Top-listed firms will have to shell out hundreds of crores each in social sector initiatives if the new Companies Bill takes effect. The Bill has been passed by Lok Sabha and is likely to be tabled in the Rajya Sabha in the Budget session. Officials are targeting the beginning of the new financial year (April 1) as the effective date for the new Act.
According to clause 135 of the bill, "Every company having net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more, during a financial year" shall make "every endeavour to ensure it spends, in every financial year, at least two per cent of its average of net profits made during the three immediately preceding financial years, in pursuance of its corporate social responsibility (CSR) policy."
Applying these criteria, a Business Standard analysis of balance sheets of BSE 500 companies showed some 457 will have to make provisions for spending. Based on the average of the profits, these firms will have to spend Rs 6,751 crore in the first year after the Act comes into force. Over half the amount will be spent by the top-30 firms alone. Fifteen of these will have to allocate spends of at least Rs 100 crore each. State-owned explorer ONGC will have to allocate Rs 405 crore, while Reliance Industries will have to spend Rs 377 crore, followed by State Bank of India (Rs 194.25 crore), NTPC (Rs 180.36 crore) and TCS (Rs 161.1 crore).
The Business Standard Research Bureau arrived at the numbers by calculating the average net profit for the financial years 2009-10, 2010-11 and 2011-12 on a stand-alone basis.
Experts are not sure of the preparedness of the corporate sector to comply with the provisions. An official with Indian Institute of Corporate Affairs said, "At present, the corporate sector is spending about 0.2 per cent of their profits in CSR activities, even a substantial portion of these spends might not fit in to the specific sphere of activities prescribed in the Bill."
The Bill requires each of these companies to form a corporate social responsibility committee of the board "comprising three or more directors, of which at least one shall be an independent director." The board will have to give reasons if the company falls short of CSR spending targets in a particular year in its directors' report.
Don't treat CSR as an extra tax'
The government wants the companies to have enough elbow room in deciding their CSR activity, without the fear of it being seen as the "Big Brother", but, says Corporate Affairs Minister Sachin Pilot, the spend should not treated as an additional tax.