But now, a strict law enacted by the Indian government will force corporations such as Bharti to do such projects — and perhaps much more. For example, one of the firm’s most important units, Bharti Airtel, will have to spend almost four times as much on its social development programs, from its current $4 million to $15 million.
The corporate responsibility law — which applies to both foreign and domestic companies — requires that all firms that generate profits of about $78 million or more annually in the country spend at least 2 percent of those earnings on community development projects.
If they don’t, and fail to give valid reasons for noncompliance, they could face fines or even imprisonment for top executives, officials say.
India’s government believes that the law will bring aid to the needy at a time when the wealth of corporations and some individuals has soared but philanthropic giving remains low, fueling resentment. About two-thirds of India’s 1.2 billion people live on less than $2 a day, according to the World Bank.
“In the last few years, there has been a perception of [a] growing trust deficit between rural communities and large companies that make billions of dollars,” said Sachin Pilot, India’s minister for corporate affairs, in an interview. “If the company invests in corporate social responsibility, it will go a long way in reducing acrimony and strife between the two.”
But the new law has rattled many in the corporate sector who say making philanthropy mandatory amounts to political interference and could dampen investor confidence and lead to corruption. The move comes at a time when the economy has stalled, the value of the rupee has plummeted and foreign investment has dipped 37 percent in two years.
“Anything that is made mandatory can be misused,” said Anu Aga, director of Thermax, an engineering company that funds education nonprofits. “If your heart is not in it and you are forced to do it, then it is easy to find wonderful ways to dodge.”
The rule comes on the heels of several official decisions that make it more difficult for foreign companies here to do business, including import restrictions, court rulings overturning patent protections for some drugs, and new land acquisition norms that make it harder and more expensive to set up a factory.
India slipped to the 60th position out of 148 economies in the Global Competitiveness Index this year because of inadequate infrastructure, inefficient bureaucracy, mazelike tax laws and corruption.
Still, Richard M. Rossow, director for South Asia at the McLarty Associates consulting firm in Washington, called the charitable-giving rule “an annoyance but not a deterrent.”