Law mandates charity from India corporations
NEW DELHI — When the charitable foundation of a leading Indian conglomerate tried to set up free schools for rural children, it endured boundless red tape and the wrath of cane-wielding villagers worried about losing their land.
Seven years later, Bharti Enterprises’ charitable foundation has overcome those obstacles and is running 254 schools across India.
But now, a strict law enacted by the Indian government will force corporations such as Bharti to do such projects — and perhaps much more. For example, one of the firm’s most important units, Bharti Airtel, will have to spend almost four times as much on its social-development programs, from its current $4 million to $15 million.
The corporate responsibility law — which applies to both foreign and domestic companies — requires that all firms that generate profits of about $78 million or more annually in the country spend at least 2 percent of those earnings on community development projects.
If they don’t, and fail to give valid reasons for noncompliance, they could face fines or even imprisonment for top executives, officials say.
India’s government believes that the law will bring aid to the needy at a time when the wealth of corporations and some individuals has soared but philanthropic giving remains low, fueling resentment. About two-thirds of India’s 1.2 billion people live on less than $2 a day, according to the World Bank.
“In the last few years, there has been a perception of [a] growing trust deficit between rural communities and large companies that make billions of dollars,” said Sachin Pilot, India’s minister for corporate affairs, in an interview. “If the company invests in corporate social responsibility, it will go a long way in reducing acrimony and strife between the two.”
But the new law has rattled many in the corporate sector who say making philanthropy mandatory amounts to political interference and could dampen investor confidence and lead to corruption. The move comes at a time when the economy has stalled, the value of the rupee has plummeted and foreign investment has dipped 37 percent in two years.
“Anything that is made mandatory can be misused,” said Anu Aga, director of Thermax, an engineering company that funds education nonprofits. “If your heart is not in it and you are forced to do it, then it is easy to find wonderful ways to dodge.”
The rule comes on the heels of several official decisions that make it more difficult for foreign companies to do business, including import restrictions, court rulings overturning patent protections for some drugs, and new land acquisition norms that make it harder and more expensive to set up a factory.
Under the new law, the boards of companies will now have to scrutinize their charity projects and post information about them on their websites. In the next few weeks, officials will finalize the rules of implementation of the law and specify what kind of programs count.
India slipped to the 60th position out of 148 economies in the Global Competitiveness Index this year because of inadequate infrastructure, inefficient bureaucracy, maze-like tax laws and corruption.
Still, Richard Rossow, director for South Asia at the McLarty Associates consulting firm in Washington, called the charitable-giving rule “an annoyance but not a deterrent.”
“There are other issues that have significantly contributed to the diminishing of the India brand in recent times,” he said.
Indians have long donated money to temples and given drinking water and food to the poor. Corporations — particularly in India’s tech industry — have set up programs for digital literacy in villages and encouraged employee volunteerism.
Despite the new prosperity of the past two decades, though, the country still ranks low in giving compared with the rest of the world.
India was listed 134th out of 150 countries in the World Giving Index last year, well below neighbors such as Sri Lanka and Nepal.
In spite of efforts by Microsoft founder Bill Gates and investor Warren Buffett to sign up more Asian billionaires to their “Giving Pledge” — an agreement to give the majority of their wealth to charity — only one Indian has committed to it. That man, Azim Premji, the chief of the tech company Wipro, donated an additional $2.2 billion in February to the education foundation he runs.