Unpacking the FCRA Amendment 2020: What lies ahead for the nonprofits in India? | truCSR

Creative reads "Unpacking the FCRA Amendment 2020: What lies ahead for the Nonprofits in India?"

Written by: Samreen Saify

Compiled and Edited by: Rebecca Shibu

The  COVID-19 outbreak and the subsequent lockdown ushered in many challenges in both our personal and professional lives. The normalcy that we had known earlier is a distant reality now, and the reverberations of these challenges can be felt across all sectors and age groups. While it has rendered our previous modus operandi inutile, it has also jolted us to find and adopt new ways to overcome the challenges it brought along with it. The social sector esp. nonprofits, too, faced this jolt. On the one hand, the NGOs find themselves grappling with issues of finance as the funding has been significantly cut down, while on the other, concepts such as collaboration, partnership and support have been given new meanings. According to India Today's report, NGOs in 13 States and Union Territories have outperformed their respective State Governments in providing humanitarian relief to most of the vulnerable and worst hit groups of the society.

The nonprofit sector responded to the COVID-19 induced crisis with great alacrity and responsiveness. On September 20th, the Foreign Contribution (Regulation) Amendment Bill, 2020 was introduced in Lok Sabha. The bill seeks to amend specific provisions of its predecessor, the Foreign Contribution (Regulation) Act, 2010, along with the Foreign Contribution (Regulation) Rules, 2011 and many other notifications/orders issued ever so often. After being passed by each House of the Parliament, the bill was assented by the President of India on September 28th and came into force. 

Let’s rewind, FCRA was introduced in 1976 by the Indira Gandhi Government to prevent the meddling of foreign forces in domestic affairs, the Act provided the framework for acceptance, regulation, utilization, cancellation, transfer of funds besides many other things. In 2010, the 1976 act was repealed entirely and a new act was instituted in its place by the UPA government whose rules, to be read with the Act, were later issued and amended thrice - in 2012, 2015, and 2019. 

According to the FCRA Dashboard, there are 22,414 FCRA registered active organizations in India. Therefore, it is pertinent to elaborate upon the implications these amendments have on both registered and non-registered organizations.

Source: FCRA Dashboard

The key amendments proposed, and now in effect, include:

• Prohibition on "Public Servants" from Receiving Foreign Contributions The Act has added the category of "public servants," as defined in Section 21 of the Indian Penal Code, to the list of prohibited persons from receiving foreign contributions. In other words, any individual/organization "controlled or owned" by the Government is prohibited from receiving foreign grants now. The list also restricts judges, political parties, electoral candidates, etc. from receiving foreign grants.
  
• Prohibition on Transfer of Foreign Contribution The Amendment Act prohibits persons authorized to receive foreign contributions under the Act from transferring foreign contributions to any person. Previously, the non-government organizations (NGOs) registered under Act were permitted to transfer the foreign contribution to any other registered NGO or any other unregistered person, with the Ministry of Home Affairs' prior permission.
  
• Lowering the Cap on Administrative Expenses The Amendment Act has reduced the cap on using the foreign contribution for administrative expenses from 50% to 20%.
  
• Opening of the Bank Account in State Bank of India, Delhi: The FCRA 2010, allowed the recipient to receive foreign contribution in an account opened in any of the scheduled banks. Whereas, the Amendment Act promulgates that foreign grants can only be received in an account designated as "FCRA Account" opened in a branch of the State Bank of India (SBI) at New Delhi. 
• Mandatory Aadhar Card Verification  Under Section 3 of FCRA, 2010,  a person can receive foreign contribution after it obtains the prior permission of the Central Government, or gets itself registered with the Central Government. However, the amendment requires a person, who seeks permission or registration (or renewal) under the Act, to provide Aadhaar cards of its members, director, and in case of foreigners, a copy of their passport or Overseas Citizen of India (OCI) card.
  
• Increase in the maximum limit for the Suspension Period of Registration Under the 2010 Act, the Government could suspend the registration of a person for a period not exceeding 180 days if it had enough reasons to believe that a person who had been granted prior permission violated any of the provisions of the Act. The suspension period has now been extended up to 360 days.
• Surrender of Certificate The Amendment Act allows the Government to permit a person to voluntarily surrender their registration certificate if it is satisfied that such person has not contravened any provisions of the Act.
• Renewal of Registration Under the FCRA Act 2010, the renewal of registration was a simple procedure and included scrutinization of past information or information provided from time to time. But now the amendment goes on to allow the Government to initiate an inquiry into the applicants' working. In addition to that, in case of expiration i.e, the period of five years, the NGOs are strictly prohibited from utilizing existing funds and receiving new funds until further renewal.
  
• Violation of the Amendment Act Under old provisions, a person was prohibited from utilizing/receiving foreign contribution only if found guilty under FCRA law. However, FCRA 2020 empowers the Government to prohibit a person from utilizing/ receiving foreign contribution even if the Government, based on preliminary inquiry, has a reason to believe that such a person has contravened the FCRA law.

The amendment mainly provides a framework to streamline FCRA provisions by strengthening compliance mechanisms, enhancing transparency and accountability in receipt and utilization of foreign contributions. However, it would not be an exaggeration to say that the amendments took the non-profit sector by surprise and initiated discussions among both the academia and concerned citizens, mainly because they were initiated, and subsequently implemented, in the middle of a pandemic. The nonprofit sector is already contending with issues on the financial front and the introduction of such stringent guidelines would only create impediments for small grassroots organizations to sustain their activities. 

Until now, the recipient organizations used to divert/transfer foreign grants to small organizations for better reach and output but now they might have to look for newer ways of implementation. A blanket ban may reduce the effectiveness of the partnership dynamics in the development ecosystem besides compelling the implementing organizations to simultaneously invest in capacity building activities. Secondly, the administrative cost has always been a topic of discussion in the social sector for some years now, donors, both individuals and Corporates, are inclined towards projects that operate at significantly low administrative costs. Several NGOs already work under a 10% administrative cost, so a cap on it will probably intercept the illicit and fraudulent usage of foreign funds besides ensuring the last mile impact on the beneficiaries.

In conclusion, on the one hand, the proposed amendments can increase the cost of doing good, leaving smaller organizations with less bargaining power, and hindered strategic maneuvering. While on the other, it has streamlined the entire process by inserting provisions to ensure greater transparency, accountability and reducing the probability of unknown fund movement for unverifiable activities. The nonprofit sector will now have to find alternatives to ensure the maximum utilization of its resources and newer ways to operate. Over time, we will see how the Foreign Contribution (Regulation) Amendment Act, 2020 plays out in the larger context, and to what extent it has succeeded in streamlining the scope of foreign funding for the nonprofit sector in India.

- Team truCSR

truCSR is a social engagement platform run by a group of professionals with a passion for social development with a cumulative experience of more than 100 years in the field of Corporate Social Responsibility (#CSR), finance, taxation, corporate and allied laws, corporate governance and strategic management. The platform seamlessly connects Implementers and Contributors to amplify the #CSRimpact and accelerate the process of social change with digital solutions. This platform is owned and developed by a company headquartered in Mumbai, Maharashtra. 

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