Archive for January, 2016

15 Jan

Companies and CSR – the Indian experiment

Posted by vramani in government, public affairs, public policy. Tagged: .

Corporate Social Responsibility (CSR) has been a favourite topic of discourse in the public domain over the past decade or so. With instances coming to light in recent years where actions of companies have impinged on the environment and the lives of local communities and with a far more discerning and voluble public, companies, and more so, governments, are aiming for responsible policies that, while promoting commercial interests, also take into account the sensitivities of the populations that will be affected, directly or indirectly, by these policies. The Government of India spelt out these obligations as far back as 2011 when it issued National Voluntary Guidelines (NVGs) listing out the social, environmental and economic responsibilities of businesses in India. The NVGs were, however, advisory rather than mandatory. It was only with the new Companies Act, 2013 (“Companies Act”) that Corporate Social Responsibility (CSR) spending was formally made a statutory obligation for companies incorporated under the Companies Act.  The objective was that companies deriving commercial benefit from their business operations should, as good corporate citizens, give back something to communities.

Section 135 of the Companies Act has laid down the procedure for companies to develop a CSR policy. However, the only specific issue mentioned in this section (that has a financial implication for the company) is the obligation for companies exceeding a threshold limit of net worth, turnover or net profit to spend, in a financial year, at least two percent of the average net profits of the preceding three financial years on any of the activities listed in Schedule VII of the Companies Act. These range from eradication of extreme hunger and poverty to promotion of education and gender equality, reducing child mortality, ensuring environmental sustainability and social business projects. As mentioned in the Report of the High Level Committee (“HLC Report”) appointed by the Government of India to suggest measures to improve monitoring of implementation of CSR policies, it is for the first time in the world that a provision for CSR spending has been made part of a statute. The HLC Report “…is convinced that the main thrust and spirit of the law is not to monitor but to generate conducive environment for enabling the corporates to conduct themselves in a socially responsible manner, while contributing towards human development goals of the country.” The first few years would necessarily be a learning experience for all stakeholders, including the government. It may, therefore, be instructive to focus on some of the key areas of implementation to see how this unusual piece of legislation could work out in the coming years.

It is quite clear that the intention of the CSR legislation was not to supplement public resources for social and human development; government could as well have taxed the companies to raise additional resources for this purpose, as has recently been done with the 0.5% enhancement in service tax rates to meet the costs of the Swachh Bharat campaign. Too often, non-governmental organisations (NGOs), particularly the larger ones based overseas, tend to wrongly visualise their roles as substituting the efforts of government. They tend to invest significantly in manpower and other resources in projects they take up on a pilot basis in certain parts of the country. The major drawback in such efforts is the failure to integrate the project with the local, especially public, resources already on the ground in a specific social sector. The result is that excellent outcomes reported in a very localised area almost never attain either scalability or sustainability. They are not scalable because of a lack of buy-in from the public service delivery machinery and the failure to enthuse/convince governments to adopt similar approaches in other areas. With NGO resources being finite, the initiative cannot be sustained even in the initial success area, leave alone extend it to other areas. There are lessons in such previous initiatives which need to be drawn by corporates if they are not to squander their CSR resources on small local projects that do not survive the withdrawal of the initial sponsor. It may make more sense for companies, especially larger ones, to link up their CSR spending with activities that complement ongoing programmes of the government. This view finds support from the HLC Report recommendation that companies with annual CSR spends of over Rs. 5 crores should undertake programme based sustainable CSR activities, with some measurable outcomes, while companies below this limit can go in for project-based activities. In fact, companies should, where resources permit, link their CSR activities to ongoing development programmes of the government. This would benefit such government programmes in two ways: (a) pilot initiatives could be started in selected areas, with the lessons learnt from such pilots being used to improve public programme implementation; and (b) governments could benefit from the innovative ideas and new concepts that corporate involvement brings to social ventures. This has been the rationale for at least one such multi-stakeholder partnership in the state of Maharashtra a few years back, the Bhavishya Alliance. This Alliance, comprising leading corporates, the Government of Maharashtra and NGOs/community based organisations, focused on reducing under-6 child malnutrition in Maharashtra state between 2006 and 2011.

