Several Indian companies might have to set aside 2 per cent of their average net profits during the preceding three years to meet corporate social responsibility (CSR) spending requirements. A parliamentary standing committee on finance, which vetted the Companies Bill, 2009, said in its report that the ministry of corporate affairs has agreed to the suggestion.
The committee, headed by former finance minister Yashwant Sinha, has suggested that companies with a net worth of Rs 500 crore or more, or those that have an annual turnover of at least Rs 1,000 crore, or companies with a net profit of Rs 5 crore or more, be covered by the norms.
If the proposal is accepted by the government and Parliament approves, based on the performance over the last three financial years (up to March 2010), 3,434 companies would have to set aside over Rs 4,300 crore during this fiscal.
These companies would need CSR policies so that at least 2 per cent of their average net profit for the preceding three financial years is spent on such activities.
"The directors shall be required to make suitable disclosures in this regard in their report to members. In case any company does not have adequate profits, or is not in a position to spend prescribed amount on CSR activities, the directors would be required to give suitable disclosures/reasons in their report to members," the report tabled in Parliament during the just-concluded Monsoon session said.
Welcoming the ministry's "acceptance" of the its suggestion to bring CSR in the statute, the parliamentary committee said a statement indicating the company's CSR policy, as well as the specific steps taken, should be part of the company's annual report. It has, however, not listed activities that would be qualified to meet the CSR spend.
At present, these initiatives are voluntary and in December 2009, the ministry of corporate affairs issued a set of guidelines companies are expected to comply with. A senior ministry official said the government is seeking details of the activities that are undertaken by various corporate houses before finalising its views on making CSR a statutory requirement.
The ministry intends to move a Bill in Parliament, factoring in some of the recommendations of the parliamentary standing committee during the winter session. It is hoping that Parliament approves the Bill so that it is in place before the start of the next financial year.