The Ministry of Home Affairs (MHA) has recently released new guidelines regulating banks under the Foreign Contribution (Regulation) Act, 2010. According to these guidelines, donations in Indian rupees received by non-governmental organizations (NGOs) and associations from any foreign source need to be classified as a foreign contribution even if the source is within India during the donation.
Key Points on New Guidelines
These new guidelines expand the definition of foreign contributions. Under the updated terms, any donation in Indian rupees from a foreign source, including those of Indian origin like Overseas Citizens of India (OCI) or Persons of India Origin (PIO), should also be identified as a foreign contribution.
In line with the Financial Action Task Force’s (FATF) standards, the guidelines mandate that NGOs adopt good practices and alert the Ministry about questionable activities from any donor or recipient. This directive also applies to the recruitment of NGO employees, where due diligence is necessary.
Existing Rules and Banking Channels
Under the current rules, banks are required to report the receipt or utilization of any foreign donation by any NGO, association, or person to the Central Government within 48 hours. This mandate applies regardless of whether they are registered or have prior permission under the Foreign Contribution Regulation Act of 2010.
The Foreign Contribution (Regulation) Amendment Act, passed in September 2020, introduced a requirement for all NGOs to receive foreign funds in a designated bank account at the State Bank of India’s New Delhi branch. NGOs seeking international donations have to open a specific FCRA account at the SBI branch or link their existing account to it.
Reasons behind FCRA Regulations
Between 2010 and 2019, foreign contribution inflows have nearly doubled. However, many recipients have failed to utilize the funds for their original intended purposes, violating FCRA 2010 provisions. Recently, the Union Home Ministry suspended six NGOs’ licenses due to allegations of misuse of foreign contributions for religious conversion.
The regulations aim to safeguard internal security against negative impacts from these contributions.
Controversies Surrounding FCRA
The FCRA has faced criticism for its vague language, particularly regarding what constitutes “activities detrimental to the national interest” or the “economic interest of the state”. Critics argue that it places limitations on fundamental rights to free speech and freedom of association under Articles 19(1)(a) and 19(1)(c) of the Constitution.
About Foreign Contribution (Regulation) Act, 2010 and Amendment Act, 2020
The FCRA, implemented by the Ministry of Home Affairs, regulates foreign funding in India. It permits individuals to accept foreign contributions below Rs. 25,000 without MHA permission. The Act ensures compliance of recipients with the intended purpose of the contribution, requiring organizations to register every five years.
The Amendment Act of 2020 bars public servants from receiving foreign contributions and prohibits the transfer of foreign contributions to unregistered parties. It introduced mandatory Aadhaar identification for key functionaries of receiving entities and restricted the use of foreign contributions for administrative expenses to 20%, down from 50%.
Way Forward
Excessive regulation on foreign contributions can adversely affect NGOs, which often help implement government schemes at the grassroots level. To ensure that sharing of resources across borders is not hampered, the regulation must be balanced to discourage illegal activities without inhibiting the functioning of a global community.
