NEW DELHI: India might be among the first in the world to make social welfare spending by companies part of the law but new norms would be applicable only on about 1 per cent of total active companies in the country.
The new Companies Bill, which was approved by Parliament after a long wait on August 8, requires companies to shell out two per cent of three-year average annual profit towards Corporate Social Responsibility (CSR) activities.
The CSR norms, that would come into effect once the President gives his assent, would be applicable to companies having either net worth of Rs 500 crore or more; turnover of Rs 1,000 crore or more; or net profit of Rs 5 crore or more.
"... it is estimated that around 8,000 companies would fall under the ambit of the clause 135 of the Companies Bill, 2012," consultancy Ernst & Young's Executive Director and Leader (Development Advisory Services) Parul Soni told PTI.
Even though there are more than 13.29 lakh companies registered in the country, only nearly 9 lakh entities are active.
Going by the numbers, it would imply that only around one per cent of companies would be required to follow the CSR norms.
The Bill, which would replace the nearly six-decade old Companies Act, 1956, was cleared by the Rajya Sabha on August 8 while it had received the Lok Sabha nod in December last year.
As per the new norms, the two per cent spending on CSR is not mandatory but reporting about it is mandatory. In case, a company is unable to spend the required amount, then it has to give an explanation for the same.
Going by estimates, two per cent CSR expenditure would translate to companies' spending around Rs 12,000 crore to 15,000 crore annually.
Meanwhile, Soni said that apart from India, "Mauritius has mandated the spend of 2 per cent PAT (Profit After Tax) towards CSR".
"... the policy and rules in India are much more comprehensive. In addition, there are other countries like Sweden, Norway, the Netherlands, Denmark and France have mandatory CSR reporting just like India," Soni noted.
Besides, the new legislation requires companies to set up a board-level CSR committee that has three or more directors including at least one independent director.
On the other hand, the rule-making activities for the new legislation -- that aims to strengthcorporate governance and bring in more transparency -- are progressing.
Industry body Ficci's Vice President Sidharth Birla said the new Companies Bill is on the whole contemporary and forward looking.
"I believe we have come a long way from any negativism which may have been initially felt by the user end. The Ministry's approach is constructive and positive.
"Industry has the assurance that if there are valid concerns, they will certainly be looked at. The rule drafting process has been constructive and participative with all key stakeholder views being considered," he said.
Regarding the Bill, industry body Assocham's President Rana Kapoor said the legislation has various progressive provisions including those related to investor protection, corporate social responsibility and corporate governance,
"Through its 29 chapters, 470 clauses and 7 schedules, the Bill provides for simplicity, shareholder democracy and self-regulation," he noted.