While the Covid-19 pandemic has evidently rubbed off on the economy, the resulting financial losses incurred by companies have pushed down their CSR spending
Over the past two months, the team at Sustain Labs has been pouring over the financial reports of over 200 companies in India so as to find India’s most sustainable companies. In doing so we found that 43.8% companies have reported losses in Q1 of FY 2020-21 — the first quarter of the current financial year corresponds to the period of the meteoric spread of the Coronavirus from 2,280 cases on April 1 to 2,20,546 cases on June 30 in India. In fact several Indian companies who were profitable in Q4 2019-20 have now reported losses in Q1 2020-21.
While the pandemic has evidently rubbed off on the economy, the resulting financial losses incurred by companies then pushed down their CSR spending.
The amendment notified in the Companies Act, 2013 requires companies with a net worth of INR 5 billion or more, or an annual turnover of INR 10 billion or more, or net profit of INR 50 million or more, to spend 2 percent of their average net profits of three years on CSR.
This means that CSR might be least effective at a time now when private sector contribution to society is needed the most. This is an example of why corporates need to contribute to society, in ways that go beyond CSR.
One way to do so is via building robust public private partnerships in India. For this, there is first a dire need to build state capacity to be able to structure such viable partnerships. There is a dearth of technical skills to do so. Further, culture of simply seeking CSR funds from companies is so embedded in the system that often there is hardly any effort made by the government to partner with the private sector in a way that is mutually conducive for both parties.
Apathy to the private sector also lends itself to the way government, society, and private sector are not able to successfully work together. For example during the early stages of the spread of the pandemic, the Brihanmumbai Municipal Corporation forcibly took over a 22 storey building in DB Realty’s One Mahalaxmi project to quarantine high-risk people who came in contact with COVID-19 patients under the provisions of Epidemic Diseases Act 1897.
There were more instances of assets being forcefully taken from the private sector for the government’s COVID relief work. This coercion was unnecessary if a policy had been established by the government to offer credit TDR equal in value to that of the property they temporarily hand over for the centres, for the subsequent project developed by the builder.
Such a public private partnership would incentivise the builder to give up his property now to the government free of cost, and also incentivise him to kickstart economic activity sooner by developing his next project. This policy proposal was part of a plan I had drafted to transform vacant buildings in to temporary COVID hospitals, and submitted to the Prime Minister’s Office, clearly to no avail.
Later, a member of the local government in Delhi told me that this was too difficult a route when it is easier to coerce private hotels to give up their banquet halls for the purpose. I am sure there are several more ways to structure partnerships between the government and the private sector, but for which a pre-requisite is a desire of all parties to work on mutually beneficial and respectful terms.
Further, both the government and the private sector needs to learn to work better in partnership with universities in India. Many innovations for resource efficiency and smart ways of structuring public private partnerships come from a vastly under utilised set of people who are on the cusp of practice and research. These innovations indeed need the support of the private sector and the government for implementation, and so are simply perceived as commercial vendors by those holding public office.
In my experience, even when a private sector company and a research institution has come together to offer a state government the funds as well as a viable innovative solution that has already been tried and tested elsewhere to provide COVID recovery facilities to patients, it is likely to fall on deaf ears. It requires immense effort to get the government to implement a proven innovative idea even when it is fully funded. It is baffling how difficult it is to help the government.
So far CSR contributions are perceived by the government and the public as the primary means for corporations to contribute to the benefit of society. If CSR is complimented by the government, private sector, and society, working together in partnership mode all year round in ways that are mutually beneficial to all parties, then we can hope for the private sector contribution to society to be more sustainable.
The writer is CEO of Sustain Labs and Adjunct Professor at SciencesPo Paris. She is also a columnist and author of the 2019 bestseller Indian Instincts — essays on freedom and equality in India