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THE FCRA AMENDMENTS AND ITS IMPACT ON FOREIGN GRANTS

Author: Arsheiya Munjal, IV year of B.Com.,LL.B.(Hons.) from Amity Law School, Noida


Introduction

The Foreign Exchange Management Act, 1999 (FEMA) regulates the establishment of all branch offices, liaison offices and project offices.[i]For any foreign entities or donor agencies wanting to open such an office in India, the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016 consists of all the necessary statutory provisions.[ii]Hence, any establishment or activities of branch or liaison offices are being regulated by the RBI under FEMA.


Regulation 5 of these regulations entails guidelines about the approval of the RBI for the establishment of such offices in India. Formerly they were required to register with the RBI under FEMA by filling an FNC form and were regulated by the Finance Ministry. However, on 31st August 2018, the RBI amended the rules of the regulations to essentially mean that all Non-Government Organisations (NGOs) and Non-Profit Organisations (NPOs) engaged in activities governed by The Foreign Contribution (Regulation) Act, 2010 (FCRA) must register under that act and not under FEMA.[iii]The RBI, through the same amendment strengthened the inclusion of this provision by amending the FNC form to include the declaration which states that any branch office, liaison office or project office registering under FEMA will not undertake, either partly or fully, any activity covered under FCRA. It further elaborates that in case an establishment under FEMA is found to be furnishing any false information or making any misrepresentation, their approved FEMAregistration would automatically be void ab initio and stand withdrawn without further notice.


Practical Viewpoint

Activities under FCRA include any cultural, economic, educational, religious or social programmes receiving foreign contributions.[iv]It must be noted that the FCRA is regulated by the Home Ministry of India and so with this amendment all foreign contributions for any cultural, economic, educational, religious or social purpose may be scrutinized by The Ministry of Home Affairs. This clears the purpose of FEMA as that of managing transactions of salaries or fees of branch or liaison offices and the purpose of FCRA to control and monitor transactions of foreign grants or contributions being received by such offices or organisations to ensure that the contributions are not utilized for any purposes other than those in the act.


The amendment is vital as a foreign contribution for NGOs and NPOs cannot be treated as the same as foreign investments towards private business purposes. One of the reasons this amendment has been made is that the capital for private business purposes is controlled by the shareholders of the company whereas the financial contributions towards NGOs and NPOs were being bought in without any such authorized control. Hence, this change brings about transparency to the finances of NGOs and NPOs as foreign contributions towards them are continuously increasing and help counter activities that are detrimental to the economy of the country. On the other hand, this amendment may lead to the government suppressing NGOs and NPOs that contribute and work towards causes that are against government policies or laws.[v]


On 28th September 2020, the government further amended the FCRA rules.[vi]The new provisions make it mandatory for all NGOs receiving foreign funds to designate a bank account at SBIs New Delhi branch where all foreign donations would be received. This amendment makes it clear that all NGOs and NPOs engaged in FCRA activities otherwise and through branch offices, liaison offices or project offices and receiving the foreign contribution must register separately under FCRA. During this pandemic, organisations are already finding it difficult to get enough foreign grants and on top of that, they have been given the additional responsibility of collecting various documents such as Aadhar cards and KYC’s from all the trustees, who may be in different parts of the world and affected by Covid-19. The Aadhar card has been made a mandatory identification document for all organisations registering under FCRA, without the consideration that many trustees might not have the required document and would have difficulty getting it with covid restrictions. Due to the amendment, sub-granting from NGOs to smaller NGOs working at the grassroots has also been banned, which will have a direct effect on rural local areas. As of May 2021, there are only 22,591 registered FCRA NGOs.[vii]A closer look at statistics show that less than 1% of NGOs in India have registered themselves under FCRA.[viii]Through this amendment the government is crippling NGOs when they are required the most, during a global pandemic.


Conclusion

Sine the 2018 amendment, many existing NGOs did not want to register under the FCRA due to its strict regulations. These NGOs are have been taking refugees under their FEMAapprovals since those had not been formally withdrawn. However, foreign contributions play an important role in the development of India through NGOs and NPOs.As long as an organisation, including any branch office, liaison office or project office, operate with a cultural, economic, educational, religious or social objective and receive foreign contributions, they must be registered under FCRAirrespective of whether the foreign contributions are in kind or in cash, to avoid any type of penalty under the act. While the transparency both these amendments brings towards foreign grants is a necessity to have transparency over finances, the timing of the second amendment might not be advantageous as NGOs are suffering when they are needed the most.

[i]https://legislative.gov.in/sites/default/files/A1999-42_0.pdf

[ii]https://rbi.org.in/scripts/NotificationUser.aspx?Id=10327&Mode=0

[iii]https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11488&Mode=0

[iv]https://fcraonline.nic.in/Home/PDF_Doc/fc_faq_07062019.pdf

[v]http://www.ias4sure.com/wikiias/gs2/ngo-foreign-funding-fcra/

[vi]https://fcraonline.nic.in/home/PDF_Doc/fc_amend_07102020_1.pdf

[vii]https://www.thehindu.com/news/national/fcra-amendments-crippling-our-work-say-ngos/article34521449.ece

[viii]https://www.mondaq.com/india/corporate-and-company-law/991544/foreign-contribution-regulation-amendment-act-2020-a-mixed-bag