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FCRA Amendment | The real consequences of tightening rules around NGO funding

For a country which welcomes foreign direct, as well as institutional, investment, it is hypocritical to be overly suspicious of non-corporate funds

September 28, 2020 / 11:38 AM IST
Representative image

Representative image

In the early years of the Narendra Modi government, back in 2015, the Prime Minister caused a flutter when he cautioned against perceptions created by those he referred to as ‘five-star activists’. The years since have not been easy for those in the developmental sector.

On September 21, Parliament passed amendments to the Foreign Contributions (Regulation) Act, 2010 [FCRA], which governs foreign philanthropic funding into India’s Non-Governmental Organisations (NGOs). The activists who have petitioned the President to not sign the legislation into law call it a death-knell for the sector, while the government claims it brings in much-needed accountability. The truth is perhaps somewhere in between.

The changes include a 20 percent cap on the percentage of funding that can be applied towards ‘administrative expenses’ — which includes salary, travel expenditure, rent, et al; a restriction on using foreign funding to fund other organisations (even if the latter organisation is also FCRA registered), and the requirement to receive all FCRA donations only through an account specially maintained in State Bank of India, Delhi, irrespective of where the NGO is situated.

Some of these changes can be explained as the need for better monitoring: when the FCRA money was being passed on by recipients to other organisations, both of them reported the same amount as foreign contribution, leading to double counting. However, the solution to that was to have better reporting mechanisms rather than curb a practice that had societal benefits. Many smaller NGOs do not have the network or the wherewithal to attract foreign donations. They would therefore rely on contributions from larger NGOs with fund-raising capabilities. Since the final recipient was also registered and compliant with the FCRA rules, no interests were actually harmed.

All the same, the changes also betray the government’s uneasiness with the fact that those in the developmental sector seem to be the most vociferous, and perhaps articulate, in their opposition to the government, especially when political opposition to the government has become invisible. It is a different matter that it was these same voices that stood up to earlier governments too, with the ‘harsh’ 2010 Act being passed by the Congress-led United Progressive Alliance (UPA) government when P Chidambaram was home minister.


Will Development Sector Change?

Over the last decade or so, work in the social sector was becoming almost as remunerative as the for-profit sector, especially for those in senior positions. Perhaps the biggest impact of the new amendments, and quite likely, its intended target, will be that salaries will perhaps see some trimming.

Of course, there could be ways of circumventing the restrictions. For example, expenditure that can be attributed to a particular project does not get classified as administrative expenses. So while a smart accountant may be able to create workarounds, it is quite likely that the NGOs are already reconsidering their cost structures.

What could also be interesting is to also see the impact of the move on larger NGOs which mainly acted as a funnel to route foreign philanthropic money to grassroots organisations. Now that funds cannot be so transferred, these larger NGOs will have a much more diminished role — that of connecting donors and grassroots organisations. In that scenario, would the present levels of staff and other overheads be justified?

The natural response to this is to ask why the NGOs should be dependent on foreign funding to start with. Especially when it is prone to come with strings attached — strings that might not be in India’s national interest. Given that Indian philanthropy is opening up, mandatory CSR and all that, should the NGOs not focus on being self-reliant?

Tantalising as the argument is, it is specious. While it is reasonable to be sceptical of the ‘bleeding heart’ motivation of the funders, the fact is that philanthropic funds cannot be any worse than corporate interests, which also plan to profit from India. Corporates also lobby the government for favourable policies, squeeze Indian partners and continue in the country only till it serves their stake-holders’ interests. Therefore, for a country which claims to welcome foreign direct, as well as institutional, investment, it is hypocritical to be any more suspicious of non-corporate funds.

As for Indian philanthropy, while it is definitely on the rise, it is often limited by the whims of the government. Just take the unofficial diktat to populate the PM-CARES fund with CSR money. In addition, when corporates are only too willing to toe the government line, the NGOs can be rightly sceptical of being reliant on Indian philanthropy as they are of foreign funding.

Abraham C Mathews is an advocate based in Delhi. Twitter: @ebbruz. Views are personal.
Abraham C Mathews
first published: Sep 28, 2020 11:38 am

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