New Delhi: Companies will do well to brace for an audit of how they spend a part of their profits on corporate social responsibility (CSR) projects and the result it yields.

The government has set up an 11-member panel led by Injeti Srinivas, secretary in the corporate affairs ministry, to prepare a new policy framework on CSR. The committee will review the existing CSR regime, the results achieved so far and recommend how to make it more effective.

The government believes CSR spending by companies can play a big role to in development of rural areas. The committee will suggest measures for effective monitoring and evaluation of CSR by companies, said an official statement from the corporate affairs ministry. “Suggestions are also expected on innovative solutions, use of technology, platform to connect stakeholders, and social audit," it said.

Companies spend about 15,000 crore a year on CSR and this has the potential of transforming the rural economy by complementing government efforts, minister of state for law and justice and corporate affairs P.P. Chaudhary had told Mint in an interview published on 7 March 2018, in which he mooted the idea of auditing CSR spending by businesses.

The Companies Act mandates that firms with a net worth of at least 500 crore or revenue of 1,000 crore or net profit of 5 crore should spend at least 2% of their 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 and hence no penalty for default of this requirement is prescribed in the law.

The experience since Companies Act 2013 came into force in April 2014 has yielded government data on compliance of CSR provisions, funds allocated and spent across different sectors, and the geographical spread of such spending. Companies have since spent 38,000 crore up to 2016-17, according to the ministry. The statement said a lot of suggestions have already been received on how such spending by businesses can be leveraged for “more impactful outcomes."

The panel, which has members from the Securities and Exchange Board of India (SEBI) and the private sector, will present its report in three months after holding its first meeting.

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