Foreign Contribution Regulation Act and Rules, 1976

In India, the purpose and the amount of foreign donation is under the regulation of the FCRA (Foreign Contribution Regulation Act, 1976). 44 Government of India, Ministry of Finance, Department of Economic Affairs, PMU Division. Circular No. F.No. 1/30/2003-PMU dated the 4th of January 2005 Foreign Contribution (Regulation) Act, 1976 (FCRA) was enacted in the year 1976 with the prime objective of controlling the attainment and allocation of foreign contribution and foreign hospitality by individuals and associations working in the important areas of national life. The aim of this Act is to ensure that the foreign contribution and foreign hospitality is not misused in a way that it affects the electoral politics, public servants, judges, and other people working in important areas of national life, like journalists, printers, and publishers of newspapers, etc. The Act primarily seeks to regulate inflow of foreign funds to voluntary, non-government organizations with the aim of preventing any possible misuse of funds in activities harmful to national interests and to ensure that the individuals and organizations under the act function in a manner consistent with the values of a sovereign democratic republic.

During the year 2007-08 (up to December 31, 2007), 475 organisations have been granted registration under the Foreign Contribution (Regulation) Act, 1976 and 255 organizations were granted prior permission to receive foreign contribution. The total receipt of foreign contribution during 2006-07 reported and compiled so far (as on March 10, 2008) is Rs.6,252.09 crore45.

Applicability of the Act:

The Act is applicable to the following class of people and organizations:

(a) Citizens of India outside India.

(b) Associates, branches, or subsidiaries, outside India, of companies or bodies corporate, registered or incorporated in India.

Important definitions

The Act particularly defines certain terms used in the context of NGO funding and specifies exactly who all are eligible to receive foreign grants under this act:

(a) Association means an association of individuals, whether incorporated or not, having an office in India and includes a society, whether registered under the Societies Registration Act, I860, or not, and any other organization by whatever name called.

(b) Foreign contribution means the donation, delivery or transfer made by any foreign source,

(i) Of any article, not being an article given to a person as a gift for his personal use, if the market value, in India, of such article, on the date of such gift, does not exceed one thousand rupees.

(ii) Of any currency, whether Indian or foreign

(iii) Of any foreign security as defined in clause (i) of Section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973);

(c) Foreign hospitality means any offer, not being a purely casual one, made by a foreign source for providing a person with the cost of travel to any foreign country or territory or with free board, lodging, transport, or medical treatment; (d) Foreign source includes:

(i) The Government of any foreign country or territory and any agency of such Government.

(ii) Any international agency, not the United Nations or any of its specialized agencies, the World Bank, International Monetary Fund, or such other agency as the Central Government may, by notification in the Official Gazette, specify on this behalf.

(iii) A foreign company within the meaning of section 591 of the Companies Act, 1956 and includes (a) A company which is a subsidiary of a foreign company, and

(b) A multi-national corporation within the meaning of this act.

(iv) A corporation, not a foreign company, incorporated in a foreign country or territory.

(v) A multinational corporation within the meaning of this Act.

(vi) A company within the meaning of the Companies Act 1956, if more than one-half of the nominal value of its share capital is held either singly or in the aggregate, by one or more of the following, namely,

(a) Government of a foreign country or territory.

(b) Citizens of a foreign country or territory.

(d) Trusts, societies, or other associations of individuals (whether incorporated or not), 59 formed or registered in a foreign country or territory.

(vii) A trade union in any foreign country or territory, whether or not registered in such foreign country or territory.

(viii) A foreign trust by whatever name called, or a foreign foundation which is either in trust or is mainly financed by a foreign country or territory,

(ix) A society, club, or other association of individuals formed or registered outside India.

(x) A citizen of a foreign country but does not include any foreign institution which has been permitted by the Central Government, by notification in the Official Gazette, to carry on its activities in India.

(e) Prescribed means prescribed by rules made under this Act.

Restrictions on Receipt of Foreign Grant

In FCRA, 1976, the following restrictions have been imposed on the concerned party receiving foreign grants from international donor agencies.

(1) No foreign contribution shall be accepted by any

(a) Candidate for election.

(b) Correspondent, columnist, cartoonist, editor, owner, printer, or publisher of a registered newspaper

(d) Member of any Legislature.

(e) Political party or office-bearer thereof.

(2) (a) No person, resident in India, and no citizen of India, resident outside India, shall accept any foreign contribution, or acquire or agree to acquire any currency from a foreign source, on behalf of any political party or any person referred to in sub-section (1), or both.

(b) No person, resident in India, shall deliver any currency, whether Indian or foreign, which has been accepted from any foreign source to any person if he knows or has reasonable cause to believe that such other person intends, or is likely to deliver such currency to any political party or any person referred to in sub-section (I) or both.

(c) No citizen of India resident outside India shall deliver any currency, whether Indian or foreign, which has been accepted from any foreign source, too

(i) Any political party or any person referred to in sub-section (1), or both, or

(ii) Any other person, if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to a political party or to any person referred to in sub-section (1), or both.

(3) No person receiving any currency, whether Indian or foreign, from a foreign source on behalf of any association shall deliver such currency:

(i) To any association or organization other than the association for which it was received, or

(ii) To any other person, if he knows or has reasonable cause to believe that such other person intends, or is likely to deliver such currency to an association other than the association for which such currency was received

Registration

(1) No association [other than a political party] having a definite cultural, economic, educational, religious or social program shall accept foreign contribution unless such association,

(a) Registers itself with the Central Government in accordance with the rules made under this Act; and

(b) Agrees to receive such foreign contribution only through one of the branches of a bank as it may specify in its application for such registration.

