BackCan Fema replace FCRA?
Foreign money for commercial purposes is treated differently to that meant for charity. Experts say this distinction should remain
Premium
After ruling that Ford Foundation can fund individuals and organizations in India only after prior approval of the home ministry—the move was ostensibly motivated by several non-profit funding organizations not being registered under the Foreign Contribution (Regulation) Act, 2010 (FCRA)—the government asked the foundation’s India arm to register itself as a liaison office under the Foreign Exchange Management Act, 1999 (Fema).
The government’s move was prompted by the fact that Ford Foundation is not registered as a charity (a society, trust or non-profit company) in India. This is a function of legacy.
Ford Foundation was invited to India in 1952 by the then prime minister Jawaharlal Nehru and ever since had been operating in India under a special status.
Earlier this year, the agency’s decade-old funding of one of activist Teesta Setalvad’s organizations came under scrutiny. Setalvad has been a thorn in Gujarat government, the BJP, and Prime Minister Narendra Modi’s side and filed several cases related to the 2002 communal riots in the state.
Some people in the non-profit space are asking whether it makes sense to use Fema instead of FCRA as the over-arching regulation for non-profits.
It isn’t clear how Ford Foundation will function under a double lens—it will be governed by Fema but will also have to have its grants vetted by the home ministry.
Money received for commercial purposes is governed by the ministry of finance under Fema while funds received for charity or social work are governed by the ministry of home affairs under FCRA.
M.R. Madhavan, president and co-founder of PRS Legislative Research, a non-profit working on policy research, said a transaction under Fema is called a fee/salary while the same under FCRA is called a grant/contribution.
“FCRA is a product of the Emergency era, much like the predecessor of Fema—the Foreign Exchange (Regulation) Act, 1973 (Fera). So if the law for commercial transactions (Fema) can be adapted to current-day requirements, why can’t the regulations governing grants?"
It can’t because FCRA and Fema have different objectives, said Joselyn A. Martins, founder of J.A. Martins & Co., a chartered accountancy firm in Delhi. While the former looks at control and monitoring, the latter is geared towards managing, he explained.
There’s also the issue of keeping an eye on what the money is being used for.
“Laws governing non-profits have to be stricter. Foreign funding for commercial purposes has no political influence—it is only influenced by the market and the market itself keeps the checks and balances needed. Unlike the not-for-profit sector, which has no such checks in place," says Surjit S. Bhalla, managing director of Oxus Research and Investments, a New Delhi-based economic research, asset management and emerging-markets advisory firm and former professor at Delhi School of Economics.
And foreign grants can’t be treated the same way as capital, said an expert.
“Foreign money for charity cannot be treated as capital because it does not represent equity or share capital—which would in turn give the shareholders some control over the way it is used," said Rajiv Chugh, partner, tax and regulatory services, at the auditing and consultancy firm EY.
Like Bhalla, he, too, believes that the use of foreign money in local charities should be monitored.
Still, even Bhalla and Chugh would like to see some changes.
Very few countries have separate laws for foreign money meant for commercial purposes and charity, said Chugh.
And Bhalla said foreign funding for anyone is a financial issue and should be governed by the finance ministry not the home ministry. The finance ministry is likely to be more objective, too, he said.
The arguments point to a festering issue for non-profits—governance, or the lack of it, in some cases.
“If non-profits had better self-regulation and governance then perhaps they could be treated at par with incorporated companies," said Parul Soni, global managing partner at Thinkthrough Consulting, a Delhi-based consultancy. Soni pointed to some of the things private firms have going for them: audit committees, independent directors, activist shareholders.
“Not all of these aspects are present in non-profit entities and therefore what happens to the money remains in doubt."
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
