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India outlines ‘2% of profit’ target for CSR spending

December 2010

The Indian government has announced plans to require companies to spend two per cent of profits on corporate responsibility projects.

In proposed new regulations that have been in preparation for some months, the government has said it will ask for the two per cent levy to fund social and environmental initiatives.

The proposal has been put forward by a parliamentary committee advising on revisions to India’s Companies Bill. It has recommended that companies with an annual turnover of at least $125million (£79m, €94m), or with net profits of  $1m or more, be covered by the requirement.

As a result, more than 3000 businesses would together be required to set aside almost $1billion for CSR projects.

Large sections of the Indian business community are likely to oppose the proposals on the principle that CSR should be a voluntary, not mandatory activity. Many industry groups have already complained that the bill does not make clear what activities will qualify as CSR-related.

However, Salman Khurshid, India’s corporate affairs minister, said business leaders should not be alarmed.

‘What we are doing is not a directive. We are working on a target,’ he said. ‘It will have to be explained to the board of directors and shareholders why the target has not been met. It’s an aspirational target [but] it is going to be subject to
non-compliance.

‘Next it could be something more. Right now explanations will have to be given in the directors’ report [about] why the CSR target was not met.’

In Indonesia, the government introduced similar measures two years ago, but has since run into trouble implementing them, partly because of business opposition but also due to a lack of supportive regulation that defines what ‘CSR spending’ is.

The Indian government has also said it intends to establish a ‘CSR credit exchange’ based on a carbon trading model. Earlier this year Khurshid had mooted the idea that companies failing on social and environmental grounds would need to purchase CSR credits from businesses that have earned them by good practice.




Asia | Legislation

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