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India flirts with plans for mandatory CSR law

January 2010

The Indian government is looking at requiring companies to set aside a percentage of their turnover or profits to be spent on corporate responsibility initiatives.

The idea, which is being floated by the Ministry of Corporate Affairs, could be enshrined in a new CSR code for the country, which would be incorporated into new companies legislation.

Details are hazy at present, but the plan is being discussed with the Indian business federation Ficci as part of an informal consultation exercise begun last month. Ficci’s involvement suggests the possibility of corporate support for the scheme, but it is not yet clear how Indian businesses will react once more details are revealed.

According to a ministry briefing given to India’s Economic Times newspaper, the government believes the idea will receive a favourable response, and ministers are open to suggestions on what percentage of profit or turnover should be earmarked for CSR activities.

The paper said the ministry is working on the ‘broad contours’ of a draft code that would require ‘all profit-making companies to set aside an amount proportionate to their turnover or profits for corporate social responsibility initiatives’.

It is unclear what size of business would be affected, whether there would be sanctions against companies that did not follow the code, or whether companies would instead be asked to fulfil it on a ‘comply or explain’ basis.  

However, the ministry also appears to be looking at a ‘carrot rather than stick’ approach that may involve fiscal incentives for companies that spend beyond a certain limit on CSR activities.

India’s minister for corporate affairs, Salman Khurshid, recently indicated that he was drawn to the idea of a system of ‘CSR credits’, similar to carbon credits, that could be awarded to companies for initiatives they establish and run.

Over the past few years, CSR in India has moved away from a preoccupation with philanthropy, and many large companies now have their own CSR departments. However, the government believes the proposed measures are needed to increase the number of  CSR programmes and ‘provide positive reinforcement’ to its calls for more activity in the field.  

If brought in, the Indian measures would have echoes of a groundbreaking Indonesian law, introduced in 2007, which requires companies to set up corporate responsibility programmes (EP9, issue 4, p1).

The law has been bitterly opposed by businesses, which see it as too prescriptive, but a recent attempt to have it annulled by the Indonesian constitutional court failed.

Nonetheless, difficulties remain with the drafting  of regulations that support the Indonesian law. The Hong Kong-based CSR Asia consultancy said it was ‘difficult to know’ exactly what the legislation requires companies to do, and predicted ‘more uncertainty’ ahead as the regulations continue to be adjusted.




India Ministry of Corporate Affairs | Asia | Legislation

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