Column : We also make profits
Sunil Jain
Posted online: 2010-09-16 00:28:23+05:30
India is aiming to be the world's top outsourcing destination, not
just in software services but in manufacturing as well, but what's
being proposed by the ministry of corporate affairs (see
http://www.financialexpress.com/news/cos-must-set-aside-specific-csr-spends/680213,
Sept 11) is a bit too much. It's actually trying to outsource
governance to India Inc. Sadly, this is not the first time the
government is trying this. In recent times, there have been
obligations on telecom companies to provide phones in rural areas, on
companies to hire people who are SC, ST and OBC—CII's southern
companies have declared that around 15% of their workforce is
SC/ST—the list goes on.
The corporate affairs ministry's proposal, based on the
recommendations of a parliamentary standing committee, is to mandate
that companies with a net profit of more than Rs 5 crore (that's
pretty much everyone) must spend at least 2% of their average net
profits on Corporate Statutory Responsibility—that's what Corporate
Social Responsibility (CSR) is called when you take the voluntary out
of it. The ministry has also set a net worth (Rs 500 crore) and a
turnover (Rs 1,000 crore) criterion since, like the original Direct
Taxes Code, it seems to think companies habitually lie when it comes
to net profits. Given that bureaucracy expands to fill up
responsibilities available, it's likely that at some point the
bureaucracy will want to certify the CSR expenditure is kosher and
perhaps even specify what qualifies as CSR—no, we don't think extra
payments to tribals for their land qualifies as CSR, or maybe it does.
Another recent example of the government wanting to outsource its work
is the Right to Education Act (RTE). We all know that education is the
single-biggest antidote to poverty, so it's good that the government
has made education a constitutional right, but why ask the private
sector to fulfil this responsibility for it? Under the RTE, private
schools have to reserve a fourth of their seats for poor children and
they'll get paid a fee for this which could be their costs or the
costs the government incurs in its own schools, whichever is lower in
classic bureaucratese. What this means is that, over a period of time,
bureaucrats will monitor schools, as well various caste commissions to
ensure, for instance, that an upper caste poor kid doesn't get into
Delhi Public School while the OBC kid gets only into Ram Public
School, assuming there is one by this name. Worse, since all schools
will have to be 'recognised' after three years, this means
unrecognised private schools that provide a large part of schooling to
the poor will have to pay higher salaries to teachers, have bigger
buildings and so on—in other words, they'll have to either go out of
business or pay higher bribes to school inspectors.
The mandatory 2% figure, presumably, comes from the view that the
private sector just makes horrendous profits but doesn't give back to
society. This, it has to be recognised, is complete
I-can't-find-the-polite-word-for-it. Of the government's total tax
collections of Rs 7.46 lakh crore, just Rs 1.20 lakh crore comes from
private individuals. The rest all comes from India Inc. Corporate tax
collections rose from Rs 1.44 lakh crore in 2006-07 to a budgeted Rs
3.01 lakh crore this year, excise duty collections from Rs 1.17 lakh
crore to Rs 1.32 lakh crore, import duties from Rs 0.86 lakh crore to
Rs 1.15 lakh crore. Surely all of this is enough for the government to
fund its basic governance duties? Assuming it isn't, and the high
fiscal deficit tells us it isn't, why not go ahead and clean up the
tax concessions that are almost as high as the total tax
collections—just read the Receipts Budget book in the latest Budget
document if you don't believe it. Indeed, that's why this newspaper
criticised the government for its copout on the Direct Taxes Code
(http://www.financialexpress.com/news/fe-editorial-the-muddle-path/673392).
Interestingly, while the government wants more out of India Inc—more
taxes, more jobs—it is doing precious little to enable this. Forget
about hire and fire, that old CII staple, the textiles association had
an interesting proposal. Since export orders tend to be quite seasonal
in this business, textile/garment firms have always wanted freedom to
hire temporary workers, after all, Wal-Mart may want those 2,00,000
jeans this month but then may not repeat the order for another 6
months, or may not at all. As government policy doesn't allow firms to
have a very high proportion of temps, the association suggested a
textile-MNREGA of sorts—allow us to hire temps for 200 days a year
(MNREGA is for 100) and at higher wages (Rs 100 is the MNREGA
ceiling). But, no, the government didn't allow it. And yet it wants
more out of India Inc.
Telecom is a great way to conclude this story. Since 1994, when
private telecom was allowed, the government has laid down mandatory
rollout obligations, so many phones in rural areas, so many in
district headquarters and so on. Not one of these targets was met and
finally they were scrapped. Yet, as the urban market started getting
saturated, private sector telecom firms started getting serious about
that market and today firms like Bharti, Vodafone and even Idea/Spice
have more rural subscribers than the government-owned BSNL does.
Moral of the story: India Inc will start spending more on CSR when it
finds it has no other way to do business, when it finds it needs to
develop schools or redevelop land for the local community to trust it
enough to sell it land. Manmohan Singh famously quoted Victor Hugo to
say "no power on earth can stop an idea whose time has come". So why
not wait for the time to come?
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