New Delhi: Corporate social responsibility (CSR) spending by businesses warrants auditing as their total spend of about Rs15,000 crore a year has the potential to transform the rural economy by complementing government efforts, said P.P. Chaudhary, minister of state for law and justice and corporate affairs.

Speaking at the India Sustainability Conclave organized by industry chamber Federation of Indian Chambers of Commerce and Industry (Ficci), Chaudhary said the government was in the process of improving procedures relating to CSR spending outlined in the Companies Act of 2013.

The law mandates that firms with a net worth of at least Rs500 crore or revenue of Rs1,000 crore or net profit of Rs5 crore should spend at least 2% of net profit on CSR. It also mandates that any failure in this regard should be explained in the annual financial statement. The disclosure requirement was meant to ensure firms do their best in CSR initiatives.

“We are now in the process of improving it. In the coming years, we would also like to see it audited. No doubt that as on today, companies are taking full care and are personally visiting projects to ensure proper spending, but certainly, the government will also like to take steps in this direction," the minister said.

Speaking to Mint on the sidelines of the conclave, the minister said the government is contemplating auditing CSR spending. “It is under deliberation. Why not (audit)? It is an yearly spending of Rs15,000 crore. Auditing of firms should include everything," he said.

The idea is that the funds businesses spend on CSR should complement efforts of the government in boosting the rural economy, which will not only bring development, but also stimulate the country’s $2.5 trillion economy.

Experts, however, say the provision in the law mandating spending of 2% of net profit on CSR initiatives is only recommendatory and not a statutory obligation as there is no penalty provision for failing to meet this requirement. Bringing CSR spending under the purview of audits could give it the nature of a tax, they add.

“The Companies Act provision on CSR spending was kept recommendatory along with disclosure requirement as the perception of the firm among stakeholders and the public will be encouragement enough to ensure that businesses comply with it. It is desirable that it continues that way," said Ved Jain, former president of the Institute of Chartered Accountants of India (ICAI).

Chaudhary said inclusive growth is an avowed objective of the government which calls for “intensive collaboration" between the authorities and the corporate sector. He said this would improve the quality of life in rural and urban areas and offers an opportunity to all firms to meaningfully contribute to policy objectives.

“Once the rural economy is sound, then the entire economy will be on a better footing," the minister said, adding that the government and businesses collectively share the onus of making the society inclusive, compassionate and responsive.

The minister said cleanliness, health and education are among the areas where CSR spending would make a lot of difference. Chaudhary had informed Parliament in a written statement on 9 February that companies spent 13,828 crore on CSR in 2015-16.