Bhaskar Chatterjee, director general and CEO of IICA (a think tank of ministry of corporate affairs), is a retired IAS officer. His current role is the logical followup to the last post he held, as secretary of the department of public enterprises (DPE). He spoke to Sweta Ranjan about his role in drafting the new Companies Act, which introduced the concept of mandatory CSR, among other issues.

You played a key role in drafting CSR provisions. How did companies react to this initially?

That was a different time, because we started CSR primarily for the public sector in the guidelines of April 2010. I was then the secretary for the DPE. It was our belief that charity should begin at home. If you want to set an example it is better that government companies set the benchmarks. When we started extending the guidelines to the private sector then it was not enough. That’s how the drafting of that legislation began. At that time, the reaction of some of the bigger corporate houses, which had been doing good work in CSR, was, ‘We have been doing it for a long time, why is it necessary to mandate it?’ Many also saw it just as a 2 percent tax. They said if the government wants our money, it should tax it and take it.

We wanted the corporate sector to undertake CSR activities so that they could contribute to the development agenda of the nation. To be able to harness their special energies, their special skills, their ability to get bang for the buck, their innovation, their efficiency, that is what we wanted to harness. The government’s approach was to create an enabling atmosphere. India being far down on the development scale, we thought we could accelerate the pace of that development if the private sector chipped in. It must also be said that the number (less than 10 percent) of companies actually doing CSR over many years in a structured, formative approach was very small. The others have gradually been brought into the ambit of what we were trying to do, and now the situation has turned around.

What were the challenges in its implementation? In India changing the mindset is the toughest task.

Yes, that was the toughest part. I don’t know if we have changed it yet. The attitude is to create that climate. For that you need a lot of people to come on board. You need the government, you need legislators and you need leaders in the private sector.

Do you think companies may not have welcomed the CSR provisions wholeheartedly?

I don’t have that doubt. I believe all private sector companies know that this is what they would or they should do. There is also this feeling that now that there is a law, let’s do it, let’s welcome it rather than resisting it.

Do you now see it as a game changer?

Yes, I see it as a huge game changer. It’s changing the way corporate India looks at itself, at the nation, the underprivileged, the marginalised and the underserved. They are looking at the new inclusive development agenda in a very different way.

Has it become more effective since it has been made mandatory?

Even if in the first year it took a while for the legislation to sink in, we are  hoping that it will be more effective [in the following years]. People needed a little time to get off the block. After all, it was, as I said, a game changer. Reality bites, then people take a little time to work out their strategies; what should they do, there are accounting issues, there are compliance issues, there are understanding issues and so you begin to ask a lot of questions before you begin to work on your strategies. Much of that haze has cleared now. While 2014-15 was the year when people were acclimatising themselves, 2015-16 is a traction time.

So, in the first year the rate of compliance has not been too good?

We would get to know but let’s not be judgmental now. It’s just been a year.

There is a need for a robust monitoring mechanism. How will this be achieved?

At this point there are two levels of monitoring. One, the corporate house undertaking a CSR project monitors its activity and makes sure that it works well. We still believe that the first level of monitoring will work. There is also a big brother monitoring all of this at a different level. If you want to understand things, like how many companies did what and in which area, then the government has recently set up a committee to look at how monitoring can be done. We are awaiting its recommendations.

Would companies be liable to pay penalty for non-compliance?

At this stage, there is absolutely no contemplation of any special penalties.

Companies have been asking for a tax incentive.

Why do you need an incentive to do good? The doing of good is in itself an incentive.

The CSR guidelines for PSUs were laid down in 2010, but their performance was not up to the mark. What were the reasons?

I don’t know if your estimation of public sector not having done too well is true. I am not saying they did an excellent job but the public sector has done some exceptional work. Coal India, NTPC and Indian Oil have set very good examples. Although, not all of them may have spent the necessary percentage so far.

What are the key features of the audit guidelines?

The idea is to try and see in the financial statement where we will put it. We have developed a methodology, which we will share with company secretaries. The second big issue is still unsettled. Although the ICAI (Institute of Chartered Accountants of India) had given its recommendations that if a company spends only 1.5 percent of the 2 percent it can carry the rest to the next year. The guidance note will answer such queries.

What do you propose? Should it die or be carried forward?

My own proposal was that it should die in the year. It should not get carried over to the next year as per the current law. But many accountants differ with that. The guidelines for the public sector, however, said that it must be carried over to the next year. Whatever shortfall you have you must make up for it in the following year. That did not become part of the legislation.

Does it not become contradictory? If it’s voluntary, what’s the need to monitor and audit it? Will it not kill the spirit of the provision?

I would use the word ‘kindle’ rather than ‘kill’. It kindles the spirit. Far from being contradictory, it is promotional. If you spend 0.2 percent instead of 2 percent, you will be accounted for and audited to the extent of only 0.2 percent. That’s your choice, your board’s choice. If you do your 2 percent well, then isn’t it an incredible feeling? One is the compliance part. But, far more importantly, the question is what have you contributed at the end of the day.

The CSR policy is generally implemented through NGOs. Do you think NGOs in India have the capacity?

There are 33,00,000 registered NGOs in India. Figures do not matter as you only need a number of good NGOs to deliver these programmes.

How will the right NGOs be picked?

We (IICA) provide due diligence to the companies by classifying NGOs. We only say they are sanitised, this is their track record, this is where they are, now you decide which one you would like to choose.

sweta@governancenow.com

(The interview appears in the July 1-15, 2015 issue)