Home >News >India >Civil society gears up for big funds squeeze
Indian donors prioritise service delivery in health and education over climate change and human rights, making foreign-origin funds critical for some types of activities. (Photo: Reuters)
Indian donors prioritise service delivery in health and education over climate change and human rights, making foreign-origin funds critical for some types of activities. (Photo: Reuters)

Civil society gears up for big funds squeeze

  • New norms on foreign donations and covid-19 could end up shrinking the money pool for philanthropy and CSR
  • Domestic philanthropic spending has grown at a fast clip, but a closer look reveals a bias on priorities set by Indian donors as well as the geographical spread of funds

NEW DELHI : Arpan is a small non-profit working out of remote Pithoragarh district of Uttarakhand, bordering Nepal. It helps primitive tribal groups expand their livelihood choices and file land claims under the Forest Rights Act. The non-governmental organisation (NGO) also works with rural women to ensure vibrant village councils or Panchayats, the last leg of India’s democratic governance structure.

A recent set of changes to India’s foreign donation laws, however, has put hundreds of small NGOs like Arpan in a spot. “Our work has come to a halt after the donor agency asked us not to use funds till rules (arising from the new laws) are framed," said Renu Thakur, who heads the non-profit. “It looks like we will have to let go of some of our staff and curtail our geographic spread."

In late September, India’s Parliament approved sweeping changes to the Foreign Contribution Regulation Act (FCRA), 2010. From now on, larger FCRA registered organisations are barred from transferring foreign donations to smaller non-profits (a practice known as sub-granting) who often find it difficult to access donors on their own. Also, all FCRA registered non-profits have been asked to limit their administrative expenses to 20% of donations (from the earlier norm of 50%) which is likely to force them to reduce staff as well as curtail research and policy advocacy work.

To tighten the screws further, FCRA registration can be suspended now after a summary enquiry and the period of suspension can extend up to a year (from 180 days earlier)—a provision which will give the government more time for enquiry and halt the organisation’s work for an extended period.

These changes will impact not just the availability of funds but also the very nature of philanthropic initiatives. The focus of donors may shift from rights, advocacy and research to service delivery; in a few years, foreign donors might also redirect funds to other countries, experts warn.

The restrictions on NGOs were least expected by civil society organisations that have been stretched after a gruelling past few months helping communities (like migrant workers) affected by covid-19. Also, it’s ironic since political parties can now access foreign funds through electoral bonds.

During 2018-19, Indian NGOs received 16,881 crore in foreign donations, accounting for about a fourth of the overall philanthropic spending in India. At a time when most donor funds are directed towards covid relief efforts, the amendments could squeeze the once-vibrant not-for-profit sector of funds. The crunch is also because a chunk of the corporate social responsibility (CSR) funds which NGOs depend on went to the PM-Cares fund, a new national corpus set up to mitigate the impact of emergencies like the ongoing pandemic.

An analysis of CSR spending outlook for 2020-21 by Sattva, a consultancy firm, shows that more than half of the annual CSR budget of Indian corporations, or about 7,863 crore, was allotted for covid relief by early July. About 68% of this allocation went to the PM-Cares fund ( 5,324 crore). “With an estimated 8,000 crore going to the PM-Cares by now, availability of domestic CSR funds for NGOs will be back to normal levels by the second quarter of 2022," said Parul Soni, managing partner at Thinkthrough Consulting.

There’s obviously been a mixed response to the changes. Soni, for one, defends the recent amendments, saying they will bring in more accountability by tracking money trails. He added that funding agencies will have to rework their model and the civil society should step up as law-abiding entities rather than just criticise the changes.

Contrast this with this sharp statement from the Population Foundation of India (PFI), that “by failing to recognise and appreciate the diversity of qualified and committed NGOs and presuming that all civil society organisations are suspect and guilty, the bill will end up crushing a very important pillar of India’s vibrant democracy."

“We are willing to work with the government to stop any activity which hurts India’s interests but we were not consulted on the changes," Poonam Muttreja, executive director of PFI, told Mint.

Besides deepening the fund crunch, the FCRA amendments will stifle causes foreign donors are willing to support, said Ingrid Srinath, director at the Centre for Social Impact and Philanthropy, Ashoka University. For instance, Indian donors prioritise service delivery in health and education over climate change and human rights.

“Education and health programs are not only easier to monitor but are also unlikely to be seen as ‘anti-national’... besides raising their compliance costs, the changes will push NGOs to become mere government contractors for last mile delivery of services (like subsidised toilets) rather than raise questions on policy matters or defend the rights of tribal communities," Srinath said.

For instance, in the Nellore district of Andhra Pradesh, for the past 15 years, the Association for Rural Development has concentrated on rescuing bonded labourers belonging to the Yanadis (notified as a ‘criminal tribe’ in pre-independent India) and rehabilitating them. Such work could come to a standstill.

Changes over the years

The FCRA Act was first brought in by the Indira Gandhi government during the Emergency in 1976. Its aim was to protect the ‘sovereignty’ of India from ‘foreign hands’ at a time when global powers were engaged in a cold war. The law prohibited political parties, electoral candidates and even cartoonists from accepting foreign contributions.

