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Law: Corporate Necessity

In: Business and Management

Submitted By akash1234
Words 324
Pages 2
The proposed law can be attacked on the basis of pragmatism as ineffective. It does not even discuss, let alone define, an enforcement mechanism or penalties for non-compliance. The proposal would be an enforcement nightmare, exacerbating an already bad situation where many laws are poorly enforced in India and further undermining respect for law. Curiously, the proposal even includes a loophole. If the 2 percent allocation is not made in a given fiscal year, the CSR committee has to submit an explanation to avoid being penalized. There is no discussion of what explanations would be legally valid, opening up much room for corruption and extortion.

While India has experienced rapid economic growth, the benefits of this growth have not been distributed equitably. Inequality, which was already high, has increased even more. India's Gini coefficient, the official measure of income inequality, has gone up from 0.32 to 0.38 in the last two decades. For example, about 50 percent of children in India are malnourished due to pervasive poverty. Trickle-down economics are not working. The proposed law does not go far enough in reducing inequality and helping the disadvantaged. Without a coercive enforcement mechanism, it is unlikely that the law will result in widespread compliance. In other words, “mandatory” CSR will remain largely voluntary.
Many activities that companies undertake are both profitable and good for society. Companies would undertake these activities regardless of the law, since they are profitable activities. Under the new law, they will be able to classify these activities as CSR with no real change in social welfare. Would a corporate training program qualify as “promotion of education”? Would making a profitable investment in an energy-efficient machine qualify as “ensuring environmental sustainability,” even if the firm made that investment on purely financial grounds? This is what is often derisively referred to as “greenwashing.” The proposed law would likely increase greenwashing with no real increase in green activities.

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