Business Mandate
Talks

Development Sector Organisations for Civil Society Organisation & Social Entrepreneurs

MMA Business Mandate
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The presence of a vibrant development sector is a boon to the nation. Organisations work for a social cause, either as non-profit CSOs or as a social business enterprise, to make the world a better place to live in. This seminar focussed on delivering knowledge on the working of CSOs, including the compliances and required capacities at the organizational levels apart from discussing the opportunities available in the development sector.

Mr Swaran Singh, IAS (Retd)

There is a need for civil society organisations to build capacity and capability. NGOs must improve the delivery mechanism and carry out impact assessment, which is very important. When I came to Tamilnadu, we introduced a simple concept called PRA—Participative Rural Appraisal. I was posted in Tirunelveli, in South Tamilnadu. We introduced PRA and published the beneficiaries of IRDP. Immediately, there was an objection, because people had not heard about this exercise earlier.

We must look at the state of our tribal people, say, the people of Nilgiris or Jawadhu Hills. Their number is less. When I went to Nilgris, I could see that there is an uncontrolled, inequality in the state of living of tribal people and their social, political and economic backgrounds. When I asked the District Collector about this, he pointed out that the number of NGOs in the region is more than the population of tribal people.

There are 3 million NGOs in India. With such a large number, we can definitely work towards removing the inequalities. We can empower our women. Each individual is talented. We have committed NGOs and volunteers and what is needed is integration of the activities and integration of the mind.

Mr T S Jawahar IAS, Addl. Chief Secretary to Govt of TN

Government and NGOs don’t do different things. They do things differently. The goals are the same: upliftment of the most disadvantaged sections of the society. A country’s standard of living has to be judged only by the standard of living of the weakest. Why do we have so much of disadvantaged sections in our society? The reason is inherent biases present in our society like caste, community and geographical disadvantages. We have people living in remote, inaccessible areas like hilly terrains or in the midst of forests.

The government has got a bureaucratic, top-down approach. NGOs are grassroots organisations. The feedback from the grassroots goes to the leaders of the NGOs who decide their approach. Thanks to British rule, even today, many government servants look at the people like their subjects and act as if they are their rulers. NGOs follow a participative approach. They work with the people. The government is bound by many rules and regulations. Bureaucratic procedures delay the decision making and implementation process. NGOs are relatively flexible and adaptable to the local needs. What is important is the cooperation between the government and the NGOs/civil society organisations. The government has got more funds and resources. But these resources are tied-up and unevenly allocated due to various reasons. You may find a refinery with no crude oil source nearby. We may have a 900 crore infrastructure project where we need to spend about 300 crores for fetching water, from 300 kms away. These constraints happen because of various compulsions for the government like need for development of the locality, political considerations, etc.

A Case of Close Coordination

I worked in Nagapattinam for two years. I joined 18 months after the Tsunami struck the region. When I joined, the real challenge was the rehabilitation works. There were 300 NGOs active in the area. We had an NGO Coordination Cell in the District Collectorate itself. Working as one team, we were successful in constructing 17,794 houses for the victims of Tsunami. This initiative was entirely sponsored by 58 NGOs. land and infrastructure support like roads, drainage, electricity, drinking water were provided by the government. The type designs were approved by the government to ensure uniformity in the houses. The unit cost was fixed as 2.5 lakhs. The houses were built in earthquake-resistant design, in 93 locations along the 188 kilometre coastline of Nagapattinam district. All the houses were delivered in time and are still going strong.

We could achieve this because we conducted weekly meetings with the NGOs, cleared the bottlenecks and managed the shortage of materials like blue metal, sand, cement, etc. Another 200 NGOs were working in the areas of livelihood, mental health and other issues. This shows that it is possible to have a good Government-NGO partnership.

There are certain things, which the government, as a permanent structure can provide. The government’s human resources including motivated personnel, monetary resources and specialised services can be shared. But there are things which the government cannot provide and where the NGOs must step in and use their volunteer base. There will be difference between the output and involvement of a salaried government servant and a passionate NGO volunteer. The government has got a vast amount of data which will be of great use to the NGOs. Once, these were considered secret. But now thanks to the RTI, all these data are being shared. The experiences learned can be shared through cross-learning.

We all should work for the upliftment of our tribal people. They approach government officials for help, because they have faith in us and the government of Tamilnadu. We need to sustain their faith through collaborative efforts. We should support tribal people through information, logistics, education and health, so that they are not targeted by left-wing extremists. Whenever there is a clash between extremists and police, the tribals are the worst hit. We must ensure that they participate in the mainstream. We must also towards strengthening the farmer produce organisations –the cooperatives and self-help groups, and engage them right from the planning stage.

