Context: The Supreme Court has reserved its judgment on petitions challenging the validity of amendments introduced in 2020 to the Foreign Contribution (Regulation) Act, 2010, aimed at tightening the curbs on NGOs allowed to receive foreign funds. 

• While NGOs that have termed the amendments as harsh and arbitrary, the Government has argued that its intended to streamline the flow of funds and to enhance transparency and accountability. 

Background of the amendments

• Foreign donations received by individuals and organisations in India have been regulated by law since 1976. 
• The Act was since repealed and re-enacted with fresh measures and restrictions as the Foreign Contribution (Regulation) Act, 2010. 
• The law sought to consolidate the acceptance and utilisation of foreign contribution or foreign hospitality by individuals, associations or companies, and to prohibit such contributions from being used for activities detrimental to national interest.
• The FCRA was amended in September 2020 to introduce some new restrictions. 
• The Government says it did so because it found that many recipients were wanting in compliance with provisions relating to filing of annual returns and maintenance of accounts. 
• Many did not utilise the funds received for the intended objectives. 
• It claimed that the annual inflow as foreign contributions almost doubled between 2010 and 2019. 
• The FCRA registration of 19,000 organisations was cancelled and, in some cases, prosecution was also initiated.

How has the law changed?

There are at least three major changes that NGOs find too restrictive.

• An amendment to Section 7 of the Act completely prohibits the transfer of foreign funds received by an organisation to any other individual or association. 
• Another change is that the portion of the receipts allowed as administrative expenditure has been reduced from 50% to 20%.
• Meaning it mandates that every person (or association) granted a certificate or prior permission to receive overseas funds must open an FCRA bank account in a designated branch of SBI in New Delhi. All foreign funds should be received only in this account and none other. 
• However, the recipients are allowed to open another FCRA bank account in any scheduled bank to which they could transfer the received funds for utilisation. 
• The designated bank will inform authorities about any foreign remittance with details about its source and the manner in which it was received.
• In addition, the Government is also authorised to take the Aadhaar numbers of all the key functionaries of any organisation that applies for FCRA registration or for prior approval for receiving foreign funds. 
• Another change is that the portion of the receipts allowed as administrative expenditure has been reduced from 50% to 20%.

Key Criticism against these changes

• NGOs questioning the law consider the prohibition on transfer arbitrary and too heavy a restriction. One of its consequences is that recipients cannot fund other organisations. 
• When foreign help is received as material, it becomes impossible to share the aid if the recipient NGO does not have the means to distribute on its own. 
• Even the court wanted to know whether this means that one organisation funding other organisations for designated activities is completely prohibited.
• Lawyers have argued that there is no rational link between designating a particular branch of a bank with the objective of preserving national interest. It is also inconvenient as the NGOS might be operating elsewhere.
• They have also cited the recent Supreme Court judgment on the alleged use of Pegasus spyware to argue that ‘national security’ cannot be cited as a reason without adequate justification.

Government Verdict

• The Government has contended that the amendments were necessary to prevent foreign state and non-state actors from interfering with the country’s polity and internal matters. 
• The changes are also needed to prevent malpractices by NGOs and diversion of foreign funds. Preventing possible diversion of funds is also the reason cited for reducing the administrative expense component, as some organisations tended to inflate the actual expenditure incurred.
• The provision of having one designated bank for receiving foreign funds is aimed at making it easier to monitor the flow of funds. The Government clarified that there was no need for anyone to come to Delhi to open the account as it can be done remotely.