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The NGO Factor

Subhash Mittal

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The Foreign Contribution Regulation Act, 1976 was promulgated with the pur-pose of maintaining a watch on the foreign exchange received by Non-Governmental Organisations (NGOs). The intention was to ensure that the contributions received were used for the purposes specified, and that these were consistent with the principles of national sovereignty.

This article begins by examining the political background against which the 1976 Act was framed, before discussing its provisions. It then looks at two specific lacunae. The first relates to problems faced in the mandatory registration of NGOs. The other relates to the requirement that NGOs maintain their funds in a specified account and problems of disbursement.


Non Government Organisations (NGOs) play a major part in the development of a society. An NGO is often formed by concerned citizens who wish to do their bit to reform society. Obviously, such organisations require funds to carry out their activities. Generally these sources can be from three different areas, Govt., public at large and foreign development agencies. This article covers certain difficulties that NGOs which receive funds from foreign development agencies face. This is one of the most important source of funds.


In India funding by foreign development agencies is covered by the Foreign Contribution (Regulation) Act 1976 and the nodal ministry for regulating this Act is the Ministry of Home Affairs. The objectives of the Act are as stated in its preamble. These can be briefly summarised as an Act to regulate the acceptance and utilisation of foreign contribution by certain persons or associations so that such persons or associations may function in a manner consistent with the values of a sovereign democratic republic.

It may be remembered that this legislation was enacted in 1976, at the time when there was a lot of hue and cry from a certain political party of the invisible ‘foreign hand’ trying to scuttle Indian sovereignty. Further a number of organisations had built-up a campaign, that a number of foreign funded NGOs were converting tribals and scheduled castes to Christianity in the garb of development. Thus it is clear at the time when this legislation was brought in, the administration looked upon the persons and associations who rec’d foreign funds with suspicion, and wanted to have a mechanism to monitor the foreign funds rec’d by such persons / associations and how these were utilised. The scope of this article is not to look into the intentions of the Act nor even to look at if it is serving the purpose it was intended for, but to cover certain specific provisions which are causing innumerable problems to multi-locational NGOs and thus harming their developmental work.

An NGO who wishes to utilise funds of a foreign development funding agency has to register under the FCRA Act. This is easier said than done. The department as a practice does not register organisations which come to it for the first time. The practice for such organisations is to apply for prior permission for any funds that it is likely to

receive. The department invariably gets a survey done of the applicant organisation by state intelligence agencies.

Multi-locational NGOs

Once a prior permission or a registration (popularly known as FCRA registration) is rec’d by the NGO, it is required to receive and utilise these funds only under a designated bank account. An audited annual return of this bank account in a prescribed format (FC3) is required to be filed with the FCRA department. In ordinary circumstances this requirement appears to be a perfectly reasonable one, especially where the NGO concerned is a small size NGO working mainly from one location. However the problem becomes a nightmare in the case of a large NGO, having multi-locational projects.

Consider the following situation being faced by a number of NGOs today. Say, an NGO whose head-office is in Delhi, is working on a drinking water project based in Terai region of UP. The NGO has a separate project office, with staff, including a project manager. The project has to pay not only the salaries and day to day expenses of the employees, but also pays for the hand-pumps that it purchases. It also has to pay for the contractors it employs for installing these hand-pumps. As the project has an office, it has a number of establishment costs like rent, electricity, telephone, printing & stationary, etc. Obviously it is not possible for the project to get all its regular payments made from its headquarters in Delhi. It needs to have a bank account locally from which all the payments can be made.

This is the crux of the problem. Under the FCRA Act, the department does not allow transfer of funds from the designated bank account to any other bank account. How are NGOs having offices in far-fetched locations supposed to operate ? The problem becomes highly complicated in cases of large NGOs, having a large number of projects, say, more than 20 projects at different locations, which are getting foreign funding for such projects. How can these function without arrangements for local payments?

The strict observance of the Act would mean that large NGOs can hardly function, as it will not be possible for them to work far away from their office. Or they invest in large infrastructure to arrange for payments locally at very high costs. Or even take up the unorthodox manner of transferring funds in the name of employees, who ultimately meet the organisation’s obligations. The issue is that the project staff whose main priority is to implement the program activities, get more and more involved in the administrative function of arranging for payments. It is time to consider if the legislature really intended to retard the growth of

large multi-dimentional and multi-locational NGOs, which are more professional and have built-up a good record. In fact the government realising its poor delivery system is coming more and more to such NGOs for implementing some of its social programs.

In the FCRA Act, itself, no where it is explicitly written, that an NGO cannot open a different bank account for utilisation purposes. In fact the only place where maintaining of a separate bank account is referred to is under Rule 8 (1) and sub-rule (b) of the FCRA rules, which state that a separate bank account shall be maintained in respect of foreign contribution rec’d. Based on this little inference, the department does not allow the opening of anyother bank account. In the process it has created innumerable easily avoidable problems for the NGOs without really adding much to its regulating process.

A Suggestion

It is easily possible within the present legal frame-work for the Dept. to allow opening of new bank accounts, specifically to be used by far-placed projects. Such accounts should be treated as nothing more than a sub-account of the main account. The Dept. could stipulate conditions, such as, the purpose of these accounts could be restricted to utilisation of foreign contributions transferred from the designated account. The accounts should be disclosed under the organisation’s annual return (FC3), etc. This will ensure that funds remain under the monitoring process. A large number of NGOs already have such bank accounts, only thing they do is try to hide such accounts in different innovative ways.

The dept. also needs to clarify the position. The present situation of uncertainty and confusion gives a lot of leverage to the inspecting officers leaving scope for malpractice. Often organisations whose awareness of such issues is not very strong start certain practices such as transfer of physical cash, issuing drafts in the name of employees, which are not only fraught of inherent security risks, but also transferring focus of program persons from developmental activities to administrative activities, thus harming the projects in the long-term.


The Govt should not forget the purpose for which this Act was enacted in the first place. The purpose as stated in the preamble of the Act was to install a mechanism to regulate receipt and utilisation of foreign contribution. One wonders how many times the dept. officials have really looked into the nitty gritty of monitoring e.g. does it really compare the costs of targets achieved with that of generally acceptable ones ? Do the officials really ever visit the field to verify if the targets as stated have been achieved. A more constructive and thoughtful approach of ensuring that the proper monitoring does take place, while ensuring that genuine difficulties of NGOs are taken care of will really serve the the intentions of the legislature.



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