The Government Has Conducted a Surgical Strike on India's Voluntary Sector

The hastily passed Foreign Contribution Regulation Amendment Act is based on flawed perceptions of what NGOs actually do and how they are financed.

Recent laws have been drafted rather ineptly and passed by parliament with such haste that they subsequently require constant amendments under the rules, followed by endless circulars and notifications which only tend to further confuse, complicate and confound.

The most recent instance was that of the Foreign Contribution Regulation Amendment Bill, 2020 that was introduced in the Lok Sabha on Sunday, September 20, 2020. Until that afternoon, no one even had a clue that this Bill was in the offing. The very next day it was passed by the Lok Sabha and, on September 23, by the Rajya Sabha. The Bill received the President’s assent on September 28 and by September 29 or in just over a weeks time, it was law.

This law is a ‘surgical strike’ on the voluntary sector which was carried out by the government of India with the speed, stealth and strategy of a cheetah.

Reward or retribution?

As recently as May 2020, Amitabh Kant, the CEO of NITI Aayog, had acknowledged that “civil society, and voluntary and non-governmental organisations constitute the backbone of collective articulation of citizen interest in a democracy.”

Presumably, this amendment is the government of India’s idea of ‘rewarding’ civil society (which supposedly “constitute the backbone of collective articulation of citizen interest in a democracy”) by attempting to break its very backbone.

Also read: ‘FCRA Being Used to Crack Down on NGOs, But Why No Transparency on PM-CARES?’

Some of the key changes under the amended law are:

1. No-sub-granting

Institutions registered or having prior permission under FCRA cannot make sub-grant/s to any other intuition from foreign contributions received in its designated FCRA bank account even if the second recipient or sub-grantee has registration or prior permission under FCRA.

This amendment is a major blow to NGOs working collaboratively on projects and programmes. This will also place ‘foreign funding agencies’ or ‘foreign grant-making organisations’ registered under FCRA in difficulty.

2. Cap on admin expenditure

Currently, institutions are allowed to spend up to 50% of foreign funds received during the fiscal year on admin expenditure. This expenditure includes, “all expenses towards hiring of personnel for management of the activities of the association and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel”.

Reducing it now to 20% will be a major blow to organisations in terms of payment of salaries, professional fees, utility bills, travel and other such expenditure.

The home ministry will now have the power to suspend organisations merely “on the basis of any information or report, and after holding a summary inquiry”. What’s more, the amendment will now empower the MHA to suspend the FCRA registration of an organisation for 360 days instead of the earlier 180 days.

3. Voluntary surrendering of FCRA registration

Under current law, there is no provision for an organisation to voluntarily surrender its FCRA registration. While the amendment for voluntary surrender of FCRA registration is welcome, it comes with the caveat that the management of remaining foreign funds and asset (e.g. schools, hospitals, vocational training centres, equipment), if any, that were created out of foreign contribution, has to be vested in competent government authority.

Also read: Leading NGOs Believe FCRA Changes Will ‘Kill’ Voluntary Sector

4. Inquiry before renewal of FCRA

The MHA, before renewing FCRA registration, shall make such inquiry, as it deems fit, to satisfy itself that such organisation has fulfilled all conditions specified under Section 12(4) of FCRA 2010. This detailed process will make the procedure of renewal for even 100% compliant organisations more time consuming

Home ministry

The North Block of the Central Secretariat which houses the Ministry of Home Affairs. Photo: PTI

5. FCRA bank account with State Bank of India

The designated FCRA bank account must be only with the State Bank of India, New Delhi Main Branch. Currently, organisations are in any case required to open their designated FCRA bank account with any core-banking compliant bank integrated with the public financial management systems, with which the government can track financial transactions in real time.

Most, if not all these changes, can be challenged on grounds of constitutional validity.

The government is well within its rights to “regulate” civil society organisations, but it has absolutely no right to “control” or dictate which bank the account should be opened with, nor prevent one registered and compliant organisation from contributing to another registered and compliant organisation nor control how much the cap on admin expenditure should be.

Every NGO or non-profit organisation or civil society organisation is independent where matters concerning internal governance are concerned. Fines and penalties may be imposed for compounding certain irregularities such as not filing returns in time. NGOs may also be subject to random financial assessments by the regulatory authorities. Such ‘control’, instead of ‘regulating’ is patently unconstitutional.

There is no need to add new laws or amend existing laws or add more compliance requirements considering that the government has enough powers to “investigate” those it believes are not transparent enough through Comptroller Auditor General (CAG) and CBI agents.

6. Flawed statistics

There is also a lot of loose talk regarding the mushrooming growth of NGOs in India.

The Central Statistical Institute of India has said that around 2009, that there were 3.3 million NGOs registered in India, i.e. almost one NGO for every 400 Indian citizens. However, the Indian Income Tax Department estimates 180,000 organisations as registered u/s12 A (i.e. established for a ‘charitable purpose’ and therefore ‘tax exempt.’). Even if we assume than an equal number of organisations are not registered with Income Tax for tax exemption, the figure would still be less than half a million. What’s more, just about 20,000 organisations are eligible to receive foreign funds under the Foreign Contributions Regulation Act (FCRA) 2010.

Also read: The Proposed FCRA Amendment Will Deal Another Blow to India’s Non-Profit Sector

Are foreign contributions really a threat?

Significantly more foreign funds flow into India through Foreign Direct Investment (FDI) and through Foreign Institutional Investors (FIIs). However, these are regulated under a relatively softer and more friendly Foreign Exchange Management Act (FEMA).

In 2017-2018, Foreign Direct Investment in India was more than US $40 billion, or Rs 2,77,000 crores (one crore = ten million rupees). In contrast, there were only approximately 25,000 active organisations registered under the FCRA receiving foreign contributions worth around Rs 18,065 crores from foreign donors for various social, cultural, economic, educational and religious activities in 2016-2017.

It is ridiculous for anyone including the government of India to believe that 20,000 NGOs with aggregate receipts of Rs 18,065 crores from foreign donors for various social, cultural, economic, educational and religious activities could be a “threat to national interest” or “affect prejudicially the sovereignty and integrity of India.”

The voluntary sector in India is noted for its vibrancy, innovation and research-based advocacy. It has played an important role in supporting the government as a partner in nation-building.

About 20 years ago, the Johns Hopkins Comparative Nonprofit Sector Project conducted a detailed research study to understand the scope, structure, and role of the non-profit sector in twenty countries, including India, using a common framework and approach.

Contrary to popular perceptions, as much as 51% of the receipts were self-generated, and only 36% came from the government as grants and loans, with a mere 7% from foreign sources.

The voluntary sector in India does not simply fill gaps in the government’s service delivery system. As this more than two decades old study indicates, the voluntary sector contributes to the country’s GDP and is a major provider of livelihood to millions.

Also read: The Chronology of Subterfuge on Amending the FCRA

The government should also understand that not all NPOs are advocacy organisations, which constitute only a tiny segment of the overall sector. Most NPOs are service delivery organisations.

Finally, the government often questions what “public good” CSOs do apart from voicing dissent. In our view, the government should understand and accept that “dissent” itself is “public good” in a democracy. Lobbying or advocacy is integral to democracy, which is what India is.

Noshir H. Dadrawala is CEO, Centre for Advancement of Philanthropy and researches, provides guidance and assistance as also capacity building to the voluntary sector, especially on compliance-related issues.