Although it is rather early to start analysing the implications of specific provisions relating to CSR spending in the Companies Act and Companies (CSR Policy) Rules, 2014 (“CSR Rules”), certain issues may perplex companies and bedevil smooth implementation of CSR activities, unless greater clarity is forthcoming in the coming days and months on interpretation of some of the provisions:

  • Section 135 requires companies to give preference in CSR spending to the local areas where their operations are based. While this does not necessarily circumscribe company discretion to extend CSR activities to geographical areas not necessarily contiguous to their operational areas, it can give rise to interpretation conflicts. The HLC Report talks of companies with over Rs. 5 crores annual CSR expenditure being allowed to go in for programme-based activities. A number of such activities may not always be feasible in the immediate vicinity of company operational areas. Also, companies (especially family-owned ones) may wish to spend their CSR funds in the areas from where the founder came (Gujarat, Rajasthan, etc.) though there are no company operations in these areas. Most importantly, this may limit CSR spending in areas sorely in need of such human capital investments (in education, health, nutrition, etc.), such as remote tribal areas. In fact, there is need for governments to specifically encourage CSR investments in the most backward regions of the country, which often receive far less than their due share of budgetary resources.
  • There is a specific provision in the CSR Rules that CSR activities should not include those pursued in the normal course of business. Schedule VII of the Companies Act, which lists the eligible CSR activities, has been expanded three times already since the Act was notified in February 2014. It is well-nigh impossible to fully anticipate the nature of activities that qualify for CSR spending. Development priorities and needs can vary across time and geographies; hence, the HLC Report recommends an omnibus clause which covers all activities that serve a public purpose and enhance public welfare. Alternatively, the Companies Act should be amended to provide for specification of such activities in the CSR Rules, so that the Department of Corporate Affairs can amend the Rules as and when necessary.
  • In its present form, the Companies Act does not prescribe any penalty for non-compliance with the provisions of Section 135. It provides for what in regulatory parlance is termed “comply or explain”. The annual report of the Board of Directors of a company simply has to explain why the required amount could not be spent. Of course, in this age of social media, a multi-billion rupee company that trotted out silly reasons for its inability to spend on CSR activities would face public scorn, not to mention the adverse impact on its social image and the loss of goodwill. And yet, there could be valid reasons, like major business downturns, for a company’s failure to meet its CSR expenditure obligations. Rightly, then, the Companies Act has refrained from penalising non-compliance in spite of the mandatory nature of Section 135. However, Sections 450 and 451 of the Companies Act prescribe punishments ranging from fines to imprisonment for contraventions of provisions of the Companies Act for which no penalty or punishment is provided elsewhere in the Companies Act. In the absence of a specific clarification that these punitive sections do not apply to actions under Section 135, it is not impossible to visualise some overzealous bureaucrat bringing the might of the state to bear on infractions by companies under this section.

In the final analysis, the CSR legislation, despite its mandatory tone, is more self-regulatory rather than punitive, requiring a mature approach from both companies and governments. Both parties need to see how they can collaborate in using company resources to achieve the greatest public good. Companies need to shed their earlier approach of deeming that they have met their social obligations if they contribute to a schoolroom or a balwadi. Rather, the emphasis should be on CSR investments that contribute to ongoing improvements in the social and economic status of communities for which the CSR expenditure is intended. Companies should also interact on a regular basis with government departments and agencies to jointly examine how they can contribute to building managerial capabilities of the public service delivery machinery and introducing innovations in ongoing government programmes to ensure better outcomes. On their part, governments (especially state and local governments) should proactively assess and list programmes and activities where government efforts will be positively boosted by private support. The objective should be to develop a menu of activities which can be posed to various private sector partners for participation along with the government in improving standards of life. The Upanishadic exhortation “Vasudhaiva Kutumbakam” (the whole world is one family) has special relevance in the context of these efforts to improve the lot of one’s brothers and sisters.

 

 

1 Jan

Reshaping India’s bureaucracy – a blueprint for action

Posted by vramani in government, public policy. Tagged: , .

“The Moving Finger writes; and, having writ,

Moves on: nor all thy Piety nor Wit

Shall lure it back to cancel half a Line,

Nor all thy Tears wash out a Word of it.”

