Priya Narayan Parker: FDI's welcome, NGOs aren't

Funds for NGOs are only 0.5 per cent of all foreign inflows but the government wants to clamp down on just these.

During the recently concluded Winter Session in Parliament, the ministry of home affairs introduced the Foreign Contribution Regulation Act (FCRA), 2006 in the Rajya Sabha, replacing a 1976 Act of the same name. The ministry cited a 'change in internal security scenario, an increased influence of voluntary organisations, spread of use of communication and IT, a quantum jump in the amount of foreign contribution being received, and large scale growth in the number of registered organisations' as the reasons for the introduction of the new Bill.

This Bill tightens restrictions on individuals such as politicians, government officials and media persons, as well as on the voluntary sector for receiving foreign funds. If, for example, a journalist of this paper were to win a prestigious international award for outstanding journalistic work, the Bill would prevent this journalist from receiving the award from the foreign source.

According to government data, between 1995 and 2005 the number of NGOs registered for FCRA permission increased from about 16,700 to over 30,000. Official data also suggests that almost 40 per cent of these NGOs did not comply with the annual reporting requirement of the home ministry. Foreign contributions to the voluntary sector increased from Rs 2,169 crore in 1995-96 to Rs 6,256 crore in 2004-05. Yet, these funds constitute about 0.5 per cent of the gross annual inflow of foreign funds according to the statistics released by the Reserve Bank of India.

This Bill raises three main questions. First, if the government's intention is to strengthen internal security and prevent 'anti-national' activities, does this Bill achieve these objectives?

Second, why does the Bill focus only on the voluntary sector when the majority of funds (99.5 per cent) come in through foreign inflows that fall outside of FCRA?

And third, do funds intended for 'anti-national' activities come in only through regulated legal means, and only from foreign sources?

This Bill is problematic for several reasons.

First, a number of the issues that this Bill seeks to address are already covered under other laws. The FCRA Bill grants the central government the power to conduct separate audits, search and seizures. The Income Tax Act, 1961 already establishes provisions for the central government to conduct audits and search and seizure for all individuals and organisations. Additionally, the Bill restricts NGOs from receiving all foreign contributions in only one bank account. Such a restriction does not make sense because banks in India are bound by "Know Your Customer" requirements and anti-money laundering laws. The objective of tighter monitoring of foreign currency inflows to NGOs can be achieved by making it mandatory for banks to report annually to the home ministry regarding all foreign currency inflows, including those that are under the purview of FCRA. If the government is of the view that the other Acts that are designed to regulate inflows of foreign funds are less than effective, then it would be prudent to pass amendments and tighten those laws, rather than creating parallel processes for a sector that receives less than one percent of all foreign inflows.

The Bill also has clauses that describe the restrictions that apply to government officers when they are on foreign travel. If existing service rules are found inadequate to define such norms, then those rules need to be modified, rather than including them in this Bill.

Second, if the government's intention is to strengthen internal security and prevent 'anti-national' activities, focusing the Bill only at the voluntary sector will not help the government achieve its objectives. The government's logic seems to assume that anti-national activities can be funded only from foreign sources, and can be done only by NGOs. Also, tightening restrictions in no way assures an increase in compliance on the part of NGOs.

Third, the 2006 FCRA Bill also provides a number of discretionary powers to the government. The Bill grants the central government the authority to identify organisations of a 'political nature' without specifying in the Bill what defines such an organisation. Would a women's organisation, that happens to also accept funding from a foreign foundation rallying for the passage of the Women's Reservation Bill, qualify as an organisation of a 'political nature'? Could an Indian institution that hosts foreign speakers discussing bi-lateral relationships count as an organisation of a 'political nature'?

The new Bill requires the central government to be 'satisfied' that the person applying for FCRA has prepared a 'meaningful project', is 'not likely to use the foreign contribution for personal gains or divert it for undesirable purpose', and has not engaged in 'activities aimed at conversion through inducement or force, either directly or indirectly, from one religious faith to another'. Again, terms such as 'meaningful', 'undesirable' and 'indirect inducement' leave way too much discretion at the hands of the person evaluating the application for FCRA.

Fourth, through this Bill the government is trying to micro-manage the affairs of NGOs. For example, it places a 50 per cent cap on FCRA funds for administrative expenses and prohibits organisations from investing their funds in 'speculative businesses' (a term which is also left undefined).

Another big change in the new Bill is that organisations will be required to renew registration every five years (and does not provide a time limit for rejection or approval). Under the existing Act, there was no need for renewal of registration.

Finally, even if this Bill were to be effectively implemented, there are still enough loopholes through which foreign donors with a desire to foment anti-national activities can contribute funds to anti-national interests.

The Bill has been referred to the Parliamentary Standing Committee on home affairs. There are a number of other clauses that should in fact find place in other laws. While a clause-by-clause analysis of this Bill may be helpful, the real question remains: how can the central government effectively monitor internal security without clamping down on the country's vibrant civil society? (Full disclosure: The author works with an institution that receives foreign contributions.)

The author works with PRS Legislative Research at the Center for Policy Research