Guest Post: Critical Analysis of the amendments to Foreign Contribution (Regulation) Act

Foreign Contribution (Regulation) Act
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The second wave of Covid-19 pandemic in India, which reportedly started around in April, highlighted the poor state of medical infrastructure across the country. The might of the new strain of the virus has forced the central government to accept foreign aid and negated the populist claims of India being a rising powerhouse in the field of medicine. Antonio Guterres, the secretary-general of the United Nations, has recognized the vital role played by NGOs across the world in providing resources and reducing the burden of the frontline workers.  In India, the Foreign Contribution (Regulation) Act, 2010 regulates foreign aid for the NGOs.

NGOs were involved in various activities like delivery of relief material, community sensitization about Covid-19, rescuing migrant labour force and provision of direct cash transfers. India has also witnessed massive contributions from local NGOs across the nation. However, a series of amendments to the Foreign Contribution (Regulation) Act, 2010 in September 2020 has drastically reduced the potential of NGOs to operate at optimal levels. Under normal circumstances, NGOs would readily supply the government with resources and workforce to aid them during emergency times. However, the central government, through amendments to the Foreign Contribution (Regulation) Act, 2010 has disallowed NGOs from directly receiving donations, which in turn were distributed to the smaller NGOs across the nation.

Under the original act, Registered Persons under FCRA were enabled to transfer a part of their contribution to other Persons who have not been registered under FCRA. This enabled NGOs with large resources to aid and support small NGOs across the nation. The Central government, however, amended section 7 of FCRA to disallow a “Person” who has obtained a license and is registered under FCRA is prohibited from transferring a foreign donation to another person. The word “Person” has been defined under Section 2(m) of FCRA as any association, Hindu Undivided Family or a company registered under Section 25 of Companies Act, 1956.

India, due to its vast size in population and area, poses a great logistical challenge for NGOs to reach beneficiaries who reside in secluded locations Due to the inaccessibility to these locations, NGOs rely on smaller units within the target locality to disburse aid and conduct programmes which form part of their mission. As a result, small NGOs are directly responsible for creating a bridge between the larger groups and the beneficiaries. For instance, the Covid Action Collective (CAC) group formed by an NGO named Swasti brought around 150 small NGOs across the country to provide effective relief services and workforce in contaminated zones. The collaborative also effectively designed an information exchange for posting live updates, awareness information and data concerning the overall activities. By doing so, CAC has only created an effective relief framework but also extended financial and technical assistance to small NGOs working in remote areas. 

The amendments to FCRA in 2020 however have made it incredibly difficult for large NGOs to support and aid smaller NGOs which perform commendable work at the grass root level. Due to lack of funding, small NGOs had to shut down or reduce the scale of operations, thereby denying the frontline workers of valuable resources and manpower. For instance, an NGO based in Delhi having surplus oxygen cylinders is prohibited from sharing them to small NGO located in Nagaland due to the restrictions introduced by the amendments. As a result, the amendments have undone the good work and dedicated efforts of the NGO in Delhi to support its partner in Nagaland. 

Another key issue with the 2020 amendments is the reduction in the cap for administrative expenses from 50% to 20%. The Amendment substituted the words “50 per cent” for “20 per cent” as mentioned under section 8(1) of FCRA. As a result, NGOs administrative expenses such as salaries, professional fee and utility bills cannot exceed 20% of the foreign contributions received in a year. This could lead to devastating consequences as NGOs would be forced to operate at suboptimal levels, thereby reducing their efficiency and overall impact

The new amendments have controversially mandated NGOs capable of securing foreign donations to mandatorily open a bank account with SBI or other Scheduled Banks in their New Delhi Offices. Upon examining the newly inserted provision in place of section 17, it can be found that NGOs registered under FCRA or granted prior permission under section 12 of FCRA can receive funds only through the FCRA account, which can be opened in the State Bank of India branch at New Delhi. This provision has a detrimental effect on direct cash transfer activities of NGOs. It must be noted that large NGOs are placed across the country and may not have a presence in New Delhi. Therefore, NGOs must incur additional administrative expenses for opening a “FCRA Account” and paperwork that is associated with the process. 

The procedural conundrum created by the new amendments directly contradicts the opinions of courts about charitable institutions in the country. The Madras High Court, in the case of Poonidmadha Religious Trust v. The Secretary to the Government of India made strong observations on the intentions of the recipient of charitable donations with regards to their usage. The Court stated that the government must ensure lenient procedures for NGOs and ease the process for them to obtain foreign aid and donations. It would be hypocritical for a government to create roadblocks for organizations which aim to provide charitable services to the general public. 

The amendments passed by the government have largely been ineffective due to the existence of provisions of the original act which serve a similar purpose. For instance, Section 23 of FCRA empowers the Central Government to inspect and search the records of organizations, if they are suspected of any illicit activities. Section 9 of FCRA empowers the government to prohibit organizations from receiving foreign donations if such funds affect the sovereignty and integrity of India. These sections, if applied on a case-to-case basis, effectively serve the purpose for which the new amendments were passed by the government. 

Conclusion

The Covid-19 pandemic continues to put enormous burden on governments across the world and has forced them to devise strategies to survive in the new world. The governments in India too have been left clueless in effectively curbing the spread of the virus. It is therefore imperative that the government, both at the Central and State level,  takes concrete steps in backing the efforts of NGOs across the country, irrespective of their scale of operations. The ability of NGOs to connect and aid people at the ground level must not be ignored anymore. A drastic change in the aforementioned amendments could be the first step in preparing a battle strategy against impending third wave.

This is a guest post by Abhijit Vellanki. He is an Associate at Desai Law Offices, Hyderabad.

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