(Omar Khayyam)

 

The eagerly awaited report of the Seventh Central Pay Commission (7CPC) has been received by the Government of India, which will, in all likelihood, give effect to its recommendations early in 2016. Omar Khayyam’s prescient words apply with particular force to an issue as sensitive as the pay packets of India’s mammoth bureaucracy: once the genie has been let out from the bottle, there is no containing its impact. The abiding regret of this writer will be that his fervent hopes that the 7CPC would address the issue of flab and sloth in government have been dashed by the report, apart from the usual pious homilies delivered by it. It is now left entirely to the government of the day to tackle this vexing issue which has important consequences for the future of effective policy-making and responsive service delivery in India. What is truly unfortunate that the IAS and the various central services have spent most of their time and energies squabbling over the spoils of office (pay parity, promotion avenues, etc.) rather than agonizing and introspecting over the growing trust deficit between them and the aam aurat on account of their collective failure in meeting her aspirations. Not a word was uttered by the doyens of the civil services about the need to make the civil services more efficient and accountable; instead, the unedifying spectacle of tawdry trade unionism only served to confirm the worst fears of the public about their “public servants”. Which goes to substantiate the point made in earlier instalments of this column that only major surgery will improve the condition of homo indicus administraticus, that exotic species of public servant that abounds in Indian climes.

The Tenth Report of the Second Administrative Reforms Commission (SARC) constituted by the previous UPA government has outlined the reforms in the bureaucracy in countries with widely differing socio-economic milieus ranging from Australia, the United Kingdom and New Zealand to Japan and Singapore. Each of the countries discussed in the SARC Report has followed its own path of reform, with the first three pursuing radical, systemic transformation in civil service structures while the latter two have been more incremental in their approach. The SARC Report has played it safe, sticking to the conventional, incremental approach of piecemeal reform, which has largely been ignored by the Government of India although seven years have elapsed since the publication of the report. To stimulate debate on this critical issue, I am going to stick my neck out and propose a course of action that will probably infuriate my erstwhile colleagues in government. I am, however, convinced that the time has come for bold action on this front; further delay will mean indefinite postponement of “India’s tryst with destiny”.

1) Reconstitution of the public services

At the stroke of the midnight hour on 31 December 2017, all Group A to Group C services of the Government of India should be merged into a single unified service, to be called the Indian Public Service (IPS) (I suggest a specific date so that there is a commitment to this reform process). All existing personnel in these services will move to a five year contract system with the government. Recruitments to all services (including Group D services) will be stopped from mid-2017 onwards; this means that 2016 will be the last year when competitive examinations for any level of the existing civil services are conducted by the Union Public Service Commission (UPSC) or any other body.

2) Public Service Commissions

The UPSC will be replaced by the Indian Public Service Commission (IPSC) at the central level. The Chairperson and Members of the IPSC will be appointed by the President of India on the recommendations of a committee comprising the Vice President of India, the Prime Minister of India, the Speaker of the Lok Sabha and the Leader of the principal Opposition Party in the Lok Sabha. The IPSC will have independent powers relating to the recruitment process of IPS personnel, as well as all matters relating to the development of professional public services, maintenance of the highest standards of ethics and integrity, monitoring, reviewing and reporting on the performance of the IPS across departments and agencies and conducting disciplinary enquiries in respect of IPS personnel.

At the state level, State Public Service Commissions (SPSCs) will be set up, which will work under the overall control and supervision of the IPSC. The Chairperson and Members of the SPSCs will be appointed by the Governor of the State on the recommendations of a Committee comprising the Chief Minister of the State, the Speaker of the Legislative Assembly and the leader of the principal Opposition Party in the Legislative Assembly. The SPSCs will have the same independent powers in respect of the personnel in the State Public Services (SPSs) as listed above in the case of the IPSC.

3) Structure of the IPS and recruitment process

The IPS, a Government of India service, will comprise three levels — the Senior Management Services (SMS), the Middle Management Services (MMS) and the Junior Management Services (JMS). The IPS will man three types of service structures:

  • Departments, which will serve to formulate policy and get budgets approved by Parliament;
  • Agencies, which will exercise project execution, advisory and research functions;
  • Statutory bodies/agencies, created under different statutes.

Each of the Departments and Agencies will work under the supervision of a Minister of the relevant government.

