Amendments to Foreign Contribution (Regulation) Act

• 04 Jul 2022

For Prelims: Foreign Contribution (Regulation) Act (FCRA), 2010, non-governmental organisations (NGOs), Remittances, Forex Reserves, Trade Deficit

For Mains: Changes in FCRA Act and its Significance, Foreign Contribution (Regulation) Amendment Act, 2020

Why in News?

Recently, the Ministry of Home Affairs amended certain provisions of the Foreign Contribution (Regulation) Act (FCRA).

• The Ministry had made the FCRA rules tougher in November 2020, making it clear that NGOs (Non-Government Organizations) which may not be directly linked to a political party but engage in political action like bandhs, strike or road blockades will be considered of political nature if they participate in active politics or party politics. According to the law, all NGOs receiving funds have to registered under the FCRA.
• The move comes after the government enhanced the import duty on gold import from 7.5 % to 12.5 % in a bid to discourage import of gold that leads to increase in trade deficit and puts pressure on the currency and forex reserves.
  • An increase in import duty on gold will lead to increase in cost of import and discourage its import and consumption.

What is the FCRA?

• About:
  • The FCRA was enacted during the Emergency in 1976 in an atmosphere of apprehension that foreign powers were interfering in India’s affairs by pumping in funds through independent organisations.
    • These concerns had been expressed in Parliament as early as in 1969.
  • The law sought to regulate foreign donations to individuals and associations so that they functioned “in a manner consistent with the values of a sovereign democratic republic”.
• Objectives:
  • It requires every person or NGO wishing to receive foreign donations to be registered under the Act, to open a bank account for the receipt of the foreign funds and to utilise those funds only for the purpose for which they have been received and as stipulated in the Act.
  • The Act prohibits receipt of foreign funds by candidates for elections, journalists or newspaper and media broadcast companies, judges and government servants, members of legislature and political parties or their office-bearers, and organisations of a political nature.
• Amendments:
  • It was amended in 2010 to “consolidate the law” on utilisation of foreign funds, and “to prohibit” their use for “any activities detrimental to national interest”
  • The law was amended again by the current government in 2020, giving the government tighter control and scrutiny over the receipt and utilisation of foreign funds by NGOs.

What are the Key Changes?

• It allows Indians to receive up to Rs 10 lakh annually from their relatives abroad under FCRA.
  • The limit earlier was Rs 1 lakh.
  • If the amount exceeds, the individuals will now have 90 days to inform the government instead of 30 days earlier.
• It has given individuals and organisations or NGOs 45 days for the application of obtaining 'registration' or 'prior permission' under the FCRA to receive funds.
  • Earlier it was 30 days.
• Organisations receiving foreign funds will not be able to use more than 20 % of such funds for administrative purposes.
  • This limit was 50 % before 2020.
• Made five more offences under the FCRA “compoundable”, making 12, instead of directly prosecuting the organisations or individuals.
  • Earlier, only seven offences under the FCRA were compoundable.

What are Compoundable Offences?

• Compoundable offences are those offences where, the complainant (one who has filed the case, i.e., the victim), enter into a compromise, and agrees to have the charges dropped against the accused. However, such a compromise should be a "Bonafide," and not for any consideration to which the complainant is not entitled to.
• The FCRA violations which have become compoundable now include failure to intimate about receipt of foreign funds, opening of bank accounts, failure to place information on website, etc.

What is the Significance of the Move?

• Enhances Remittances:
  • It will curb the outflow of funds and on the other hand enhancing inward Remittances.
• Stabilise forex Reserves:
  • It will lead to an increase in inflow of funds into India which will stabilise the forex reserves and also the currency.
  • Similarly, an increase in import duty on gold from 7.5 % to 12.5 % will discourage gold import as it will result in an increase in the price of gold in India.
• Reduces Trade Deficit:
  • An increase in inflow of funds and reduction in outflow of funds on account of gold imports will help reduce the trade deficit.
    • The trade deficit in the month of April and May 2022 stood at a high of USD 20.1 billion and USD 24.6 billion respectively making an aggregate of USD 44.7 billion in two months.
    • By comparison the trade deficit in April and May 2021 stood at USD 21.8 billion.

Source: HT