Nikhil Pant, Founder LAKSHYAA and CEO, REACHA

The Companies Act 1956 was replaced by Companies Act 2013 which has more than 400 sections. Section 135 of the Companies Act stipulated that companies must do social work, outside their business activity. Section 198 gives the formula for finding the CSR budget for the next year. Companies incorporated in India and having any one of the following, in any of the immediately preceding financial year qualify for CSR under the Companies Act:

  1. networth of Rs 500 Crore or more
  2. turnover of 1000 crore or more
  3. net profit of 5 crore or more

The CSR budget to be allocated for every financial year must be at least 2% of the average net profits made during the immediately three preceding financial years. CSR is a Board level function since 1st April 2014. The 10 member Board of each qualifying corporate must form a CSR committee of the Board with three members. The CSR committee must have one independent director and two directors. The composition of the CSR committee must be disclosed in the annual board of directors’ report. The functions of the CSR committee are to formulate CSR policy for the company clearly, stating budget and activities; and to monitor the implementation of this CSR policy.

When you formulate a CSR policy, you must think about the requirements of your community. The actual spending of CSR budget must be reported to the board. There is an important change in the amendment made in 2021. Earlier the money from the corporate can be transferred to the company’s foundation and reported as blocking of allocated budget towards CSR. If the amount spent on CSR was less than the budget, it was enough to report the same and no questions were asked. That is not permitted now.

From Jan 2021, the rules have changed. The spending has now become mandatory. This is good news for NGOs. The company foundation has to spend the money either by itself or by giving it to other NGOs.

Three Types of NGOs

NGOs can be of three types:

  • A 1960 Society;
  • A Trust or
  • A Section 8 company.

The budget can be spent either by doing CSR activities (activity route) or by giving contributions for accepted categories (contribution route). The companies have to report their CSR under a tool called MCA21, similar to filing of IT or GST returns. The different categories of activity route and contribution route are given below.

Activity route can be undertaken by:

  • Company vehicle / NGO foundations (can be new)
  • External vehicle / NGO (minimum 3 years old)
  • Central or State Government vehicle (can be new)
  • Parliament / State legislature established entity (can be new)

The following are examples of Contribution Route:

  • PM Cares / PM National Relief Fund / any Central Government fund for SC / ST / BC / Swachh Bharat Kosh / Clean Ganga fund
  • Qualifying incubators and Research and Development projects in STEM; qualifying institutions in STEM research for achieving SDGs.

Schedule VII of Section 135 lists out the various activities that may be included by companies in their CSR Policy activities.

Two high level committees were set up in 2015 and 2018 comprising NGOs, Corporates, senior people from the civil society and the government. The second high level committee of 2018 came out with a very detailed report, based on the CSR implementation experience from 2014 onwards. It made recommendations to the MCA (Ministry of Corporate Affairs) to amend the CSR rules. The government prepared draft amendment rules in 2019-20 and they were uploaded. On 22nd January 2021, the final amendments were notified in the gazette. What are the changes in the amended CSR, which I call CSR 2.0, from CSR 1.0?

Five game changing mega trends in CSR compliance are:

  1. CSR spending is now mandatory.
  2. Spending timeframes are now finite time periods.
  3. NGOs are partners in implementation & compliance.
  4. Government / Ministry of Corporate Affairs (MCA) is closely monitoring CSR spending & compliance, through detailed reporting format introduced in January 2021.
  5. Government is actively utilizing CSR for nation-building and disaster management.

It is a company’s choice to spend the CSR budget and there is no compulsion from the government on what activity it should do or to which fund it must contribute to. The penalties for non-compliance of CSR rules are now very stringent. The maximum penalty is Rs 1 crore. Corporates should prepare their CSR plans well ahead of the financial year, so that the budgeted amount can be spent in the relevant financial year, without the need to attract any penalty for non-spending of the budgeted amount. It is therefore very important that corporates and NGOs work together and synchronise their activities. Companies must also take into account the interests of their shareholders in preparing their CSR Annual Action Plan.

Macro Trends for Corporates

  1. CSR High Level Committee (HLC) Recommendations are getting implemented.
  2. ‘Comply or Explain’ is now replaced by ‘Comply & Spend.’ Thus, CSR spending in now mandatory.
  3. Higher Board Level Accountability is introduced calling for Transparency, Monitoring, Approvals and Reporting.
  4. Spending is not just allocation of funds anymore. Now Spending = Allocation + transfer + utilization with CA Certificate.
  5. Ongoing Projects are defined to give elbow room to spend over a 1+3 year period.
  6. Annual Action Plan (AAP) is made mandatory – to sync Grant Cycle to FY Cycle.
  7. Clarity is presented now on some unclear areas like Admin Overheads, Surplus, Set-off, etc.
  8. Role of CFO now becomes particularly important. Key collaboration must now be between CFO, CSR Head, CA and CS.
  9. Treatment / Reporting of Capital Assets is defined.
  10. Business / for-profit activities must be clearly kept away from CSR activities. However, corporates are permitted to connect their core business area in their CSR activities. When they do such CSR, their core business also gets validated. This may lead to more business and more turnover. With more turnover, 2% of it as CSR budget will also go up.
  11. Non-compliance leads to civil offence with monetary penalty on all concerned.