Recruitment to the IPS will be through a competitive examination, organised by the IPSC, open to all graduates who are over 21 years of age. The pattern of examination would broadly follow the current scheme for the Civil Services examination, with multiple-choice questions designed to test the general knowledge and analytical abilities of candidates. There would be two levels of examinations: candidates for JMS posts would need to obtain a specified minimum qualifying mark in the Level 1 examination to be eligible to apply for posts. Level 1 examinations (to be held every year) would comprise one paper each in general knowledge and analytical ability. Additionally, there would be two multiple-choice papers (both of a qualifying nature) to test the language skills of candidates in English and Hindi. Based on the number of expected vacancies at JMS level in a three-year period, a list of twice that number of successful candidates (based on their latest performance in the Level 1 examination held in the three years prior to that period) would be drawn up every three years. Departments/agencies would advertise their vacancies as and when they arise; any person in the list will be eligible to apply. A selection committee comprising the department/agency head (or her representative) and a representative of the Indian Public Service Commission (IPSC) would interview a select list of candidates and pick the most suitable person(s). The selected person would be offered a five-year contract and would be eligible to reapply for the post at the end of that period, when she would get an opportunity to compete for the post with other eligible candidates. Her chances of reselection would obviously depend on the assessment of her contribution to the department during her five-year tenure.

Level 2 examinations would be held every year to determine the pool of candidates eligible for appointment to the SMS and the MMS. Candidates (graduates over 21 years of age) would be assessed on their performance in multiple-choice general knowledge and analytical ability examinations; they would also be graded on their performance in an essay-type examination that tests their understanding of the Constitution of India and of contemporary national and international trends in the economic, political and social spheres. While these three papers would determine their performance in the Level 2 examination, candidates would also be required to meet qualifying standards in the two multiple-choice papers in English and Hindi. Candidates scoring above a mark set  by the IPSC in their latest attempt in the Level 2 examination held in the previous five years would be eligible to offer themselves for appointment for SMS and MMS posts, which would be offered for a fixed five-year term. At the end of the five-year period, the post would be freshly advertised for which all eligible candidates, including the current incumbent of the post, would be eligible to apply.

For all the three levels, there would be no upper age limit for selection, though, obviously, the competence of the applicant and her health condition would be major factors in determining her selection.

4) Structure of the State Public Services (SPSs) and recruitment process

The SPSCs will be responsible for the recruitment of personnel in the state government and urban and rural local governments. As in the case of the IPS, the same three service levels — SMS, MMS and JMS — will work in the same administrative structures of departments, agencies and statutory bodies at both the state and local government levels. The SPSCs can use the same Level 1 and Level 2 examinations (for appointments to state governments and local bodies) as conducted by the IPSC (with Hindi being substituted, where appropriate, by the local language) or they can conduct their own examinations on the IPSC pattern, under the supervision of the IPSC (given the rather dismal recruitment record of most State Public Service Commissions today). Appointments will be for fixed five-year terms with the provision for the incumbent to apply for the position afresh, along with other applicants, when the post is freshly advertised. As in the case of the IPS, there would be no upper age limit for appointment.

This new system of bureaucracy is intended to be more managerial and result-oriented in its approach. It would be worthwhile to highlight the important departures from the current systems of management of the bureaucracy at different levels of the central, state and local governments:

1) No movement between different levels of government

The All-India Services would cease to exist in the new formulation and there would be no movement of officials between Central and State governments or between State and local governments. The fears of lack of cohesiveness in its newly constituted states, which haunted the newly independent Indian Republic, do not apply more than six decades later. More and more, state politicians resent the “imposition” of officers from outside the state and feel (sometimes justifiably) that these officers do not understand the local ethos. In any case, a person from one state who seeks public employment in another state can do so provided she meets the local language qualifying standards in the examination.

2) Government positions open to all

One major advantage would be the availability of talent and skills from all strata of society to fill posts in government. All positions at all levels would be open to any citizen of India (though even this requirement could be reviewed in due course). The induction of people from diverse backgrounds, including the private sector and academia, to policy-making and executive posts, would enable the introduction of fresh ideas and innovations into governance, apart from ensuring domain expertise. There would also be provision for movement from the public services to elected political posts: the only requirement would be that the incumbent of the public service post would have to resign in order to contest elections. In case she is unsuccessful in the elections, there is no bar on her applying for any position in government that may be available. This would put an end to the continuous (often meaningless) debates on the primacy of members of one service and the lack of opportunities to others who were not fortunate enough to win the “lottery” in the examinations to the civil services. The only criterion for selection to a fixed-term post would be the competence, skills and knowledge of the candidate and the value she is expected to add to her assignment.

