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Investing in social uplift: Will LIC become a role model?

The latest move by the government to bring in the Life Insurance Corporation under the Corporate Social Responsibility law is a welcome step.

Published: 13th May 2018 05:19 AM  |   Last Updated: 13th May 2018 05:19 AM   |  A+A-

Image used for representational purpose only. (File photo | Reuters)

Express News Service

Asawari Kolhatkar is a committed educationist, running a middle municipal school in Mumbai’s Powai area with efficiency and determination. Located in the heart of the rehab colony called Sangharsh Nagar, as school principal she provides basic learning for over a 1,000 kids of parents who have moved into buildings after their slums were demolished in Mumbai’s Sanjay Gandhi National Park. A walk through the school reveals a clean and hygienic environment but the facilities are basic. Some classrooms have no desks and children squat on the ground.

One classroom is different, which Mrs Kolhatkar displays with some pride. Around 40 new desktop Acer computer workstations are being set up, and a LED screen lights up with an education programme being relayed from a central network. The digital project at the school is financed by D-Mart, among India’s largest retail shopping chains.  

A small effort can ensure the success of social programmes like the Sangharsh Nagar Middle School; but D-Mart is an exception. Very little is being done to channel corporate earnings for education, sanitation and housing. The latest move by the government to bring in the Life Insurance Corporation (LIC) under the Corporate Social Responsibility (CSR) law is a welcome step to help push this floundering sector.

The LIC experiment

To make corporations part of social change, India took the novel step of enacting Section 135 of the Indian Companies Act which mandated that large, profitable companies with over Rs 500 crore turnover spend 2 per cent of their average net profit on CSR.

On the ground though, progress has been tardy. Government data shows 12,431 companies spent a measly Rs 18,625 crore towards CSR projects over two years — 2014-15 and 2015-16. Concerned at the non-compliance, the government began initiating action against defaulters. Notices were handed out to 1,018 defaulting companies and penal action has been initiated under Section 134 (8) of the Companies Act against 160 serial defaulters.

In this scenario, perhaps the government has thought it better to lead by example. India’s largest insurer, state-owned LIC will now be brought under the CSR law for contributing two per cent of its profits to social programmes. This was not the case so far since the corporation is not governed by the Companies Act, but its own LIC Act of 1956. So far, LIC’s contribution has been dismal with an annual corpus of just about Rs 160 crore for aiding social programmes.

If implemented, the ‘two per cent’ CSR provision will make a difference. The behemoth’s declared surplus FY2017 is Rs 44,000 crore, which translates into a CSR commitment of Rs 8,800 crore. This is almost the equivalent of what the rest of Corporate India spends in annually!

If LIC is brought under the mandatory CSR ambit, other government sectors who have stayed away will have no excuses. For instance, the Oil and natural Gas Commission, very much like the LIC, was set up by a special act of Parliament in 1959. Government-owned bodies taking the lead could trigger a domino effect in the private sector too.

Opening purse strings

Though India is among the first to legislate mandatory CSR work, the provisions in the Companies Act are weak and the enforcement virtually non-existent. For instance, penalties for non-compliance under Section 134 (8) impose a fine ranging from Rs 50,000 to Rs 25 lakh, hardly a deterrent to violating the law. The provisions are also vague and leave much to self-interpretation as to what constitutes ‘CSR spends’. A survey by two researchers from Deakin University, Australia on CSR programmes found companies listing ‘fire safety training’ as CSR work! Beyond legislative reform, naming-and-shaming offenders can work too.

The Labour and Employment ministry is currently considering a code wherein CEOs will be required to do community service as a penalty for violations of labour laws. This can be extended to CSR violations. When pain becomes personal and bosses are required to plant trees and sweep municipal classrooms, heads of corporations may loosen up their CSR purse strings faster.

But we need to move beyond penal action. A corporate ethos needs to be developed that understands the planet needs not only economic growth but sustainable growth that cares for the environment and the people that populate it. The Bill and Melina Gates Foundation raised $13 billion in 2016 for eradicating Aids and providing basic education; in 2017, Microsoft’s operating profit was $22 billion.  A vision that sees the necessity of investing back in society does not need legislative fiat.



Comments(2)

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  • B N Shingade

    The 02 percent of Rs.44000 crore would be Rs. 880 crore. Then why mentioned in the News Rs. 8800 crore?
    2 years ago reply
  • Vivekananda Ghosh

    2% of 44000 core is 880 crore
    2 years ago reply
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