Funding for social projects will be severely impacted in the coming year, at least till the time the epidemic is not eradicated from India.
It was sometime in the first week of March that I was conferring the economic scenario with a CSR head at one of the top banks in India. At that time, there were quite a handful of COVID-19 cases in India, but it had not taken hold of our consciousness, the way it has now. During the interaction, the CSR head grimaced that he was feeling the heat to curtail the CSR spend, due to the lackadaisical performance of the company in light of the economic slowdown. "God forbid, if we have a pandemic scenario, then my CSR spend will all be gone." His premonition was ominous. In a matter of two weeks, India had moved from a country immune to coronavirus pandemic to a nation being gripped by it. By the end of the month, the biggest lockdown in the world was in place, and the country was quarantined for good.
With the COVID-19 epidemic spreading far and wide in the nation, the government got into a fire-fighting mode. The changed priorities also resulted in some tough decisions. The lockdown resulted in a complete shutdown of economic activity. Only businesses that were deemed as "essential" were allowed to operate like medical stores, food providers, and so on. To solidify the fight against the pandemic, Prime Minister Narendra Modi announced the setting up of Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund or PM CARES Fund. Quite like the PM National Relief Fund, corporates and individuals could donate to this special fund that was targeted for relief for the epidemic solely. To seduce the corporate sector into writing cheques, the government on March 31, announced that donations to the PM CARES Fund would get tax breaks under Section 80G of the Income Tax Act. This galvanised contributions to the fund. Almost overnight, significant sums flowed into the fund from the corporate sector. Every top corporate in India announced its contribution to the fund, showcased as its approach to social relief.
What was not explicitly mentioned was that these contributions could be made from the CSR (Corporate Social Responsibility) kitty that the company was already under an obligation to make.
A string of regulatory changes
For the uninitiated, Section 135 of the Companies Act, also known as the CSR Act, makes it mandatory for companies that have a net worth of Rs 500 crore or more, or turnover of Rs 1000 crore or more or a net profit of Rs 5 crore or more to spend 2 percent of its net annual profit on prescribed social causes. This act has been in place since 2014, and the CSR spend has been growing every year. According to an analysis by KPMG, Indian corporates spent just Rs 8,691 crore on CSR during the 2019 financial year.
With a string of amendments over the past few years, the contours of the CSR Act has been changed, from "encouraging" the corporates into social causes, to "punishing" them in case they don't. The result of this shift can be seen on the ground, with companies seem more interested in meeting the 2 percent obligations, rather than being a partner in bringing a social change. Just a few months back, the government floated a new set of amendments, that will further change the nature of Section 135. For instance, the ministry has proposed setting up a 'National Unspent Corporate Social Responsibility Fund'. Thus, all the funds unspent by corporates would be deposited into this fund, which would then undertake CSR projects specified in Schedule VII. Other proposed amendments have created a bit of confusion, like expenditure on employee welfare, or what are the exclusions and inclusions to the activities that could be undertaken.
Because of the perceptible slowdown in economic growth, there were already talks about scaling down the CSR spend. The mathematics is reasonably straightforward; when the net profits shrink, so does the CSR kitty. Now, with COVID-19 epidemic, it is a foregone conclusion that it will be a steep struggle for India Inc. to maintain its growth projections. In this scenario, you can't expect corporates to be as committed to CSR, beyond the immediate relief and rescue.
According to a recent report by consulting firm FSG, funding for traditional CSR activities could be reduced by 30–60 percent. It went on to state that CSR heads are likely to prioritise contractual commitments to such NGO partners, some of these commitments may have to be reduced. Many CSR funders stated that they would not be able to keep their informal or verbal promises, and most said they are unlikely to fund new partners.
And then add to it the impact of PM CARES Fund. CSR funding for social projects will be severely impacted in the coming year, at least till the time the epidemic is not eradicated from India. In fact, the funds collected for relief have been used for the first time, with the PMO stating that it will spend Rs 3,100 crore to fight the epidemic, of which Rs 2,000 crore will go for buying 50,000 ventilators; Rs 1,000 crore for migrant labourers and Rs 100 crore for vaccine development.
What the NGOs should do
In this scenario, what should be the approach of the CSR Head and the agency (read the NGO) working on the project? So, my friend, who had an ominous take to CSR spending, states that the only option is to focus on current projects. Any new investments will be on hold unless they have a compelling overture. "Make an offer we can't refuse types," he said in a Brando-esque manner. Hopefully, when the epidemic has blown away, things will be back to normal.
For the NGO, this could be a period of reform and building up. Most NGOs are somewhat lethargic in their uptake of digital tools, like portals or apps. These days, when creating websites is thread-bare cheap, costs cannot be an excuse anymore. NGOs should look to build up their digital infrastructure, thereby increasing transparency. And by expanding their scope, they can also seek funds for causes from other sources. We have seen the power of crowd-funding in social space, like Milaap and Keto.
In the end, COVID-19 will have an impact on the CSR space. The effect will be directly proportional to the length of the epidemic. The earlier we defeat it, the sooner life will go back to what it was, even on the CSR front.Shashwat DC is Founder Editor at Sustainabilityzero.com. With deep interest in history, and mythology, he is also a passionate champion of the environment & bio-diversity. Using his keyboard, he highlights issues related to sustainability, ESG, CSR, and sustainable development.