Macro Trends for Implementing Agencies (NGOs)

  1. Implementing Partners / NGOs are now partners in compliance too. The key role for NGO Leaders is to be pro-active.
  2. They must spend/utilize in timely manner within FY/1+ 3 years for Ongoing Projects
  3. Registration u/s 12A, 80G of IT Act 1961 has been made mandatory
  4. Form 10BD has to be filed by 31st May 2022 for FY21-22 u/s 80G. Form 10BE must be obtained by the donor from NGO/done to avail tax exemption.
  5. Registration on CSR-1 Form will help bring donor and donee within the same umbrella of Ministry of Corporate Affairs. This may lead to NGOs reporting on CSR Utilizations against their allocated CSR Registration No. This could then be tallied against CSR spends as reported by Companies through MCA21.

What is disallowed under CSR?

  1. Normal course of business-related activities, except Covid related R&D for FY21 to FY23 with defined organisations and which has to be reported separately.
  2. Outside India activities are not allowed, except sports training.
  3. Contribution to Political Parties is not permitted.
  4. Employees covered under clause (k), section 2, Code on Wages, 2019 (29 of 2019) cannot benefit.
  5. Sponsorship for marketing benefits on products & services is disallowed.
  6. Any activity to fulfil statutory obligation under any law in force cannot be CSR.

Ongoing Project

‘Ongoing project’
means a multi-year project undertaken by a company in Fulfilment of its CSR Obligation and having timelines not exceeding 3 years, excluding the FY in which it was commenced. This is to be read with Section 135(6). The Board must:

  1. Classify a project as ongoing based on reasonable justification.
  2. Monitor timelines and spends year on year.
  3. Modify suitably for smooth implementation, within the timelines.

CSR Spending Distribution Chart

The chart on Spending explains how the CSR fund has to be spent according to Companies (CSR) Amendment Rules 2021. The chart shows the budget heads; and activities that are permissible in those budget heads. It can be seen from the chart that for a CSR project, the admin overheads should not exceed 5%. Impact assessment, for qualifying companies, can be up to 5% subject to a maximum of Rs 50 lakhs in a year.

The remaining 90% (directly incurred expenditure) is to be spent for designing of projects, implementation and monitoring. A company may choose to hand over the implementation and /or monitoring and evaluation to a NGO. Impact assessment is usually done by a third party. Ideally, the maximum money is spent in the implementation phase.

Dr R Sujatha, SDG Consultant, Department of Planning and Development, Govt of Tamilnadu:
  • As India plays a key role with the second largest population in the world, if India performs in SDGs, the world transforms. Similarly, if Tamilnadu performs, the whole of India gets benefitted.
  • The five Ps of sustainable development are people, planet, partnership, peace and prosperity.
  • There are 17 SDGs. They are: No poverty; Zero hunger; Good health and wellbeing; Quality education; Gender equality; Clean water and sanitation; Affordable and Clean Energy; Decent work and economic growth; Industry Innovation and infrastructure; Reduced inequalities; Sustainable cities and communities; Responsible consumption and production; Climate action; Life below water; Life on land; Peace, justice and strong institutions and Partnerships for the goals.
  • The Tamilnadu government is following a pragmatic approach to meeting the SDGs. For example, with the initiative of ‘Inniyur Kappom’ (Let’s save precious lives), we are addressing SDG targets 3.3, 3.4 and 3.6. ‘Back to yellow cloth bags’ is another initiative (Target 11.6) for sustainable environment.
  • The SDGs work through the joint efforts of Niti Aayog, the State Government, Civil Society and the NGOs. For SDGs to be realised, work needs to happen at the panchayat level and not just at the state or national level.
  • Children and young women and men are critical agents of change.
  • We need a grand alliance of people, governments, civil society and the private sector, all working together to secure the future we want for our present and future generations.
  • Some of our unique approach to SDGs includes:
    • Let us leave no one behind and no village behind.
    • Whole of government approach.
    • All of society approach
    • Out of the box solutions
    • Going glocal
    • Beyond the business-as-usual (BAU) approach.