In year 2007, Prof. Poonam Kumar presented her paper on “Can business alleviate poverty and make profit”. The main aspect of this paper was, companies focusing on markets among the poor must create social value in the areas where they operate to ensure long term sustainable success and profits even as they seek to achieve profits. Also the companies approach should be, developing a partnership with the government as a facilitator assuming the role as an investor, regulator or guarantor. 
Now after 5 years with recession hitting the west, India GDP going down, inflation at its peak, India’s CSR Act, a landmark initiative, a first in the world try to achieve the same i.e. to involve the business in achieving national development goals together with the government and civil society.
We try to analyse, can this new bill with mandatory CSR really push businesses to alleviate poverty.
Under the new CSR rule companies that have a minimum net worth of Rs. 500 crore or turnover of Rs. 1,000 crore or net profit of Rs. 5 crore needs to spend 2% towards corporate social responsibility (CSR). If we consider this, around 8000 companies fall under this ambit, which means approx. 12000 crore ($2 billion) of cash will be spend towards social activities.
The CSR clause also mentions a committee need to be formed to carry out the CSR policy in the company. Schedule VII of the Companies Bill also states that, CSR policy should involve at least one of the following CSR activity from the list which is eradication of hunger and poverty, promotion of education, gender equality, reducing child mortality and improving maternal health, environment sustainability, employment enhancing vocational skills or contributions to central or state government set up funds, including the PM National Relief Fund.
If we consider all the above rules and guidelines of CSR, it seems very easy to implement as companies have no shortage of CSR opportunities or issues areas mentioned above. As per the oxford poverty 2011 study approximately 650 million people, or fifty-three percent of India’s population, live in poverty. In 2010, the World Bank estimated that about 400 million people in India live on less than U.S. $1.25 a day. Poverty is also intertwined with illiteracy, gender inequality, and disease. Vast environmental issues confront India, such as deforestation, illegal wildlife trading, loss of biodiversity, water pollution, air pollution, and the particular vulnerability of Indian populations to natural disasters, among other issues.
So with all these positive aspects we can say, this initiative can help to eradicate poverty in India, but when we go deep into analysing the CSR act, there are still lots of weak points which can hammer the proper use of CSR by companies.
Firstly, the statement made by Corporate Affairs Minister Sachin Pilot which states that the spending on CSR is not mandatory but reporting it, is mandatory, which means if a company don’t want to spend on CSR activity it only need to report this in its annual report and no penalty will be imposed on that company. Also more emphasis on reporting will encourage ‘copy paste’ culture, which will further lessen the company getting involved in actual social activities. Next is tax benefit, companies will be getting varying tax benefit on different types of activity, for example company donating towards PM’s National Relief Fund (PMNRF) will entitle them tax benefits whereas if a company has construct a school building in a village, no tax benefit may be available — at least not without a drawn out litigation. What this will do is, the companies which at present are doing CSR activities like educating children in rural areas or constructing schools for them, will go towards writing a cheque to PMNRF to get tax benefits rather than taking efforts for actual CSR practice. Also, points which are not still clear are, CSR clause states that the employee benefit will not be counted towards CSR activity, so what will happen to the amount spend by companies on salaries of the CSR department or if a company having a international footprint and they spend on CSR activities outside India, will they be exempted for spending full 2% in India.
So at this time with all this pros and cons of CSR act we can conclude, for CSR initiative to be successful companies need to take genuine interest towards CSR and not as a necessary cost of doing business in India and the government can take effect this by implementing stronger guidelines for companies who is doing it and for companies not doing CSR activity but only reporting it, since at the end of the road we also don’t want, one company to suffer due to the consequence of the other.
Also government should provide special benefits to the companies who indulge in actual CSR i.e. mentioned in the schedule VII of the company bill, CSR performance index prepared by the India Institute of Corporate Affairs and leading stock exchange BSE which can be a good tool to measure the amount of efforts and spending put by the companies for social schemes.
This article was taken from here.