IN ORDER to ensure that the profitable central public sector enterprises (CPSEs) allocate and exhaust their funds for the corporate social responsibility (CSR) work, the government is considering a proposal for creating a special purpose vehicle (SPV). But experts feel that CPSEs are well-equipped to spend CSR money on their own and meet the objective of inclusive growth and that there is no need for a separate agency for this purpose.
The proposal, mooted by the ministry of heavy industries and public enterprises in consultation with the corporate affairs ministry, entails the creation of a SPV or a similar financial entity, which will be independent of the individual CPSEs.
This CSR body will be entrusted to execute not only the sanctioned CSR activities of the companies every year but will also ensure that the funds earmarked for CSR projects are fully exhausted on these activities. Sources said the proposed SPV/financial entity will need to have a legal status and should be run on a non-profit making basis. Also, the proposed SPV will need to maintain the record books and financial statements and will have to furnish audited financial statements to the Registrar of Companies.
The SPV will be allowed to work with recognised NGOs in order to complete the sanctioned CSR projects. As per government estimates, the SPV will have an annual CSR corpus in excess of R5,500 crore generated from the profitable CPSEs. ?This body will also be responsible for spending the unspent amount of individual CPSEs from the last three years. The proposal is currently being vetted by experts from various departments, including law, finance, heavy industries and corporate affairs,? said a senior official.
As per the notification of the CSR clause in the new Companies Act, 2013, currently there is no provision to carry forward the unspent CSR amount in a financial year. However, the guidelines issued by the department of public enterprises (DPE) says that all unutilised budget for CSR activities planned for a year will not lapse and will be carried forward to the next year. ?These issues are being recognised when dealing with CPSEs. Once there is a harmony between what the new company law says and what can be inserted specifically for CPSEs, the proposed national-level CSR body for public sector companies can start working. It may take some weeks to fine-tune the proposal,? the official said.
However, those familiar with PSU affairs feel that CSR funds would be better spent by PSUs themselves. ?CPSEs are in a position to utilise CSR funds by themselves for the best inclusive growth,? said UD Choubey, director general, Standing Conference of Public Enterprises (Scope).
Choubey argued, ?CSR is done by the CPSEs in areas where they have operations. Most of the PSUs have a board-level sub-committee to approve CSR funds. Moreover, MoU targets set by the Task Force for PSUs are pre-decided (MoUs specify areas like health, sanitation and education where the money can be spent.)
Under the new Companies Act, 2013, corporates must spend 2% of their profit on CSR from the next fiscal year, provided they have a turnover of R1,000 crore and more, or net worth of R500 crore and more, or a net profit of R5 crore and more.
The move to float an SPV or a similar entity comes from the study of similar programmes already implemented by countries like France, Mauritius, and Indonesia, among others.
In Mauritius, for example, a company or a group of companies with CSR contribution above a threshold value can use a SPV for the implementation of their CSR initiatives, provided they meet certain laid down riders. As per the norms, the administrative costs of the SPV should not exceed 15% of the total expenditure on projects for a CSR Fund of up to 20 million Mauritian currency. Then the SPV has to work and report to a national CSR committee.
The move to float an SPV is triggered by concern that there has been a mismatch between the CSR funds generated every year and the amount exhausted.
An analysis of CSR funds of leading PSUs shows this mismatch.
Sample this: Between 2009-10 and 2011-12, Coal India allocated R860 crore towards CSR activities but used only R230 crore. Similarly, ONGC allocated R1,036 crore but used only around half (R510 crore). NTPC allocated a total of R135 crore on CSR activities but used only R100 crore. The trend continued in recent years, too.
