IOD SPECIAL TALKS - CSR in the Public Sector

In the last few functions of IOD, I had a brief interaction with quite a few of you in Bangalore and Delhi. Today, one of the themes is, of course, what we also discussed in Bangalore on ESG, primarily focusing on corporate social responsibility. When I speak on this, I speak with a perspective on the role and the evolution, especially from the point of view of the public sector.

Both internationally and within India, the state board enterprises have fulfilled a long commitment; in fact, any government company, as you all know, has a very high mandate in terms of the requirements for welfare. Having done so, businesses have to survive, and state-owned enterprises also have to be completely dependent on their own resource generation rather than being a part of the equity of the government. So that's why it's very important that, while fulfilling the functions of the responsibility of being a welfare state, we see that they fulfill the obligations that they have to give back.

I don't think that people are fulfilling this commitment only due to the fact that there is compliance and they have to write in the directors' report - what they have done, how much they have spent, where the gaps are, and how the funds not used will be used. I think that is a very clinical way of examining the role of corporate social responsibility. Industry is not present everywhere, but the requirements of giving back to society are pan India, and here the role of the state enterprises is extremely important because what we have done is—let me give a brief snapshot of the public sector—it's as I mentioned about employing 50 odd running companies, contributing about 400 billion USD, with a net worth around 200 billion USD, employing about 15 crore people, and giving the government a dividend of nearly 15 billion USD.

What they have been doing in corporate social responsibility has showcased the best practices that they have adopted, not only by what is prescribed in Schedule 7, but also much more beyond and not only when the act came into place, but a significant portion—they have built townships, they have built areas, and they have been the pillars of the growth in terms of those areas that were not in the frame of the industry.

The heart and soul of the public sector has a CSR philosophy of giving back to society.

Today, when we go into the districts, there are about 100 odd districts where there is no industry. So how does the industry, other than the welfare schemes of the government, benefit society in terms of what it has to offer? That is why the government has decided on 2-3 important parameters. Of course, amongst the various works, every year there is a theme on which the contribution of the public sector will flow, because that thematic aspect of the projects gets the traction of aggregation, and for some time the goals were education; now the themes are nutrition and health. 109 districts, which would have not otherwise been covered because of the lack of industry, have been allotted to all 250 PSUs. When Niti Aayog conducted an evaluation of the various works and also otherwise, we found that the benchmarks have been truly exceptional because some of them have been institutionalized. They're not, as a person who is there is working, but even if the same process is repeated over the years, it is beneficial for the longer time horizon. This is one area where I think the government is concerned, not only for the public sector but for all the companies—that we create an environment whereby projects can get funding on a sustained basis rather than being seen in terms of providing an individual benefit. They're all good. I mean, I can spend the money even for mobile clinics, and I can give beneficiary-oriented schemes, but how do I create projects? How do I create projects that are to be funded over a time cycle of 3 to 4 years? Can the funding be assured? How does that take place? So that is one area that is evolving because now the project size and the ticket size of the project are getting bigger, and that is where the impact is largely. So that is one of the areas that I would like to flag.

Second, the linkage with CSR was, until sometime back, nondocumented. Now, it is very well documented. ESG still has not come enough, in terms of the requirement of any compliance, but more in terms of the metrics of evaluation, and globally, the companies are working towards that area. Even in India, there are agencies that do the metrics that SEBI and others are prescribing—how it has to be done, in what format it has to be done, and how we can work out and how to blend—because one of the subsets of ESG is, of course, CSR. So how should compliance, which is statutory in nature, and voluntary compliance blend? That is a very important area, and I think that over the years it will get institutionalized.

So, how much should we spend on CSR? Is the prescription a guiding factor? Or something else? I think if we see the growth of the industry while we are growing very well over the last few years and we have beaten the standards and the cycles that impacted the geo-political global situations, we have circumvented and been a very growing economy at 7+ and will also continue to grow, how do we assess that? What is the metric in terms of the spending we need to evolve? Is it only that we calculate what the profit is and how much we have to spend? Or are the companies now building in terms of total shareholder value? I think the time is not far when the total shareholders' value will become extremely important, which will also incorporate the value that we create out of building the brands and how the brands are built not only by the profits but also by what we are giving to society, what we are giving to the environment, and what we are giving elsewhere. I see that many of the companies are not profitable, but they are very good brands. They have very positive valuations. So how does a company, which is not very high in terms of profit but very high in terms of valuation, spend on corporate social responsibility? Legally, it may be because it has turnover, revenue, and a net worth, but it does not have a profit. So how does the cash come? If they can spend on the advertisement, they can very well spend on the CSR, and that is how the brand has to evolve in fulfilling the commitments, no matter whether they are profitable or not.

We witness that the public sector today, by virtue of being the public sector, has not been seen as one that is a very important driver of the economy. I think the default story of the public sector, which used to be there as a legacy, over the years has been overshadowed by very promising high growth in the sectors that are non-government in nature. I feel there is a lot of complementarity in considering that any public investment is a very major instrument of private growth. When we see the capex of the government and the public sector undertakings, this capex actually gets translated into the circular growth of a great private investment. So while the capex of the private sector is or may not be taking off, there is a huge prospect of growth emanating from the public sector and going towards the private sector.

Lastly, I would like to focus on the good case studies you will happen to hear from many of the public sector companies. They are very promising companies. I don't think we can talk about public versus private; they both equally contribute to the national economy. CSR is one very important aspect. The heart and soul of the public sector has a CSR philosophy of giving back to society. Area development has been one of their prospects, and now they are also spreading in areas where there is no industry.

With these words, I would like to close. I would like to thank IOD for inviting me and sharing some of my thoughts. A lot of it has been done, and we have many more miles to go.

Thank you.

*Excerpts from the ‘Guest of Honour Address' delivered by Mr. Sailesh, IAS, Member, Public Enterprises Selection Board (PESB), former Secretary, Dept. of Public Enterprises, Ministry of Heavy Industries & Public Enterprises, Government of India th at the 'Inaugural Session' of the 18^th International Conference on Corporate Social Responsibility, held on December 21, 2023 in Hotel Taj Lands End.