Mumbai: Indian corporations may have to sharpen their focus on social development in order to become eligible bidders for large infrastructure projects such as road, rail, ports and power projects, among others, as the government is considering a plan that will require these firms to allocate a percentage of the project value for social development, said three persons close to the development.

KPMG India Pvt. Ltd acted as an advisor for the plan, said a ministry of rural development official. If approved, the plan will be implemented under the PURA (Provision of Urban Amenities in Rural Areas) scheme of the ministry that envisages holistic and accelerated development of areas around potential growth centres in a gram panchayat or a group of panchayats through a public-private partnership (PPP) model.

The plan suggests that the bidding firm for any project worth 100 crore or more should agree to spend 1% of the procured contract value on basic community development such as health, education and sanitation, among others.

The firms will be required to acquire community development certificates (CDCs) through direct investment in social development. They can also buy it from the market, where the CDCs will be traded.

“It is being discussed... The response has been very positive towards the plan and we may see it getting implemented with some modifications," said a ministry official on condition of anonymity.

The new Companies Bill makes it mandatory for companies to spend at least 2% of their average annual profit on corporate social responsibility (CSR). The amount spent by firms on social development via procurement of government contracts can be considered as CSR spend, the official said.

According to the CSR 10 India Index released by the South Asian Fund Raising Group, a not-for-profit think thank for CSR, said the top 10 Indian firms out of the Fortune 500 companies spend less than half the amount on CSR activities mandated by the new Companies Bill. The overall amount spent by these firms stood at 690 crore against the required 1,470 crore.

Some firms see this as a transparent way of doing CSR. “From shareholders’ point of view, CDCs will ensure transparency and accountability at every step," said Vineet Mittal, co-founder and chief executive of Welspun Energy Ltd.

Currently, the PURA 2 scheme has a panel of independent engineers who monitor, inspect and review the ongoing social development projects undertaken by a firm. The panel is valid for four years, but it can be given an extension of another four years.

Setting up the infrastructure for implementation of the new scheme will take some time for enforcement, said another ministry official. “One cannot enforce the new plan immediately... The current panel will discuss the idea at length and try to incorporate certain pointers if possible," the official said.

In order to prevent CDCs from becoming a mere tradable instrument, fresh issuance of these certificates have been suggested after every three years. Mittal said the support of various state governments will be required to chalk out the problems faced by the villages, and independent auditors will be needed for keeping a tab on development activities being under taken by the private sector firms.

“There is already a lot of data available as several rural schemes are already being implemented, but still a lot more infrastructure needs to be put in place," he said.

Experts say that the scheme, if implemented, will help the government in curtailing its expenditure, but some of them are sceptical about its implementation. Shriram Subramanian, founder and managing director of InGovern Research Services Pvt. Ltd, an independent proxy advisory firm, said the government is skewing things by clubbing economics with social development and that PPP projects should be economically viable on a stand-alone basis as the private party is driven by the profit motive.

“Much of the CSR spend will never reach the intended people or purpose, and this will be another way to siphon off money without accountability. The 1% expense will end up getting padded into the project cost, part of which is funded by banks, while being siphoned off at the local level," Subramanian said, adding that the government should work towards rigorous implementation and accountability of existing schemes rather than throwing good money after new schemes.

Rakesh Bangera, director for urban practice at Crisil Infrastructure Advisory, who has been closely involved with Pura 1, said, “Pura 1 is a fairly successful scheme and already nine projects are in being implemented across the country. While the new idea that has been proposed sounds interesting, the question will remain whether the amount directed for social development will be included in the 2% mandatory CSR spend. If it is outside the 2% mandate, then firms will have discussions on the feasibility of the projects before they bid."

India spends nearly 7% of its gross domestic product on the social sector. However, the country ranks 136 out of 187 countries on the United Nations Development Program’s 2012 Human Development Index.

P.R. Sanjai contributed to this story

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