Legal Matters | Supreme Court judgment adds to the woes of foreign-funded NGOs

(Representative image: Shutterstock)

In its April 8 judgment upholding the contentious amendments to the Foreign Contributions (Regulation) Act, 2010, the Supreme Court said, “It is open to a sovereign democratic nation to completely prohibit acceptance of foreign donation …., as it is indicative of the nation being incapable of looking after its own affairs and needs of its citizens.” This line, going even further what the government normally argues, perhaps portends the bleakest clouds on the horizon for the development sector in India.

To say that India does not need foreign funding is to completely miss the point. While the country now has a large net of domestic grant funding, much of it still comes with strings attached — kickbacks, and what-not.

What often gets missed in the discourse about foreign-funded NGOs is that it is already the most regulated sector in India. They are subjected to a very stringent audit by the government every few years at the time of license renewal — including where their funds are deployed, down to the penny, as well as the character of the ultimate beneficiaries of their project activities. If this wasn’t enough, they have a constant sword over their heads, in the form of the home ministry’s almost unquestionable power to cancel licenses and shut down these organisations, without giving reasons. Remember no corporate (where the government actively solicits foreign investment) is subject to so much oversight and arbitrariness.

The relevant question ought to be whether, in such a scenario, the functioning of NGOs must be made even more vexatious. So then, it is perhaps worthwhile to engage with the provisions that were under challenge before the Supreme Court. The Amendment to Section 7 of the Act prohibited the transfer of FCRA funds ‘to any person’. Pre-amendment, the restriction was that these funds could be transferred to only organisations that were also FCRA-registered. So as one can see, it is not that there weren’t controls in place already.

Similarly, the earlier Section 17 said that funds could be received only in a single account, and in which no other funds could be received — in other words, a designated account with a scheduled bank to receive FCRA grants. The 2020 amendment said that this account should be maintained in a particular branch at State Bank of India, New Delhi. This obviously caused much consternation to many organisations, which were often located in far flung areas of the country — subsequently ameliorated by allowing the organisations to open through their local SBI branches, without having to physical travel to Delhi.

The restriction on transfers, though, has far-reaching consequences. To comprehend the damage, it is necessary to understand the funding ecosystem. Most of developmental work in India is carried out by small organisations scattered across the length and breadth of the country. Most of these grassroots organisations do not have the reach or the wherewithal to access funding from wealthy donors, domestic or foreign; just like a small for-profit startup is not going to be able to access venture capital funding without specialist intermediaries (make no mistake, getting philanthropic funding can be just as arduous and vexatious a task, often with unreasonable barriers and arbitrariness writ large). Bigger organisations are in a better position to raise funding. Earlier, large organisations would pitch to donors abroad, who would route the funds through these organisations, which also would have to monitor its utilisation. These larger NGOs would then implement projects through smaller organisations.

With the absolute bar on transferring amounts, there is a huge question-mark over the sustainability of those grassroots NGOs. Many are already feeling the pinch. It is foolhardy to think of this as just NGOs being put in place. These organisations are often responsible for delivery of services in areas where the government’s last-mile reach is often deficient, as well as contribute to local employment.

The Supreme Court, however, takes a hands-off approach, deferring to the ‘Parliament, in its wisdom’. The judgment underlines the government’s powers to put in place a regulatory mechanism to ensure that the nation’s interests are protected. But those powers — liberally used — were never under question. The court also makes a distinction between foreign investments and donations, stating that somehow investments (direct or institutional) carry more accountability. While that might be true, we have seen time and again that foreign for-profit funding doesn’t necessarily operate with India’s best interests in mind either.

While doing so, the Supreme Court also significantly chipped away on the effect of an earlier judgment that had said that the government could not bar (non-political) civil society organisations from receiving foreign funding on the ground that they were engaged in political activity, but stopped short of answering the question whether right to funding was a fundamental right for voluntary organisations. This judgment insists it isn’t.

If we don’t shut down foreign investment just because some investee companies engage in shady related-party transactions or engage in money-laundering, there is no reason to treat philanthropic inflows differently. Regulate, and create systems to ensure accountability, without hobbling their functioning.

Abraham C Mathews is an advocate based in Delhi. Twitter: @ebbruz.

Views are personal and do not represent the stand of this publication.