Strengthening the CSR framework is a profitable idea
Introduction:
- Ever since the establishment of the Corporate Social Responsibility (CSR) regime in India under Section 135 of the Companies Act 2013, CSR spending in India has risen from ₹10,065 crore in 2014-15 to ₹24,865 crore in 2020-21.
- But there is no data to verify whether this increase is commensurate with the increase in profits of Indian and foreign (having a registered arm in India) companies. Besides, there were 2,926 companies in 2020-21 with zero spend on CSR while companies spending less than the prescribed limit of 2% increased from 2015 levels to 2021. There was also a decline in the number of companies participating in CSR.
About CSR:
- CSR is a concept that suggests that it is the responsibility of the corporations operating within society to contribute towards economic, social and environmental development that creates a positive impact on society at large.
- CSR in India is based on the Gandhian concept of Trusteeship.
| Trusteeship Philosophy is a socio-economic philosophy propounded by Mahatma Gandhi. It provides a means by which the wealthy people would be the trustees of trusts that looked after the welfare of the people in general. Gandhi believed that the wealthy people could be persuaded to part with their wealth to help the poor. |
CSR in India:
- Companies Act, 2013 is a landmark legislation that made India the first country to mandate and quantify CSR expenditure. The inclusion of CSR is an attempt by the government to engage the businesses with inclusive growth, welfare and national development.
- CSR also promotes responsible and sustainable business philosophy at a broad level and encourage companies to come up with innovative ideas and robust management systems.
Section 135(1) of the Act prescribes thresholds to identify companies which are required to constitute a CSR Committee – those, in the immediately preceding financial year of which:
- Net worth is Rs 500 Crore or more or
- Turnover is Rs 1000 Crore or more or
- Net profit amounts to Rs 5 Crore or more
- As per the Companies (Amendment) Act, 2019,CSR is applicable to companies before completion of 3 financial years.
- Companies are required to spend, in every financial year, at least 2% of their average net profits generated during the 3 immediately preceding financial years.
- For companies that have not completed 3 financial years, average net profits generated in the preceding financial years shall be factored in.
- The CSR activities in India should not be undertaken in the normal course of business and must be with respect to any of the 17 activities of CSR mentioned in Schedule VII of the act.
Evaluation of the working of CSR law in India:
- If a company spends an amount in excess of the minimum 2%, as stipulated, the excess amount is liable to be set off against spending in the succeeding three financial years.
- The latter proviso in the Act weakens the former provision since the requirement of 2% is only a minimum requirement. Ideally, companies should be encouraged to spend more than this.
- Besides, many private companies have registered their own foundations/trusts to which they transfer the statutory CSR budgets for utilisation. It is unclear if this is allowed under the Companies Act/CSR rules.
Geographical bias
- Section 135(5) of the Act says that the company should give preference to local areas/areas around it where it operates. However, this creates regional disparity.
- For example, a report by Ashoka University’s Centre for Social Impact and Philanthropy says that more than half of India’s CSR companies are concentrated in 4 states Maharashtra, Tamil Nadu, Karnataka, and Gujarat while populous Uttar Pradesh and Madhya Pradesh receive little.
- An analysis of CSR spending (2014-18) reveals that while most CSR spending is in education, health and sanitation, only 9% was spent on the environment even as extractive industries such as mining function in an environmentally detrimental manner in several States.
Monitoring:
- Under the existing regulation, monitoring is by a board-led, disclosure-based regime, with companies reporting their CSR spends annually to the Corporate Affairs Ministry (MCA) through filing of an annual report. It is not known if there is a review of these reports and companies taken to task.
- The Standing Committee on Finance had also observed that the information regarding CSR spending by companies is insufficient and difficult to access.
Way forward: A new CSR pathway:
- There is a need to curate a national-level platform centralised by the MCA where all States could list their potential CSR-admissible projects so that companies can assess where their CSR funds would be most impactful across India with preferential treatment to areas where they operate.
- Invest India’s ‘Corporate Social Responsibility Projects Repository’ on the India Investment Grid (IIG) can serve as a guide for such efforts. This model would be very useful for supporting deserving projects in the aspirational districts and projects identified by MPs under the Government’s Sansad Adarsh Gram Yojana.
- Companies need to prioritise environment restoration in the area where they operate, earmarking at least 25% for environment regeneration.
- All CSR projects should be selected and implemented with the active involvement of communities, district administration and public representatives.
- The MCA and the line departments need to exercise greater direct monitoring and supervision over CSR spend by companies through the line ministries (for public sector undertakings) and other industry associations (for non-public units) instead of merely hosting all information on the Ministry’s website.
Recommendations by the high-level committee on CSR (2018):
These should be incorporated in the current CSR framework to improve the existing monitoring and evaluation regime, including measures on:
- Strengthening the reporting mechanisms with enhanced disclosures concerning selection of projects, locations, implementing agencies etc.
- Bringing CSR within the purview of statutory financial audit with details of CSR expenditure included in the financial statement of a company
- Mandatory independent third-party impact assessment audits.
- CSR non-spend, underspend, and overspend should be qualified by the auditor in the audit report as a qualification to accounts, and not just as a note to accounts.
Conclusion:
The revamped CSR framework in India incorporating above recommendations would usher in a true trusteeship model.
Is it time for the gig economy?
Context:
- Recently, Wipro sacked 300 employees following the discovery that they were working for rival firms on the side, leading to conflict of interest. Infosys has warned staff against moonlighting, saying it could lead to termination.
- However, not all companies are clamping down on it. One software firm DXC Technologies said that moonlighting by employees was a challenge for employers but that wouldn’t affect its WFH (work from home) policy that has worked well for both the firm and its staff.
