Mandatory PSU spend on social causes to fall

In what may come as a relief to state-owned companies , the government is considering a proposal to reduce the share of net profit these firms have to spend on social causes from the current 5%.

State-owned companies with a net profit of less than Rs 100 crore are required to set aside 5% of their profit for corporate social responsibility (CSR).

The move follows a demand from several public sector units that their burden of corporate social responsibility should be in line with those of private companies, according to a senior official with ministry of heavy industries, who asked not to be named.
"There needs to be an alignment in this space,” the official said. ET had reported last week that the ministry of corporate affairs has dropped a provision in the Companies Bill that would have made it mandatory for private sector firms to allocate 2% of their profits towards social causes.

The new provision only requires these firms to have a policy that targets to spend 2% of their profit on CSR, although it seeks to make it compulsory for a company to give details of the money it has spent on CSR in its annual report.

“Already, some different norms are being talked about mining companies," the official said hinting at the new Mining Bill that requires miners to share 26% of their profits with people affected by their projects. A ministerial panel chaired by Finance Minister Pranab Mukherjee has approved the Bill.

The rule would impact state-owned miners such as NMDC Limited , MOIL Limited and Steel Authority of India Limited (Sail), among others.

"It is like a double jeopardy,” the official quoted above said. “Most of these companies are listed . The social obligations cannot overshadow commercial sense."

The Standing Conference of Public Enterprises , the top body of Central government-owned public enterprises, has also objected to different norms for public and private sector.

The body has argued that state-owned companies are already contributing over Rs 1.66 lakh crore by way of taxes and duties to the exchequer.

State-owned firms will be evaluated in 2010-11 on the basis of their CSR activity, which means that this will play a crucial role in their enjoying financial and managerial autonomy.

Under the guidelines issued by the department of public enterprises, a nodal agency for all government-owned firms, relief and rehabilitation carried out for business activity will not be considered under CSR.

The guidelines state that a company with a net profit of less than Rs 100 crore has to spend up to 5% on CSR, which will be evaluated by an independent external agency.

Source : ET