Less than a year ago, the Union Ministry of Home Affairs refused to renew the Foreign Contribution Regulation Act (FCRA) licences of hundreds of NGOs on the grounds that they were not satisfied with their books. In September, the Income Tax Department “surveyed” the Centre for Policy Research (CPR), the Independent and Public-Spirited Media Foundation (IPSMF) and Oxfam India for alleged irregularities concerning IT returns and donations.
The CPR is a well-known think tank that analyses policy, and is led by Meenakshi Gopinath, a political scientist and former principal of Lady Shri Ram College, Delhi. The IPSMF funds independent media such as The Wire, while Oxfam is an international NGO that works with the poor across the world. The taint that comes with the raids, non-renewal of licences, or “surveys” has a multitude of ramifications for organisations that depend on public and donor funding.
Noshir H. Dadrawala, CEO at the Centre for Advancement of Philanthropy (CAP) is a widely recognised expert on compliance and advisory related issues with regard to nonprofit organisations. A member of the Akshaya Patra audit committee, he also serves as a trustee on several other charitable and nonprofit foundations. Dadrawala, a prolific writer and blogger on NGOs, spoke to Frontline about the recent “surveys” on the above-mentioned organisations. Excerpts:
What are your views on the government’s latest move of conducting “surveys” on the CPR, IPSMF, and Oxfam?
The government of India seems to be following a policy of looking closely at organisations that are funded by overseas entities. International funding appears to be the main issue.
There are different ways of securing foreign funds legally. Some enterprising “social enterprises” have taken the route of commercial contracts with the understanding that FCRA is not applicable where fees in lieu services in the normal course of business are concerned. My hunch is they are probably trying to establish that link. They are looking at whether research studies or projects have been funded by monies from abroad under the cover of “works contract”.
I think these moves indicate that they want to question the organisation about or even stop it from criticising the government. We, in turn, say organisations such as these are the main pillar of democracy and civil society. This government is suspicious about why somebody sitting outside the country would want to fund studies and research in India. But they are also using this route to go after NGOs.
Is the government using methods such as investigating financial books to find ways to suppress organisations such as CPR or IPSMF?
One can see that there is definitely a trend. The present government seems intent on sending out a strong message to organisations critical of it. These tactics could be part of that plan.
What is a commercial contract in the context of NGOs?
Payment and receipt of fees for services rendered in the normal course of business of the organisation are not considered foreign contributions.
Explanation 3 to Section 2(1)(h) of FCRA 2010 states: “Any amount received, by any person from any foreign source in India, by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce whether within India or outside India or any contribution received from an agent or a foreign source towards such fee or cost shall be excluded from the definition of foreign contribution within the meaning of this clause.”
Some NPOs [nonprofit organisations] which do not have registration or prior permission under FCRA seem to think that FCRA can be bypassed by avoiding receipt of funds from a “foreign source” in the form of “donations” or “grants” and instead enter into commercial “service contracts” and charge a fee for professional services rendered in India.
It must be noted that a grant or sub-grant disguised as a consultancy agreement for fees is fraught with risk. The Ministry of Home Affairs is following up on the path which Amnesty India International took.
The Amnesty India case
Could you discuss the Amnesty India case?
Recently Amnesty India International, and its former CEO, Aakar Patel, were slapped with a penalty of Rs.51.72 crore and Rs.10 crore respectively. This action was initiated by the central government on the grounds that Amnesty International, UK, had been remitting a “huge amount” of foreign contributions through its Indian entities (companies without FCRA licence) following the FDI route to allegedly evade the FCRA.
The funding structures of non-profits and entities working on development and human rights issues are strictly regulated. Why does the government need to further scrutinise the organisations?
This started with the Amnesty case. They were two entities, one for-profit and the other a nonprofit. The profit side was indulging in commercial contracts which do not fall under FCRA regulations. The Ministry realised this was a different route organisations are using to raise money. Amnesty was an eye-opener for them. If you are resorting to this in a safe area they may not focus on you. However, if the government sees you as unsafe from their perspective, they will probe further and deeper.
The NPO should stay mindful that under FCRA if the NPO in essence is receiving funds for a “ definite cultural, economic, educational, religious or social programme” it cannot receive funds for such programmes without FCRA license.
So many other sectors also come under FCRA, but this frequency of raids is not seen in those areas.
NGOs I would think are easier targets. They do not have the clout other sectors have. They do not have the industry bodies to give them strong representation. Having said that, it is a vast sector. But no one goes by that theory; there are 3.3 million NGOs in this country.
The statistics now fly in the face as the IT department has declared that about 2,20,000 are registered under Sections 12A in 80G, that is, for tax deduction and tax exemption. There are about 40,000 NGOs registered under FCRA. Ever since the clamp down on the renewal of licences, the number has dropped to about 20,000. In September 2021, the FCRA licences of 15,000 expired and were not renewed. This means just 5,000 have FCRA registrations, a number which proves it is not a vast sector that can be a threat to the sovereignty and integrity of this country.
In fact, most organisations are welfare-oriented organisations. There are a handful of advocacy organisations which again are important pillars for democracy and civil society.
How will these moves impact the NGO sector?
While everyone has a revenue model, we probably need to look at other sources of revenue. In the present situation, donations are drying up. Funders may want to channel donations into other interests. There are some causes which are not emotive and people do not give that easily. So, we have to think of new methods for the sector to survive and continue doing good work.
Charging fees for services, for instance, is one method. However, the IT department does not allow you to have more than 20 per cent commercial income over non-commercial income. Therefore, there are multiple things to be looked at from a regulatory point of view. These are difficult times for NGOs. One can hope they look at the larger picture and understand the work of non-profits.
The renewal of licence issue seems to have taken a toll on the NGO sector.
There are now many voluntarily surrendering their FCRA licences. For instance, in some cases board members want to get off as they are put under an unnecessary scanner. Other pressures such as these government interventions are putting a strain on the survival of many.
- In September 2022, the Income Tax Department “surveyed” the Centre for Policy Research, the Independent and Public-Spirited Media Foundation and Oxfam India for alleged irregularities concerning IT returns and donations.
- International funding of these organisations appears to be the main issue.
- The taint that comes with the raids, non-renewal of licences, or “surveys” has several ramifications for these organisations that depend on public and donor funding.
- Following the Amnesty International case, if the government sees an NGO as unsafe from their perspective, they are likely to probe further and deeper.
- All in all, these government interventions have put a tremendous strain on the survival of many NGOs.