- Food delivery startup Swiggy recently announced a ‘moonlighting policy’ that allows employees “to pursue their passion for economic interests alongside their full-time employment.”
About Moonlighting
- Moonlighting is the phenomenon of employees working for remuneration with entities other than their (regular) employers.
- Moonlighting has been a hot topic in recent months. During the pandemic, those with desk jobs had more time on their hands and thus it was easier to take on a few projects outside of work. In July, Kotak Securities said in a study that at least 60% of 400 employees surveyed said they themselves had, or knew someone who had engaged in moonlighting.
- Moonlighting is not only becoming popular among regular salaried employees in corporate sector, but also becoming more prevalent in gig economy, especially in those jobs at the lower spectrum of wage/ remuneration.
Legal provisions on moonlighting in India:
- Though Moonlighting is not defined in any of the statutes in India, there are enactments that deal with double employment.
- Section 60 of the Factories Act states that “No adult worker shall be required or allowed to work in any factory on any day on which he has already been working in any other factory, save in such circumstances as may be prescribed”. However, this enactment is applicable only to employees working in factories.
- However, Moonlighting is subject to law of the land. The sphere of employment cannot be extended by the employer beyond working hours and outside his place of employment, which is the principle laid down in the above judgment. In other words, the employee can choose to arrange his affairs as he pleases beyond the working hours of the employer.
Punitive action against moonlighting :
- Unless an employer is able to prove that an employee acted against the interest of the company, Courts may not uphold severe punishment of termination of employment.
- The Courts of law in India dealing with employment are Writ Courts and Labour Courts. These Courts exercise jurisdiction based on equity or fairness. Therefore, the Courts may lean in favour of the employee unless the contravention of the employee has led to serious prejudice and loss to the employer.
- The Minister of State for Skill Development and Entrepreneurship recently said that employers should not to suppress employees who want to monetise, develop and demonstrate but also urged employees not to violate their agreements with employers.
About Gig Economy:
- Gig Economy is the evolving economic model wherein the firms hire workers on a part-time flexible basis rather than as full time employees. The Code on Social Security, 2020 defines gig workers as those engaged in livelihoods outside traditional employer-employee relationship.
- The workers work as freelancers or independent contractors. They generally have flexible and adaptable working hours based on individual preferences.
- The jobs in gig economy typically require interacting with the users through online platforms e.g., the drivers engaged with cab hailing platforms (Uber, Ola etc.), delivery workers engaged with restaurant aggregators (Zomato, Swiggy etc.), or tutors delivering lectures over online platforms. The workers engaged in such jobs are called Gig Workers.
Types of gig workers:
Gig Workers can be broadly classified into two categories —
(a) Platform gig workers: those whose work is based on online software apps or digital platforms.
(b) Non-platform gig workers: generally casual wage workers and own-account workers in the conventional sectors, working part-time or full time.
The Gig workers can also be classified on the basis of skills: high-skilled, medium-skilled and low-skilled workers. According to the NITI Aayog Report of 2022, at present, about 47% of the gig work is in medium-skilled jobs, about 22% in high-skilled jobs, and about 31% in low-skilled jobs. Trends show that the concentration of workers in medium skills is gradually declining and that in low skills and high skills is increasing.
According to a recent survey by a private firm, Quick Commerce, Healthtech, Fintech, and e-Commerce are the top sectors in the Indian gig economy. Within the gig workforce, work-from-home jobs account for 33% of the roles and 67% were on-field roles.
Status of Gig Economy in India:
- According to NITI Aayog Report, India’s gig workforce currently stands at 77 lakh (2020-21). It is expected to rise to 2.35 crore by 2029-30. By 2029-30, gig workers will form 4.1% of India’s total workforce.
- A report by Ernst and Young observed that Indian Freelancers hold a 24% share of the global online gig economy.
- According to a report by ASSOCHAM (Associated Chambers of Commerce and Industry of India), the gig sector has the potential to grow to US$ 455 billion by 2024.
- Holding multiple freelance jobs is the new norm in gig economy.
Way forward: A gig economy strategy:
- In today’s world, every company ought to have a gig economy strategy. Paul Estes, author of the book Gig Mindset, said, “Not having one is like missing the Internet revolution of 1990 or the mobile revolution in 2010.”
- In the last century, work from home was never thought of. But in the current times, it has become a common norm. Likewise, maybe we are indeed on the cusp of change when it comes to the gig economy.
NITI Aayog recommendations:
The 2022 report ‘India’s Booming Gig and Platform Economy‘ has analysed the gig economy from gig workers’ perspective and has made several recommendation:
- Accelerating Access to Institutional Finance for Gig Workers: FinTech and platform businesses may be leveraged to provide cash flow-based loans to workers.
- Skill Development for Gig Workers: Platforms can collaborate with the Ministry of Skill Development and Entrepreneurship, and the National Skill Development Corporation (NSDC) to nurture skilled workers and micro-entrepreneurship.
- Platformization: A Platform India Initiative can be launched on the lines of Start-up India, to increase gig workers’ access to the platforms.
- Enhancing Social Inclusion in Indian Gig Economy: for example, Platform businesses can create a more enabling environment for women and PwD workers through changes in the work-design and workplace facilities.
- Extending Social Security: Platforms can offer paid leaves, and access to insurance along with pension and retirement benefits.
- Government should take up the proposed RAISE Approach for operationalizing the Code on Social Security (CoSS), 2020.
Conclusion:
Instead of trying to abolish moonlighting, employers in gig economy should make healthy policies that allow their employers flexibility in working multiple ‘gigs’.