The next big change in FCRA was introduced by the Congress government in 2010 which made the renewal of registrations mandatory every five years and placed a 50% limit on administrative expenses. But most crucially, the 2010 law shifted the focus from political parties to ‘organisations of a political nature’ including groups of youth, farmers, workers, caste-based associations which ‘employs common methods of political action’ like strikes and rail and road blocks.

The law brought NGOs which used popular means of protest for democratic and constitutional entitlements under the scanner. The 2011 rules were framed at a time when protests by local communities against the Kudankulam nuclear power plant in Tamil Nadu were gathering steam. So were people’s movements against forcible land acquisition by industrial and mining projects.

The latest amendments tighten the noose by strengthening the 2010 changes. “The bill is to ensure that the sovereignty of India is not threatened... this was required for an Atmanirbhar Bharat. We want to ensure that foreign funds are spent transparently," said Nityanand Rai, minister of state for home affairs during a discussion in the Parliament.

Rai added that sub-grants were stopped since they are misused and difficult for the government to monitor. The 20% limit on administrative expenses is to ensure more money is spent on public welfare, rather than on director’s salary and air-conditioners, the minister said, discounting the reality that rights based work and policy advocacy is human resource intensive and therefore incur more administrative costs.

From 1976 till now, successive governments have used the FCRA provisions as part of statecraft to control dissent, said Anil Chaudhury from INSAF, a coalition of rights based non-profits. “This government, like previous ones, would rather have the civil society help in building toilets and solid waste management facilities and function as its extended arm."

CSR priorities

Vidya Dham Samiti is currently engaged in a critical project in the back-of-the-beyond Bundelkhand region of Uttar Pradesh. Through a platform named Chingari it helps Dalit women register cases of sexual exploitation and rape in local police stations. Alongside, it works with local communities and helps them enlist in government programs such as the rural jobs and food security schemes.

“Despite trying repeatedly, we could never access CSR funds," said Raja Bhaiya, who set up the NGO two decades back. He added that CSR funding is aligned to the business interests and products of companies (for instance, a mining company running a school for displaced tribals); the priorities are often decided by what they want and not what the community needs.

Domestic philanthropic spending is estimated to have grown from 12,500 crore in 2010 to 55,000 crore in 2018 but a closer look reveals a bias on priorities set by Indian donors as well as the geographical spread of funds.

For instance, according to the India Philanthropy Report 2020 published by Dasra and Bain & Company, education and health accounted for more than half of all domestic expenditure, compared to just 1% spent on promoting gender equality. Also, Maharashtra received the largest proportion of philanthropic and CSR funds (34%) compared to a state like Jharkhand (less than 1%) with far worse development indicators.

An analysis of CSR funding of top 100 listed companies by KPMG showed that in 2018-19 public sector units spent about 62% funds on health, education and rural development while private companies spent an even higher 73%.

Interestingly, the survey reported that overhead (or administrative) expenses were 32% and 24% for CSR-funded health and education programs, respectively, higher than the 20% limit set for NGOs while using foreign contributions, and exceeding the 5% cap as per the CSR rules.

Despite the different accountability standards for domestic and foreign donations, what could hurt the civil society further is a proposed change in the CSR rules. According to the Draft Companies (CSR) Amendment rules, 2020, (released in March) money spent on trusts and societies will not qualify as CSR spending. If the proposal is enforced, not-for-profits will be effectively cut-off from accessing CSR money, deepening the ongoing fund crunch.

Uncertain Future

Even though the total number of non-profits dependent on FCRA funds isn’t high, it matters because foreign donors do not set rigid conditions and offer considerable flexibility in use of funds, said Pushpa Sundar, an independent consultant and author of the book ‘Giving with a thousand hands: the changing face of Indian philanthropy.’ NGOs which are engaged in research and advocacy and those that give sub-grant to smaller grassroots organisations will have to do major adjustments, Sundar said.

The churning may force foreign donors to curtail their operations (such as the Ford Foundation) or call it quits, as was the case with Amnesty International which recently decided to halt India operations citing ‘constant harassment by government agencies’ for its work on human rights violations. In the past, cancellation of FCRA registration (in 2015) forced the environmental rights watchdog Greenpeace to halt its India operations after it failed to source funds from within the country.

“The FCRA amendments will drive many grassroots NGOs and community organisations to a greater level of precarity and halt the emergence of local leadership from marginalised communities," said Sandeep Chachra, executive director of ActionAid India and co-chair of the world urban campaign of UNHABITAT. “The least we expect from the government is to give us a few months to rework our contractual obligations," Chachra added.

In the past, several organisations like the Association for Democratic Reforms (an election watchdog) and the Majdoor Kisan Shakti Sangathan (which built a grassroots campaign for the Right to Information Act) were largely funded by domestic contributions. In recent years, crowdfunding platforms like Our Democracy have raised funds for committed individuals helping them contest elections.

For instance, Sanjay Sahni, an electrician-turned-activist working to rid the rural jobs scheme of corruption is now raising funds through the platform to contest the upcoming state elections in Bihar. The writing on the wall is clear: India’s vast civil society network could still perhaps maintain its vibrancy but only if Indian donors are willing to step up.

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