Can Indian Railways get its hands on firms’ CSR funds?5 min read . Updated: 06 Apr 2016, 02:15 AM IST
Railways hopes to use funds for infra, but opinion is divided on whether it is permitted under CSR rules
New Delhi: At the annual session of the Confederation of Indian Industry (CII), held in New Delhi on 4 and 5 April, railways minister Suresh Prabhu stressed on the need for partnerships to improve the railway experience.
“We have a comprehensive plan for transforming Indian Railways. Doing this in the shortest possible time will involve multi-stakeholder partnerships for improving various areas of the railways," he said.
One such partnership that the railways has been exploring is with private and public sector firms, through their corporate social responsibility (CSR) corpus.
Earlier, in his budget speech, Prabhu said that the railways will aim to mobilize ₹ 1.2 trillion as capital expenditure for the upgradation of infrastructure during the fiscal year. A part of this capex is expected to come from CSR.
To facilitate this, the Railway Board issued a circular in the run-up to the budget, directing officials on how best to use the money expected to come in from the CSR funds of private companies and public sector undertakings.
Can the railways, as a commercial entity, seek CSR funds of other companies, given that it charges for the services it provides?
Opinion is divided. While some believe that the railways, as a subsidized entity meant for public good, can use CSR funds of other companies for providing services like sanitation and drinking water, others are of the view that it cannot. They say as a commercial entity it ought to generate its own surplus.
Under the CSR rules, which came into force on 1 April 2014, companies with a net worth of ₹ 500 crore or a revenue of ₹ 1,000 crore or a net profit of ₹ 5 crore need to spend 2% of their average profit in the past three years on social development-related activities listed in Schedule VII of the Rules. They can do so through not-for-profit organizations and company-run foundations. Premissible activities include sanitation, education, women’s empowerment and rural development, among others, all of which need to be outside the purview of “business-as-usual" activities of eligible companies.
“The (railway) circular speaks of a ‘sponsoring entity’ while detailing the activities—this cannot include CSR funds because it goes against the spirit of CSR rules," said Parul Soni, global partner at ThinkThrough Consulting, a social sector consultancy firm.
“CSR rules permit contribution to other not-for-profit entities but not sponsorship of other commercial organizations," Soni said, adding that sponsorship implies a commercial transaction, which CSR does not permit.
Others like Sudhir Singh, partner at PwC India, believe that CSR funds can be used for the railways because it is a government-subsidized service provider. He advises companies to exercise caution while selecting the type of activities undertaken as part of CSR for the railways. This, because many of the activities listed in the circular qualify as mandated requirements of the railways—like setting up of sewage/effluent treatment plants—and hence do not qualify as CSR.
“Activities under a company’s CSR (head) should not benefit facilities meant for officials such AC fitting, upgrading offices, etc. Nor can a company say that it done CSR, if the activity undertaken is part of another entity’s (the railways in this case) primary responsibility," he said.
Railways officials say they are justified in seeking funds from companies because it is a public service and CSR rules clearly state that funds must be used for public good.
“The definition is quite broad and can easily accommodate works of railways," said Anil Saxena, spokesperson of the Indian Railways.
He added that the railways is the “most subsidized way of transportation in the country and can’t be called a commercial entity as profit is not the motive".
“Indian Railways is in a big financial mess. Our resources are dwindling and we don’t have the budget or monetary provisions at present to fulfil the aspirations of the Indian public. So, we have come out with circular to allow companies to help us establish basic amenities like (providing drinking) water, toilets, etc," Saxena explained.
This is the third instance of the railway ministry seeking funds from companies. The first rail budget of the current National Democratic Alliance (NDA) government had in 2014 informed Parliament that “...corporate houses will be encouraged to adopt and maintain stations for better cleanliness and upkeep".
The following year, Prabhu said, “Corporate houses and MPs (are) to be requested to invest in improving passenger amenities at railway stations through CSR and MPLAD (Member of Parliament Local Area Development) funds."
This year as well, the railway minister reiterated plans to explore innovative means of providing and maintaining toilets such as advertisement rights, CSR sponsorship, voluntary support from social organizations, in his budget speech.
Emphasising that the ministry is not forcing companies to fork out funds, Saxena said, “If they (firms) want, they can lend a helping hand. The best part of having such amenities at railway stations is that the companies don’t have to undertake maintenance as Indian Railways is the caretaker for these amenities."
Singh of PwC believes that the circular was issued in anticipation of companies pitching in to address issues related to improving railway facilities under CSR. “They are not asking for CSR money. What they are saying is that the corporates can also help in providing better facilities for the public at large. However, this does not mean that the government’s responsibility of providing basic services/amenities can be done away with. Corporates can intervene over and above these mandatory requirements," he added.
Asked about how the railways would execute the exercise given that it talks about CSR as an advertising exercise, Saxena clarified, “The companies won’t give money for anything. They just need to establish the basic amenity and can highlight on it that it has been a work by the firm. It gives them advertisement, especially for regional dominated companies."
Easier said than done as CSR rules expressly bar direct advertising or companies deriving any benefit from activities undertaken under the head.
Soni of ThinkThrough Consulting said that even if the technical challenges and legal requirements are ironed out, CSR funds can barely make a dent in the facilities and scale required to improve the railways.
According to data from Crisil Ltd, which analysed the CSR spend of close to 3,500 companies in 2014-15, a total of ₹ 6,841 crore was spent on all 11 schedule VII activities of the CSR rules. In the same year, the plan outlay of the railways was ₹ 65,445 crore.