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January 30, 2013PSUs to utilize Funds for Corporate Social Responsibility made Mandatory
A shocking decision towards implementation of transparency came from the government, when it made it mandatory for the state run firms to explain the under utilization of funds earmarked for corporate social responsibility (CSR) projects. The unspent amount has to be used within two fiscal years.
It was announced that if a company fails to fully utilize the funds earmarked for CSR activities within the stipulated time, the unspent money will be transferred to a ‘Sustainability Fund‘. Sustainability fund is the first of its kind which will be set up for the purpose of CSR. The announcement from government came when the data released pointed towards the under utilization of funds by the blue chip PSUs. The announcement was made to ensure that PSUs not only allocate money towards CSR, but also utilizes the entire amount fully.
Read about PSUs in Green Investing in India.
Corporate Social Responsibility Facts and Figures
In a data recently released from ministry it was found that country’s five ‘Maharatna’ PSUs had spent only upto 49% of their funds allocated for CSR activities for the three fiscal years till 2011-12.
During the period:
- Coal India, a PSU company, had spent 27% of its budget for CSR activities
- ONGC, one of the largest government oil companies in India, had used 49% of its allocated budget for CSR activities.
Apart from these if we talk about the ‘Navratna’ companies, the trend was much more disappointing. It was seen that the five companies which constitutes the ‘Navratna’ in India, spent less than 25% of their budget.
In lieu of these reports and poor numbers, it was announced that it is mandatory for a PSU to undertake at least one major sustainability project in an underdeveloped district in the Indian Territory.
Also it was announced that, in order to check the development of CSR programs and to see the CSR initiative, the companies need to set up a two-tier structure. The structure will include a board-level committee which is supposed to be headed by an independent director. It will also consist of a group of officials which will be headed by a senior executive.
CSR Requirement for PSUs
A marginal increase in the amount, the PSU companies will have to use for CSR activities have also been implemented. As of today, under the new guiding principles, a public sector undertaking company with a Profit after Tax (PAT) of over Rs 500 Crore will have to earmark a minimum of 1% of their net profit in the previous year for CSR activities. The upper limit of the CSR funds is limited to 2% which remains unchanged.
It is expected that the new reforms laid by the government to regulate the CSR activities by PSU will help the companies utilize the CSR fund effectively and in a more efficient manner.
Issues
One of the major setbacks which was announced for implementation in the new revised policy was regarding the number of projects which is limited to 2 instead of 10. Now only 2 projects, instead of 10, will be considered for evaluation at the time of signing a MoU with the government. For many this is a positive step as it will help the companies increase their focus on certain areas, which will ensure that the projects are viable and have a greater socioeconomic impact.
Conclusion
Lastly, it is expected that the reforms taken by the government to ensure socio-economic change to be brought in the nation will help boost the growth of the economy to a great extent. Also these changes will bring about a societal change in the economy, thus making a positive impact about the country and the citizens in the International level.