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Amendments to FCRA law regulating foreign grants to Indian NGOs continues raising compliance costs

Last week’s amendments to the law that regulates foreign grants to non-government organisations (NGOs) continues the recent trend of the centre making greater administrative demands on them, increasing their cost of compliance. The centre says the changes are aimed at “strengthening the compliance mechanism, enhancing transparency and accountability" in a key funding source for the NGO sector. Civil society says the new regulations are ill-conceived and only add to the difficulty of their functioning. Three amendments in particular have riled NGOs: opening a pass-through bank account in a specified branch in New Delhi, stopping NGOs from transferring foreign grants to other registered NGOs, and the lower cap on administrative expenses. Each has significant financial and compliance implications for NGOs.

Foreign grants received by NGOs are regulated by the Foreign Contribution Regulation Act, 2010, or FCRA. In order to receive foreign funds, an NGO has to register with the ministry of home affairs. It is assigned a unique FCRA registration number, to be renewed every five years. Under the current regime at the centre, renewal has become more difficult, NGOs say. In 2015, the centre increased e-filing requirements. NGOs had to make quarterly filings of foreign grants received. They also had to notify within 15 days any changes in bank account, name, address, aims, objectives and key functionaries. Around the same time, the centre started weeding out duplicate FCRA registration numbers—over time, several NGOs had accumulated more than one registration number.

The latest set of changes add to this feeling of siege. The first change is that every FCRA-registered NGO will have to open an FCRA-marked bank account with a designated branch of State Bank of India in New Delhi. These accounts will be the point of entry for all foreign grants. NGOs can subsequently route these funds to their existing FCRA-marked accounts across the country. According to CSIP, of the 21,490 NGOs that filed FCRA returns for 2018-19, only 1,488 were registered in Delhi. That’s only 7% of NGOs. Thus, this new rule will require functionaries of about 20,000 NGOs, spread across India, to come to Delhi to open a pass-through bank account.

The second change is stopping the practice of an FCRA NGO transferring foreign grants received by it to other FCRA NGOs. NGOs cite such re-transfers as mutually beneficial. It leverages the spirit of collaboration that is typical of civil society. Large NGOs can also work with smaller NGOs, who work on the ground but can’t raise foreign funds on scale by themselves. In 2018-19, according to CSIP, 4,107 NGOs registered in 380 districts—or about one in five FCRA NGOs—received such re-grants. The total amount transferred was ₹1,768 crore and the median transfer value was ₹7.6 lakh. In other words, half the 4,107 NGOs received a re-grant of less than ₹7.6 lakh. The centre is now seeking to shut this route.

The third change is lowering the cap on administrative expenses from 50% of foreign funds received to 20%. NGOs say this is needless micro-management and cost structures vary from project to project. It is particularly difficult for NGOs whose work revolves around advocacy rather than projects. In 2018-19, there were 1,328 NGOs whose administrative expenses exceeded 20% of their total foreign funds. NGOs say the new rules place more discretionary powers in the hands of bureaucrats and increase their compliance burden. And it will further widen the trust deficit between NGOs and the centre.

This article was originally published in Mint on 30 September 2020.


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