India debates mandatory giving
On August 18, 2013, Rebecca Bundhun, wrote in The National, that India's move towards making companies engage in philanthropy has prompted confusion among many firms and has not been welcomed by all.
Parliament this month approved a law that asks companies with a net worth of more than 5 billion rupees (Dh298 million), a net profit of more than 50m rupees, or revenues of more than 10bn rupees, to spend 2 per cent of net profit on corporate social responsibility (CSR).
The bill has been in the pipeline for some time and is only awaiting presidential approval. It would make India one of very few countries in the world to make philanthropy part of its law.
"When you're asking somebody to do something which is not being done by that individual voluntarily, the first reaction is: 'Why am I supposed to do this?'," says Sonali Pradhan, the managing director of RBS Financial Services India. "The immediate reaction that comes from the corporates is that they have an additional thing on their plate to kind of work on. There are corporates who are not happy - not because their intentions are bad. Nobody is underestimating the need that we have as a country to get these kinds of contributions."
Companies that fail to spend 2 per cent of their net profit on CSR have to explain why they have not met the requested target, according to the law.
Analysts say that one of the major problems with the law is that it measures philanthropic work in purely monetary terms. They say that CSR activities could come in many forms and might include a company making efforts to reduce its environmental footprint or donating its expertise to worthy causes.
"There are a lot of companies that are doing philanthropical work which is not in the form of money per se," says Ms Pradhan. "They are doing a lot of work when it comes to contributing the skillset that they have in the employees or in-kind support to NGOs. This kind of work nowhere gets recognised by this bill or least that's what the prima facie impression is of the bill. We'll have to wait and see the final details. The concerns which genuine donors have is what do they do with the projects which they have already undertaken, where they are doing a fair bit of good work."
Many companies are already making CSR a more important part of their strategy, so the new law might have little effect on them, she says.
"This bill was much anticipated by most of the corporates and there are already a lot of steps that have been taken proactively."
But many companies might not have the expertise to explain their philanthropic activities to meet the law's requirements, which means hiring consultants to take over this function, analysts point out.
"Companies will now be required to spend money on structured activities rather than, say, on religious causes," Pavan Kumar Vijay, the managing director of Corporate Professionals Capital, a legal and financial services firm based in New Delhi, told the business newspaper Mint. "This would mean that there is a big scope for CSR consulting and we expect this activity to grow."
Philanthropic activity in India has increased substantially in over the years.
A report by Bain & Co revealed that private donations in India to philanthropic causes increased by 50 per cent between 2006 and 2011.
"What's happening in India over the last 10 years, [is that] more and more corporates are getting richer, in the sense that the GDP has grown," says BR Manjunath, the director general of the Sir M Visvesaraya Institute of Management Studies and Research.
He says that if companies invest money in healthcare and education, the corporates themselves reap the benefits because this helps to create a more productive workforce and customer base.