Just as Corporate Social Responsibility is being recognized as ‘smoke and mirrors’, the Indian government is going to force companies into it. India’s CSR law requiring companies to spend 2% of net profits on CSR makes India an even worse place for business than it already is.
India is legendary for being business unfriendly. The Permit Raj kept Indians mired in Fabian Socialist poverty for decades. Even today India ranks 134th on the World Bank’s Ease of Doing Business Index; behind Ethiopia, Mongolia and about 131 other countries. India’s CSR law brings India’s bad governance into the 21st century of bad governance.
Clause 135 of the Companies Bill, 2012, requires large companies to spend 2% of net profit on CSR. The bill does not define what activities will be considered CSR, probably because CSR is a flaky concept. The bill doesn’t even require companies to actually spend on CSR, since it’s hard to measure something that cannot be defined. Companies must create a ‘CSR committee’, and explain its spending or lack of spending. The law forces companies to talk about their good works, once again the true purpose of CSR.
India is a poor country with many social problems. Problems the government should tackle, instead of passing the burden to businesses. If the government can legislate this 2% CSR spending onto business, it can also tax business by an extra 2%. This revenue can then be spent on its own social spending. But by passing the job of social development to companies, the government is admitting someone else can do social spending better than the government itself. As if the ineffectiveness and corruption of the Indian government was a secret.
As everywhere, business folk are too politically correct to oppose this law. Opposing ‘Social Responsibility’ is bad public relations, again the true motive for CSR.
Every dollar spent on CSR is a dollar not spent on Research and Development, expanding business, or hiring workers.
By devoting a poor country’s resources to CSR smoke and mirrors, India’s CSR law will hinder long term development.
As the CSR Fad page shows, many western corporations have moved away from CSR. It would not be surprising to see Indian companies follow the example of the west, and avoid using the term CSR.