Tax Benefit to Farmer Producer Companies

Providing interest-free loans and tax holidays is a subsidy. In fact, the corporates thrive on such subsidies. Corporations use most of the loopholes and tax dodges to avoid their taxes that may be technically ‘legal’ in the sense as the tax law allows them. But those subsidies got into the tax code because corporations lobbied to put them there. Saying something is ‘legal’ doesn't mean that it’s ethical.

The difference being, these subsidies are called ‘incentives for growth’. But, strangely, it is always subsidies for the poor/farmers that come under the scanner. Even big individual agriculturists are not taxable in this country, whereas when they collectivize themselves, they were being taxed. Institutions promoting FPOs and Union agriculture ministry were seeking income-tax exemption for FPOs for a long time.

Union Budget has proposed that FPCs, registered under the Companies Act, having an annual turnover up to INR 100 crore need not pay tax on profits derived from farm-related activities. There was the deduction of income under section 80P of the Income-tax Act of producer companies registered under Par IX-A of the companies Act. This is a welcome step but many hindrances still remain. For those interested, a detailed note on the need for tax benefit to FPO by Dr. Irina Garg, Director General of NIAM was shared with the Ministry of Agriculture and Farmers Welfare and the Ministry of Finance.

To the Registrar of Companies, the FPO is just another form of a company. Therefore, the cost and burden of reporting are disproportionately huge, as the rules are the same as what would apply to a corporate. Any reporting shortfalls or violations attract huge fines from RoCs. Institutions that championed the cause of FPOs have been vocal about the need for a lighter regulatory & reporting regime for FPOs. Thus far, this issue has not received attention. Unless that is done, the risks that farmer directors face are serious.

Thoughtful Present!

Development solutions are inherently difficult, every individual in this field experiences failure at some points. Even when it comes to mundane work, everyone needs advice. Whether one isn't sure how to tackle an assignment or want to talk through an interesting job offer, there’s nothing better than having a few mentors to help you out along the way. As an individual gaining new skills by working with a mentor, one can take on more ambitious projects; As one recognize new problems to address, one can work with the mentor to develop additional expertise.

Being mentored helps in the career from 'sleepwalking into slow terminal decline'. And, on the job mentoring is much more effective than formal training programs. Mentor-ship is given when someone with expertise and experience takes an aspiring individual under their wing, to share their knowledge and advice, and to provide support and guidance in career development.

It's hard to praise boss and credit him/her as a mentor. Yet, here I am doing so. I am currently working with Mr. Swaminathan S who is quite democratic and empowers everyone around him. He is prepared to stick around for a good, long conversation about the career road up, out, and forward. Being mentored has helped me to break down the barriers between the theoretical knowledge and practical realities in development, as well as provide a much needed support network in early phase of my career.

As they say gifts come without warning when we least expect them. Got a copy of Rain Making: Attract New Clients No Matter What Your Field by Ford Harding from mentor near closing of the financial year. In Dante’s Inferno, at the bottom-most circle of hell, the ungrateful are punished by being eternally frozen in the postures of deference they had failed to perform during their lifetimes: trapped rigid in enveloping ice, they stand erect or upside down, lie prone, or bow face to feet.”

I rarely acknowledge thoughtfulness, and generosity of the power-holders. Yet, I do this time.

Indian CSR model

Indian Corporate Social Responsibility (CSR) laws have only set minimum standards, but have not created an impetus for positive action. The reported expenditure on CSR projects doesn't give a good metric of societal welfare. Issues are emerging in the Indian CSR model that is worth being paid much attention to. At present, the fate of most CSR can be termed as similar to the glorified IRDP scheme. There is a huge noise but nobody to verify the impact measured. The characteristics of the Indian CSR model:

Integration of business objectives with CSR: A study by Macarthur Foundation has found that CSR spending is highly agenda-driven and closely aligned to the corporation’s business strategies, competencies, and brand recognition. Tata Motors started a safe driving program. ITC went in and realigned its supply chain to help farmers. HUL works with children in schools and mothers through health clinics to educate them about hygiene behavior.

The scope of CSR is limited as it is seen either as a Public Relations exercise or Branding campaign by most of the companies. That is why outreach initiatives involving mass participation, such as the Marathons are funded by CSR rather than direct marketing sponsorship. Few companies responsible for acquiring lands through coercion, disposing of toxic waste unchecked, doing unmeasured usage of groundwater and unethical labor practices can counter this with a positive PR campaign.

Lack of Professional Human Resource: Companies deploy mostly Human resources from HR, Public Relations, and Marketing departments in the CSR wing. CSR with a good budget requires independent function and skilled project managers. The lack of vision leads to poor strategic planning and bias mechanism to channelize the money. There is also too much interference by the top management without the required skill set for the course correction and arbitrary suggestions to partner NGOs.

Government interference in CSR: Current government has been actively encouraging CSR investments in its pet schemes such as the Swachh Bharat Abhiyan initiative. Hence, government priorities have resulted in a very large chunk of CSR money being invested in a handful of programs to win direct or indirect goodwill from the government. Instead of revenue collected through taxation of the companies for democratically determined priorities, CSR money goes into whatever the companies prefer to emphasize. In other words, ‘mandatory’ CSR will remain largely voluntary.

Sectoral Preference: There are interesting insights while reading India CSR Outlook Report 2017. CSR spending is almost uniformly focused on community development, education, and health, and is often directed to mostly well-established NGOs and causes. Education projects received almost one-third of total CSR spent. Skills development projects received 5% while Swachh Bharat related projects received 7.3% of the Country’s CSR spent.

CSR fund is primarily focused on health and education because they are for the short term, tangible, and more visible. Community Development, Relief work, Women empowerment, Environment protection, working with disables & orphans comes secondary activities in the list. The tertiary level of involvement is in the field of skill development, livelihoods, and financial inclusion. These activities are not much taken up due to complexity in program design, lack of professional experience, and exposure of the CSR team in the given sectors. Journalism Fellowship, Rights, and advocacy-based grants are neglected by the CSRs. The reason for the neglect is simple as the funding outcome may come indirectly lead to confrontation with the state.

Funded NGOs: As far as funding NGOs are concerned, CSR spending has more strings attached than a foreign foundation. Instead of organizing the community, NGOs work on survival instincts. Local NGOs are approached by CSRs to implement their own pre-formulated programs according to their own agendas and outreach policies. This means a big gap arises between CSR requirements and real development needs.

Fraudulent Practices: Some companies are using on hire charitable trusts to fabricate CSR spending. Read more at: How Indian companies are misusing public trusts to launder their CSR spending.

Impact Investors: CSR funding currently cannot go directly towards impact investments at present. But Impact investors can currently adopt a Social Venture Fund (SVF) legal entity under Category I of India’s securities regulator SEBI’s Alternative Investment Fund (AIF) Regulations. The recommended amendment will be allowing CSR guidelines for financing to a Social Venture Fund.

There are no quick fixes when it comes to solving social issues. India Inc needs to wake up to its social responsibilities. Indian CSR is in a nascent stage and will take years of maturity to support activities with intangible outcomes. The impact numbers with the length and breadth of the activities are available but there is a lack of strategy and sustainable investment models. The future lies in the deployment of the entrepreneurial mind of corporates in designing the impact interventions. Report on India Inc spending on CSR 2017-18 will give the readers a story towards change in a year.