Unregistered NGO:

Every association may if it is not registered with the Central Government under that- sub-section, accept any foreign contribution only after obtaining the prior permission of the Central Government and shall also give, within such time and in such manner, as may be prescribed, an intimation to the Central Government as to the amount of foreign contribution received by it, the source from which and the manner in which such foreign contribution was received and the purposes for which and the manner in which such foreign contribution was utilized by it.

Right to receive fund:

This basically means that for obtaining foreign contributions, the NGO has to fulfill one of the following requirements:

(a) It must be registered with Central Government for receiving such funds.

(b) It must obtain prior permission from the FCRA department on a case-to-case basis.

The process of filing a request for prior permission or registration is quite simple.

For getting permanently registered with the FCRA department, the NGO should have a proven record of social activities beneficial for their area of operation. It is easier for an organization to get the approval if they have been operational for some time (typically 3-4 years). The registration process also involves an inspection from the intelligence bureau. They collect information about the NGO by visiting their area of operation and their office. Usually, the process takes around 6-7 months to complete. But it may also go beyond 1-2 years depending upon how convincing the case for registration is. For new NGOs, it is better to apply for case-wise prior permission for the first few times. This way, the NGO would be able to prepare grounds for permanent registration and get into the good books of the authorities involved. A certificate from the district collector or state government, though not mandatory, would certainly help get faster results.

Accountability of a registered NGO:

Every association so registered shall give within such time and in such manner, as may be prescribed, an intimation to the Central Government as to the amount of each foreign contribution received

by it, the source from which and the manner in which such foreign contribution was received and the purposes for which and the manner in which such foreign contribution was utilized by it, provided that other than the branch of the bank through which it has agreed to receive a foreign contribution or fails to give such intimation within the prescribed time or in the prescribed manner, or gives any intimation which is false, the Central Government may, by notification in the Official Gazette, direct that such association shall not, after the date of issue of such notification, accept any foreign contribution without the prior permission of the Central Government

Maintenance of Accounts

Hence every association shall maintain, in such form and in such manner as may be prescribed,

(a) An account of any foreign contribution received by it, and

(b) A record as to the manner in which such contribution has been utilized by it.

On inspection of accounts or records, if the organization or association fails to furnish any returns under this Act, within the time specified, therefore, or the returns so furnished are not in accordance with the law or if, after inspection of such returns, the Central Government has any reasonable cause to believe that any provision of this Act, has been, or is being, contravened, that Government may, by general or special order, authorize such gazetted officer, holding a Group A post, as it may think fit, to audit any books of account kept or maintained by such organization or association as the case may be, and thereupon every such officer shall have the right to enter in or upon any premises at any reasonable hour, before sunset and after sunrise, for the purpose of auditing the said books of account.

Setbacks to Foreign Funding

Despite the rules and regulations mentioned above, there still remain several drawbacks with respect to providing financial assistance to NGOs. Often, the NGOs are provided financial assistance and are controlled by several imperialist agencies like the imperialist governments; as a result, they act as a channel between the people and the government. These imperialists often treat these NGOs as a means to achieve their strategic goals by providing huge funds at their disposal most of which are often spent on the maintenance of NGOs and running expenditure of the volunteer workers instead of for relief work. Moreover, it is usually believed that when a donor provides funds to some institution, it is out of selfless concern for the benefit of the institution. But such an act is rarely selfless. It has been observed in many cases that funding agencies provide funds based on their own selfish motives. In several cases, it is seen that those countries that have sound political systems are granted funds by the donor country. The reason behind this might be that the donor country is willing to associate itself with the politics of the receiving country. The donor country might also use the power of politics of the receiving country to improve its own political scenario. Since the receiving country is getting some form of financial support from the donor country, it will be obliged to help the donor country in other terms such as rendering political help. Thus, it can well be the case that certain fund donors choose only those developed countries for providing funds, which can help them in return in some other way. These developed countries, however, might not be so much in need of funds, like some other less developed needy countries. Thus, the motive behind providing funds is not always noble. In many cases, it is influenced by selfish motives.

However, the major loophole in foreign funding by a foreign country especially in the case of humanitarian aid lies in its complete lack of knowledge of the people and region in which its aid is flowing. Often aid in the form of food or medicine given at the time of any natural or social disaster consists of items that are prohibited in

a particular section of the people affected by the disaster, such as the inflow of food items containing pork to Islam-dominated regions or medicines whose names on packings are written in the foreign dialect not understood by the regional people. The U.S development aid is also criticized on grounds of several conditions imposed on the nations or organizations receiving it. For example, World Bank and IMF, before giving loans to other countries or organizations, suggest some policy prescriptions which may not suit the concerned countries’ social and economic environment. Hence several scholars are of the view that these funds are preferable for a short span like in case of immediate assistance to overcome some unwanted situation but not for long-term development.

Policy on foreign aid

In view of the above shortcomings of foreign funding, every NGO should be careful in receiving foreign aid. It should be cautious that it does not become subservient to the donor. It should accept foreign aid only if it is satisfied that the terms and conditions imposed by the donor do not pose any serious constraints on achieving its objectives. It should prepare its own policy about receiving foreign aid. The policy should be reviewed periodically in light of socio-political developments in the international arena.

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