Gujarat CM wants corporate social responsibilty funds in state coffers, officials say it's just not possible

By Rajiv Shah
Contradicting the recent announcement by Gujarat chief minister Anandiben Patel, declaring that April 2015 onwards state-based enterprises will have to transfer two per cent of their profits towards the corporate social responsibility (CSR) fund of the Gujarat government, a top state insider said this is “simply not possible”. The insider, requesting anonymity, said, there is “no law in the state or India which makes it obligatory for the companies to hand over CSR funds to the government. The corporates will not agree as it is as it is against their interest.”
Patel made the announcement at Elkala village in Umbergaon taluka in South Gujarat two days back while inaugurating the Asian Aerosoal Company’s new plant. She said, the state government would be utilizing the CSR funds received from the corporate houses to build toilets across the state and the automatic midday meal making plants, which would supply cooked food to primary schools.
The insider said, “There is just one law in the country on CSR, promulgated by the Government of India. It mandates that companies to utilize two per cent of their net profits to charitable causes, and leaves it to the corporate houses where they should spend them. The state has no role in this, nor can it have.”
He added, “A massive 294-page Act, it requires companies to set up a CSR board committee, allocate two per cent of net profits in the last three years to CSR. It requires a review at the end of each financial year by the board’s director to ensure compliance. It is not clear what does Gujarat chief minister have in mind when she says the two per cent funds would be transferred to the government.”
The law applies to the registered companies registered with a net worth of Rs 5 billion and a turnover of Rs 10 billion, or net profit that exceeds Rs 50 million. An estimated about 8,000 Indian companies meet this definition, which would equate to Rs 12,000-15,000 crore annually in giving. Currently, such giant companies such as Wipro, Reliance, Tata, and Airtel have foundations and partake in CSR activities.
A senior Gujarat government official said, “Corporate houses operating in Gujarat will not be willing as the income tax law does not allow tax exemption if the funds are transferred the state government. Industry sources added, no major company would allow its funds to be transferred to the state government. “We want the funds to be utilized as we like”, an industry representative pointed out.
Patel’s predecessor, Prime Minister Narendra Modi, tried this ahead of the Vibrant Gujarat investment summit in 2009 with private industrial houses, but miserably failed. Tens of memorandums of understanding (MoUs) on CRS were signed up with the corporates participating at the summit. Some of those who “agreed” included Reliance, Tatas, Maruti, Satyam, Adanis, Asima, Ambuja, Apollo Hospital and Rai Schools Group.
While they agreed to enter into public-private partnership with the state government to take up projects on education, health and tribal development for CSR, none of them parted with two per cent of their profits.
Earlier plans, worked out in 2008 to rope in major industrial houses operating in Gujarat to contribute funds for social causes. This was done close on the heels of state public sector enterprises (PSEs) having been asked to contribute a third of their profit before tax (PBT) to the state-sponsored Gujarat Socio-Economic Development Society (GSEDS).
At that time, several of IAS officials, working as state PSU chiefs opposed transfer of profits to the state government. These included Sudha Anchalia, CMD of the Gujarat Narmada Valley Fertiliser Corporation (GNFC), and VL Joshi, MD, Gujarat Mineral Development Corporation. They expressed their view in front of the then chief secretary D Rajagopalan.