Day 13 – Q 3.Do you think the provision of compulsory corporate social responsibility is antithetical to the liberal economic principles? Critically comment.

3. Do you think the provision of compulsory corporate social responsibility is antithetical to the liberal economic principles? Critically comment. 

क्या आपको लगता है कि अनिवार्य कॉर्पोरेट सामाजिक जिम्मेदारी का प्रावधान उदारवादी आर्थिक सिद्धांतों के लिए विरोधी है? समलोचनात्मक  टिप्पणी करें।

Introduction:

India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to the Companies Act, 2013 in April 2014. Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.

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Background:

The government introduced the Companies (Amendment) Bill, 2019, in the Lok Sabha on Thursday, which seeks to tighten corporate social responsibility compliance and reduce the load of cases on the National Company Law Tribunal (NCLT).

Provisions as antithetical to the liberal economic principles:

• If the CSR is made mandatory, it will be treated as another tax on businesses.
• CSR is not the main business of a company and making it compulsory will result in focusing their energies on social spending rather than on the business.
• Compulsory CSR will result in micromanaging the companies by the government and tie down businesses with rules and regulations that impose a heavy compliance burden.
• The provisions of criminalizing for non-compliance of CSR will deter the investors and also results in several companies suppressing the profit to avoid CSR spending.
• A company’s profits belong to the shareholders and a for-profit private enterprise spending in social sectors (which is the job of the government) is against liberal economic principle.
• Restrictive list of CSR spending as mentioned in the latest amendment will discourage the employee volunteering and compliance.

Provisions as conducive to the liberal economic principles:

• Branding: CSR will result in marketing of the company and hence increase the brand value and hence – the customer base.

• As the finance minister said – compulsory CSR will ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in corporate sector.
• The spending on CSR will help in increasing purchasing power its clientele and hence in the long term is helpful to increase the customer base.
• As the prime minister said there should be diversification in CSR spending. Compulsory CSR will help in achieving the CSR fund allocation to every sector as requires. E.g. As per the statement of the ministry of corporate affairs 2/3rd of the CSR spending is spent in primary education.
• It helps in cracking down of shell companies and hence create a market driven economic competition in lines of liberal economic services.

Conclusion

CSR is a means to partner corporates for social development and criminal penal provisions are not in harmony with the spirit of CSR. Hence, it violates the liberal economic principles. As Bimal Jalan suggested CSR should be made voluntary and make it a civil offence.