3) Administrative and financial autonomy

All JMS personnel at the central, state and local levels will be selected by a Committee comprising the Head of the department/agency (or another officer designated by her) and a representative of the IPSC/SPSC. The logic behind this approach is that the performance of the department/agency head will depend on the calibre of the personnel selected by her Committee; hence she will exercise due diligence in selection. Similarly, SMS and MMS level personnel would be selected by a Committee comprising the Minister (or equivalent at the local body level) and Head of the department/agency and a representative of the IPSC/SPSC. This would squarely place on the Minister responsibility for the efficient functioning of the department/agency and also end once and for all the complaint often heard from Ministers that their bureaucrats do not listen to them. Substantial financial powers will also be delegated to heads of departments/agencies, with well laid-down procedures for purchases and contracts, to speed up decision making processes. There would be little scope then for the bureaucracy to blame inefficient staff and cumbersome financial rules for their lack of efficiency.

4) Compensation structures

Departments and agencies will have the authority and jurisdiction to fix the levels and nature of remuneration for the personnel working in them. This will have to designed to attract the best talent to public service and will, of course, have to be mindful of government’s revenue-raising capabilities. At the same time, this would also promote innovations in government practices to augment revenues and control expenditures.

5) Building competencies — digital governments

Since there will be a regular churning of personnel at all levels, developing the skills and capabilities of persons who will be manning positions in government at some stage is crucial to effective governance. This can be done through the following measures:

  • Offer employment in government only to those possessing requisite computer skills, including the ability to prepare documents and presentations and to handle data processing tasks;
  • develop extensive electronic databases so that employees have access to online information to assist in the efficient performance of their tasks;
  • encourage in-service employees to go in for training courses (both online and offline) to upgrade their skills and capabilities for their current and future assignments;
  • set up a continuing education fund, contributed to by government, financial institutions and the corporate sector, to enable individuals to avail of soft loans for pursuing higher studies in reputed institutions in India.

6) Reducing government departments and devolving responsibilities

The use of the phrase “no gain without pain” since time immemorial has its echoes in any efforts at administrative restructuring. With the clear delineation of department and agency functions, there will be need for far fewer departments. This implies a drastic reduction in the administrative personnel required in staff positions and a move to more of line personnel whose jobs will depend on the specific projects they execute or the functions that they perform. Redundancies could well arise because of closure of certain functions/projects and on account of even technological obsolescence. To give just a couple of examples — stenographers would become history, peons would vanish as a class and drivers would hardly be visible, except maybe for the political and administrative executive at the very top. Officials would have to type their own notes and fetch their tea/coffee from vending machines (with, hopefully, visible improvements in their health profiles!). The pain would percolate to the political class as well: fewer Ministerial posts and fewer sinecures in obscure government corporations.

Along with leaner (though not necessarily meaner) departments and agencies, a full rethink would also be required to determine what should be the role of the department as compared to the agency. Departments will confine themselves to broad policy issues and leave the formulation and execution of projects to agencies. This would reduce the need for both many departments as well as for excessive staffing of departments. It would also ensure that agencies take full responsibility for the timely execution of projects and do not pass the buck for tardy implementation to departmental delays.

The most important reform needed is to clearly demarcate the areas of responsibilities as between the three tiers of government — central, state and local. The rule of thumb should be that no function should be controlled by two levels of government, either in terms of budgeting or execution. Subjects should squarely come within the jurisdiction of one of the tiers of government — the next higher tier should be involved only in an advisory role or where coordination issues rise between the lower tier governments. This will require a relook at the existing subject distributions in the Seventh, Eleventh and Twelfth Schedules of the Constitution of India.

Conclusion

This has turned out to be a far longer blog than earlier ones and I must crave the indulgence of my readers. But it was not possible, in the interests of continuity and cogency, to split this article. Also, the subject matter required going into in some depth to propose possible solutions that can be debated and acted upon. Given the limitations of length, it has not been possible to touch on a number of other details like the roles and functions of the IPSC and SPSCs, the mechanisms for checking corruption and misuse of power at the political and administrative levels and the devolution of powers to lower levels of government. These and other issues can be debated in depth once there is a modicum of consensus on the broad parameters for administrative reform. I sincerely hope that this article stirs up introspection and debate on future directions for bureaucracy in India. The people of India are not interested in the musical chairs game that different sections of the bureaucracy seek to play nor in the promotion of the virtues of one service as against another. It is high time the elite bureaucracy of India (whether from the IAS, IA&AS, IRTS or IRS) is exposed to competition from all others, whether the latter did or did not participate in the same race initially. Let the serving  bureaucrat of today show that she has the skills and competence to outperform the smartest in the land. I can assure her that she will find far more personal fulfilment and acceptance from the public than is the case today.