Foreign Contribution (Regulation) Act, 2010: Ensuring Transparency in Foreign Funding

08 Apr Foreign Contribution (Regulation) Act, 2010: Ensuring Transparency in Foreign Funding

This article covers “Daily Current Affairs” and the Topic.  Foreign Contribution (Regulation) Act, 2010: Ensuring Transparency in Foreign Funding

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GS-2-Polity and Governance- Foreign Contribution (Regulation) Act, 2010: Ensuring Transparency in Foreign Funding

FOR PRELIMS

What is the Foreign Contribution (Regulation) Act (FCRA), 2010? And what is its purpose? 

FOR MAINS

What are the major rules NGOs must follow under the FCRA Act?

Why in the News? 

The Union Home Ministry has announced that foreign funds received under the prior permission route must be utilised within four years from the date of approval. This directive is in accordance with the provisions of the Foreign Contribution (Regulation) Act, 2010 (FCRA). As per the ministry, the validity period for receiving foreign contributions under prior permission is three years, and the funds must be used within a maximum of four years. For applications already approved where the remaining validity exceeds three years, the four-year limit will now be counted from the date of issuance of this new order rather than from the original date of approval. This move aims to enhance compliance and accountability in the utilisation of foreign contributions.

What is FCRA 2010? 

The Foreign Contribution (Regulation) Act (FCRA), 2010, was enacted by the Parliament of India to consolidate the law regulating the acceptance and utilisation of foreign contributions or foreign hospitality by certain individuals, associations, or companies. It aims to prohibit such acceptance or utilisation for activities that are detrimental to the national interest and also addresses matters connected or incidental to these objectives.

Key provision of FCRA 2010 

1. Registration or Prior Permission: Any individual, association or NGO must either register or obtain prior permission from the Ministry of Home Affairs (MHA) to receive foreign contributions.
2. Designated FCRA Account: Foreign contributions must be received only in a designated FCRA account at the State Bank of India, New Delhi Main Branch (NDMB).
3. Prohibited Recipients: Certain entities cannot receive foreign funds, including Election candidates, Judges, Government servants, members of the legislature, Political parties and their office-bearers, Journalists (under certain conditions)
4. Restricted Use of Funds: Foreign contributions must not be used for Activities against national interest, Political funding, Religious conversion, Sedition or violence, Administrative expenses beyond a permissible limit (currently capped at 20%)
5. No Sub-Granting (as per 2020 Amendment): Registered organisations cannot transfer foreign funds to other NGOs or entities, even if the latter is FCRA-registered.
6. Maintenance of Records: Recipients must maintain proper accounts and file annual returns detailing the receipt and usage of foreign funds.
7. Suspension/Cancellation of Registration: The MHA can suspend or cancel registration in case of violations or misuse of foreign funds.
8. Mandatory Aadhaar for Office Bearers: Key functionaries of NGOs must link their identity with the Aadhaar (2020 amendment).
9. Cap on Administrative Expenses: Administrative expenses must not exceed 20% of total foreign contributions received (earlier it was 50%).
10. FCRA Online Services: All applications for registration, renewal, and reporting are processed through the FCRA online portal.

Recent rules of FCRA 2010 

1. TDS Refund Transfer: The FCRA Amendment Rules 2024 clarify the process of transferring TDS refunds, addressing concerns regarding the previous ambiguity.
2. Carrying Forward Administrative Expenses: The rules now permit carrying forward administrative expenses, offering some relief to organizations.
3. FCRA Registration Validity: The Act states that registration certificates are valid for five years, and renewal must occur within six months before expiry.
4. Prohibition of Foreign Contribution: The FCRA prohibits the acceptance of foreign contributions by individuals like candidates for elections, journalists, judges, government servants, and members of the legislature or political parties.
5. FCRA Account: Organizations are required to open a designated “FCRA Account” to manage foreign contributions.
6. Purpose of Funds: The FCRA mandates that NGOs utilise foreign funds only for the purposes for which they were received and as stipulated in the Act.

Importance of Foreign Funds for NGO 

1. Financial Support for Development Projects: Foreign contributions fund a wide range of social, educational, health, environmental, and humanitarian programs, especially in rural and underserved regions.
2. Innovation and Research: Many NGOs engage in research, advocacy, and innovation, especially in fields like climate change, public health, and education, which are often funded by international donors.
3. Capacity Building: Foreign aid helps NGOs build infrastructure, train personnel, and improve their internal systems for better project implementation and impact assessment.
4. Collaboration and Global Best Practices: International funding often comes with technical expertise and global best practices, enabling Indian NGOs to align with global development goals like the UN SDGs.
5. Filling Gaps in Governance: NGOs supported by foreign funds often operate in areas where government programs are absent, underfunded, or inaccessible, helping improve last-mile delivery.
6. Focus on Marginalised Communities: Foreign funding empowers NGOs to work with marginalised and vulnerable groups, ensuring inclusivity and equity in development initiatives.
7. Advocacy and Human Rights Work: Many NGOs engaged in human rights, gender equality, and legal aid rely on foreign support to remain independent and effective.

Way forward 

1. Strengthen Compliance Without Overregulation: Implement tiered compliance norms based on NGO size and scope. Provide dedicated support and simplified processes to reduce bureaucratic hurdles.
2. Enhance Transparency: Introduce digital dashboards for real-time tracking of foreign funds. Public disclosure of fund usage and third-party audits can improve accountability.
3. Promote Domestic Philanthropy: Offer tax incentives and CSR partnerships to encourage local funding. A national platform can help connect donors with grassroots NGOs.
4. Build Capacity for Compliance: Organise training workshops and create SOPs and e-learning tools to help NGOs understand and meet FCRA requirements effectively.
5. Balance Security and Civil Liberties: Ensure fair enforcement by avoiding blanket bans and involving civil society in policy-making. Protect freedom of association while addressing misuse.