Revisiting NGO Regulatory Framework

• 30 May 2025

For Prelims: Foreign Contribution (Regulation) Act,  Emergency, Association for Democratic Reforms (ADR), PM POSHAN, SEBI,  World Wide Fund for Nature (WWF), Indian National Trust for Art and Cultural Heritage - INTACH. 

For Mains: Regulation of NGOs under FCRA and suggested reforms for their better functioning in India. 

Source: ET 

Why in News? 

The Ministry of Home Affairs (MHA) has recently announced new amendments to the Foreign Contribution (Regulation) Rules, 2011 affecting the manner in which non-governmental organizations (NGOs) operating in India can receive and utilize foreign funds.  

What are the Key Provisions of the New FCRA Rules for NGOs? 

• Ban on Publication Activities: NGOs engaged in publication-related activities must now obtain a certificate from the Registrar of Newspapers for India ensuring compliance with media regulations and declaring they are “Not a Newspaper.” 
• Financial Disclosure: NGOs applying for FCRA, 2010 registration must submit financial statements and audit reports for the past three years, including assets and liabilities, income and expenditure, and receipts and payments accounts. 
• FATF Compliance: NGOs must declare adherence to Financial Action Task Force (FATF) Good Practice Guidelines, aligning with India’s efforts to strengthen oversight of foreign financial flows. 
• New Requirements for Receiving Foreign Contributions: NGOs must submit a commitment letter from foreign donors matching the donation with a detailed project report with expense breakdown.  
• Obligations for Previously Registered NGOs: If an NGO’s FCRA registration has expired or been cancelled, it must submit an affidavit detailing the receipt and utilisation of previously received foreign contributions.

Foreign Contribution Regulation Act

• About: FCRA is a law enacted in 1976 during the Emergency to regulate the acceptance and use of foreign contributions by individuals, associations, and organizations in India. 
  • It ensures that such contributions are used only for legitimate purposes and do not compromise national interest. 
• Amendments: The original FCRA Act, 1976 was repealed and replaced by new legislation in 2010 to modernise the law governing foreign contributions.  
  • In 2020, additional amendments were introduced to tighten the regulations and improve oversight of foreign donations. 

What are NGOs and How are they Regulated in India? 

• About: A NGO is a non-profit entity that functions independently of the government, focusing on humanitarian, social, or developmental objectives. 
• Formation of NGOs in India: 
  • Societies: Registered under the Societies Registration Act, 1860. 
  • Trusts: Private Trusts are registered under the Indian Trusts Act, 1882 which is a central legislation. 
    • Public Trusts are registered under respective state laws. 
  • Charitable Companies: Registered as non-profit companies under Section 8 of the Companies Act, 2013. 
• Foreign Contribution Regulation: NGOs that receive foreign contributions or donations must obtain prior registration or permission under the Foreign Contribution (Regulation) Act (FCRA), 2010, administered by the Ministry of Home Affairs (MHA). 
  • The FCRA, 2010 governs the receipt and utilization of foreign funds by individuals, associations, or companies, including NGOs.  
    • Its core objective is to prevent foreign contributions from undermining India’s sovereignty, integrity, security, economic or scientific interests, public order, or leading to any offence or harm to individuals. 
• Key Amendments in the Foreign Contribution (Regulation) Amendment Act, 2020: 
  • Mandated that all foreign contributions be received only through a designated "FCRA Account" at a specified bank (State Bank of India, Delhi). 
  • Prohibited transfer of foreign contributions from the recipient to any other person or entity. 
  • Reduced the permissible limit for administrative expenses from 50% to 20% of the foreign funds received. 
  • Empowered the Central Government to: 
    • Restrict or suspend further receipt or utilization of foreign contributions following a summary inquiry. 
    • Require Aadhaar or other identification documents for office bearers, directors, and key functionaries of NGOs. 

What are the Key Roles and Responsibilities of NGOs? 

• Governance: NGOs strengthen democracy by promoting transparency and accountability, exemplified by the Association for Democratic Reforms (ADR) whose PILs led to mandatory disclosure of candidates’ criminal records, education, and assets.  
  • They also supplement government schemes like the Akshaya Patra Foundation, supporting the PM POSHAN initiative against malnutrition. 
• Social Reforms: NGOs protect human rights (e.g., Bachpan Bachao Andolan), empower women (SEWA), represent marginalized groups like PLWHA (People living with HIV/AIDS) and LGBTQIA+ communities (Naz Foundation), and alleviate poverty (Goonj). 
• Disaster Relief and Rehabilitation: NGOs like SEEDS India play a critical role in providing immediate aid and long-term rehabilitation support during natural disasters and emergencies.  
• Environmental Conservation: Many NGOs like World Wide Fund for Nature (WWF) work to protect natural resources, promote sustainable development, and combat climate change through awareness campaigns and grassroots initiatives. 

 

What are the Key Challenges Related to NGOs in India? 

• Regulatory Restrictions: Strict FCRA regulations have resulted in the cancellation of NGO licenses, restricting access to foreign donations, while domestic CSR funds are largely directed toward corporate-linked NGOs, leaving smaller organizations underfunded and struggling. 
• Trust Deficits: NGOs face accusations of "anti-national" activities, leading to audits, raids, and the closure of NGOs. E.g., Greenpeace India was banned for allegedly obstructing economic development through its campaigns against coal mining and nuclear power projects. 
• Lack of Transparency: Some NGOs have been criticized for poor accountability and failure to comply with reporting requirements, leading to increased government scrutiny and a loss of public trust.  
  • In several instances, NGOs that did not file their annual returns faced cancellation of their FCRA registration.

What Key Reforms Are Needed to Strengthen NGO Regulation in India? 

• Implement 2nd ARC Recommendations: FCRA implementation should be decentralized to ease bureaucratic hurdles, with balanced legislative interpretation that protects genuine NGOs from excessive regulation while preventing misuse of foreign funds.  
• Stronger Anti-Money Laundering (AML) Checks: Link NGO funding regulations to FATF guidelines, as India is a member. Strengthen measures to block shell NGOs, similar to the 2017 crackdown on over 11,000 fake NGOs. 
  • Faster blacklisting of rogue NGOs can be achieved through automated alerts for fund diversion, similar to SEBI’s surveillance system. 
• Encourage Domestic Funding: Provide tax incentives for Indian donors, and encourage Corporate Social Responsibility (CSR) partnerships with credible NGOs, such as Tata Trusts’ education initiatives.

Conclusion 

The new FCRA amendments strengthen oversight of foreign-funded NGOs, ensuring transparency and national security. However, balanced reforms—like digital audits, Aadhaar-linked databases, and domestic funding incentives—are needed to prevent misuse while supporting genuine NGOs. Stricter FATF compliance and faster blacklisting of rogue entities will enhance accountability without stifling development work. 

Drishti Mains Question:

Examine the reforms needed for better regulation of NGOs receiving foreign funding in India.

UPSC Civil Services Examination, Previous Year Question:  

Mains

Q. Can Civil Society and Non-Governmental Organisations present an alternative model of public service delivery to benefit the common citizen? Discuss the challenges of this alternative model.