some sermonising. Here is what it says:

Payment of salary/ wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary/ wages to employees and workers even during the lockdown period is a moral obligation of the employers, as they have no alternative source of employment or livelihood during this period. Thus, payment of salary/ wages to employees and workers during the lockdown period (including imposition of other social distancing requirements) shall not qualify as admissible CSR expenditure. (Emphasis mine.)

We know that salary payment is a contractual obligation and non-payment will trigger breach. However, is it the moral obligation of employers in circumstances where employees have no other source of livelihood due to a government-imposed lockdown? Moral or not, this is a responsibility that the government has shouldered in most other countries. Granted that such financial subsidies may not be possible for the Indian government but the burden cannot be shifted to private enterprises with such moral preaching, especially when it has chosen to define CSR as mandatory spending on designated activities.