Corporate Social Responsibility revamp for bridging India’s wealth gap
Corporate Social Responsibility revamp for bridging India’s wealth gap
P Rajagopal Tampi
Introduction
Wealth disparity is one of the biggest threats to
peaceful human existence https://rajtampi.blogspot.com/2022/12/avoiding-revolutionary-trap-of-large.html.
In India, where 50% of the population owns a mere 2.8 % of our national wealth,
in combination with our gigantic population of 1.35 bn, the problem of wealth
disparity should be center-stage. The Gini coefficient of India has increased from 32.1
in 1983 to 35.7 in 20191.Our
wealth disparity assumes even greater importance considering that India will
emerge soon as one of the top three world economies.
India is at the threshold of what could be a Golden
era which could last for centuries if we are led by far-sighted, clear-headed leadership
with broad vision, integrity, desire to win and long-term thinking. We have
progressed from more socialistic mechanisms to more capitalistic ones during
the last 75 years. It has done us a world of good. The growth of our economy
and per capita income are the results. One of the less desirable side effects
of capitalism is its propensity to increase wealth gaps in society. How can we shape
capitalism to reduce this undesirable effect for India?
Current Corporate Sustainability initiatives
For any country or civilization to last as a global leader for a more
than a hundred years, it needs to be “sustainable” and growth oriented. Sustainable
growth includes food, energy, economic and other forms of security of citizens.
It must also avoid the destructive pitfalls of revolutions caused by wealth
divide which destroy nations and their wealth. We are concerned here with
wealth divide in India.
Capitalism is driven by entrepreneurs’ desire to create wealth, which is excellent. Yet, unjustified sky-high valuations of startups and businesses are responsible for creating the bubbles which burst sooner or later and these create the very wealth gaps that we are trying to reduce. Obviously, it is not wise to bridle entrepreneurs of the free market in which capitalism thrives with any “social responsibility”. Their motive should be to maximize profits for their shareholders. That is the way to grow India’s GDP. In an ideal free market “no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate2”.
The current Corporate Social Responsibility (CSR) policies in Indian provide the ownership of “social responsibility” activities to the Board of Directors of companies. Boards are comprised of Directors who could be employees or representatives of shareholders. As such they are agents of the shareholders who are the principals. As agents, Directors have a duty to maximize profitability and shareholder returns. Making them the principals of “social responsibility” projects and expenses for the company results in conflict of interest. Such a policy will not deliver the best results. Such conflicts of interest are explained comprehensively and with sound logic by Milton Friedman in his article. If improperly designed, as Friedman notes “in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions2.
A more effective Corporate Sustainability framework
Wealth gap eradication is squarely the responsibility
of the Government. Resources are required for this purpose and should be
generated through taxes. The most effective and correct way to manage the issue
of wealth gap eradication is to levy a “sustenance tax” on corporates meeting
certain criterion. The Government has necessary data about citizens, is
politically, legislatively and legally authorized to collect taxes and is best
suited to decide expenditures. In the interest of making the best use of scarce
resources of the nation, it is necessary for the Government to step in and
shoulder the responsibilities of creating a sustainable environment for India
which is designed in the best possible manner.
In September 2019, India reduced its corporate taxes
to align with global tax rates and to attract investments. However, we are a
nation with a special constraint, and that is our huge population. We need to
feed, shelter, clothe, create jobs for them and also reduce our societal wealth
divide. For this purpose, there is no alternative than to levy a “sustenance
tax “on qualifying corporates. Whatever be the percentage of taxation, the
proceeds should be used for the twin purposes of reducing the wealth divide and
achieving other sustenance factors like food and energy. In the author’s
opinion, the gravity of the problem of wealth divide is equal to the gravity of
all other sustenance factors combined. Wealth divide tax collections should be
spent on education, healthcare and skilling, the core factors which contribute
to reducing the wealth divide. The tax collection and organization and
mechanisms for imparting education, healthcare and skilling should be managed by
the Government with quality being the emphasis.
Conclusion
The US has benefitted immensely over the last 50 years
from the migration of India's very best talent through the H1B and green card route
to that country for better education, research and work prospects. In fact,
they have made a landmark contribution to the US’ transition to the world’s
superpower and are at the helm of affairs in Fortune 500 companies and the US
Government.
A recent Henley & Partners report projects that India will
lose a net 8,000 HNIs in 2022. The number is the third highest globally after
Russia and China, accounting for about 2 per cent of India’s HNI count3.
As an aspiring global leader, India should provide business and citizen
friendly laws for local residence while encouraging HNIs to travel abroad for
business purposes. At the present time, it is imperative to retain our best
talent through educational, research and job opportunities in India which are comparable
to the best in the world. The brain drain must stop.
In CSR as in any other endeavour, it is the
qualitative and quantitative requirements, design of the solution, attention to
detail, tasking the right people with execution and ensuring quality that
eventually makes certain that it delivers accurately on its intents. Even a
small error in any of these areas can fritter away scarce resources and reduce
efficiency. Resources are costly for a large developing country like India and
hence they should be deployed with the highest diligence and in the best designed
manner with emphasis on quality of delivery.
The time has come for the free market in India to live
alongside State intervention for “sustenance activities” to realize our upcoming golden era
to its fullest potential.
Notes:
1. https://www.statista.com/statistics/1273096/india-gini-index/
The views expressed are the solely that of the author made with the best intentions. There may be other views existing on the topic and the author’s intention is not to create any conflicts. Recommendations if any are inputs for concerned agencies for their consideration. Agencies are in no way being criticized or compelled to do adopt any of the recommendations.
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