Amendment to Foreign Contribution (Regulation) Act (FCRA)

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    • Recently, the Union Home Ministry amended certain rules related to the Foreign Contribution (Regulation) Act (FCRA).

    Background

    • The home ministry made the FCRA rules tougher in November 2020, making it clear that NGOs which may not be directly linked to a political party but engage in political action like bandhs, strike or road blockades will be considered of political nature if they participate in active politics or party politics. 
      • The organisations covered under this category include farmers’ organisations, students, workers’ organisations and caste-based organisations.
      • According to the law, all NGOs receiving funds have to register under the FCRA.
    • The move comes after the government enhanced the import duty on gold import from 7.5 % to 12.5 % in a bid to discourage the import of gold leads to increase in the trade deficit and putting pressure on the currency and forex reserves.

    Key Amendments

    • Remittances:
      • Indians can now receive up to ?10 lakh a year from relatives staying abroad without informing the authorities. 
        • The earlier limit was ?1 lakh.
      • If the amount exceeds ?10 lakh, the individuals will now have 90 days to inform the government.
        • Earlier the time frame was of 30 days.
    • Offences:
      • The home ministry has made five more offences under the FCRA “compoundable” instead of directly prosecuting the organisations or individuals. 
        • Earlier, only seven offences under the FCRA were compoundable.
    • The rules dealing with application of obtaining ‘registration‘ or ‘prior permission‘ under the FCRA to receive funds, 
      • The amended rules have given individuals and organisations or NGOs 45 days to inform the home ministry about the bank account(s) that are to be used for utilisation of such funds. 
      • This time limit was 30 days earlier.
    • Declaring details of foreign funds:
      • The central government has also ‘omitted’ provision, which dealt with declaring foreign funds including details of donors, amount received, and date of receipt, etc. every quarter on its website.
    • Transparancy of receiving foreign funds:
      • Now, anyone receiving foreign funds under the FCRA will have to follow the existing provision of: 
        • Placing the audited statement of accounts on receipts and 
        • Utilisation of the foreign contribution, including income and expenditure statement, receipt and payment account, and 
        • Balance sheet for every financial year beginning on the first day of April, within nine months of the closure of the financial year on its official website or on the website as specified by the Centre.
    • Bank account changes:
      • In case of change of bank account, name, address, aims or key members of the organisation(s) receiving foreign funds, the home ministry has now allowed 45 days time to inform it, instead of the previous 15 days.

    Significance

    • The relaxation in remittance is aimed at curbing the outflow of funds and on the other hand enhancing inward remittances. 
    • Experts say that an increase in the limit of remittances will lead to an increase in inflow of funds into India which will stabilise the forex reserves and also the currency.
      • The trade deficit in recent months is very high and even though the forex reserves are strong, there is a concern over its decline.
    • The modifications in declaration time, change of bank account details, etc. are being made to ease the compliance load.

    What is  remittance?

    • A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland. 
    • They have been growing rapidly in the past few years and now represent the largest source of foreign income for many developing economies.

    Pros and cons of remittances

    Pros:

    • Remittances provide the catalyst for financial market and monetary policy development in developing countries.
    • They improve credit constraints on the poor, improve the allocation of capital, substitute for the lack of financial development and thus accelerate economic growth.
    • Remittances are especially important for low-income countries and account for nearly 4 percent of their GDP, compared with about 1.5 percent of GDP for middle-income countries.

    Cons:

    • Remittances can reduce labor supply and create a culture of dependency that inhibits economic growth.
    • They can increase the consumption of nontradable goods, raise their prices, appreciate the real exchange rate, and decrease exports, thus damaging the receiving country’s competitiveness in world markets.

    What is the FCRA?

    • Regulate foreign donations: 
      • It is a slew of new measures to regulate foreign donations.
      • The Act, first enacted in 1976 was amended in the year 2010 and then 2020.
    • Application: 
      • The FCRA is applicable to all associations, groups and NGOs which intend to receive foreign donations.
      • It is mandatory for all such NGOs to register themselves under the FCRA.
    • Validity: 
      • The registration is initially valid for five years and it can be renewed subsequently if they comply with all norms.
    • Purpose: 
      • Registered associations can receive foreign contributions for social, educational, religious, economic and cultural purposes.
    • Mandatory IT filing: 
      • Filing of annual returns, on the lines of Income Tax, is compulsory.
    • Internal security: 
      • The FCRA regulates foreign donations and ensures that such contributions do not adversely affect internal security.

    Who cannot receive foreign donations?

    • Prohibition: 
      • Members of the legislature and political parties, government officials, judges and media persons are prohibited from receiving any foreign contribution.
    • Political parties: 
      • In 2017 the MHA, through the Finance Bill route, amended the 1976-repealed FCRA law paving the way for political parties to receive funds from the Indian subsidiary of a foreign company or a foreign company in which an Indian holds 50% or more shares.

    How else can one receive foreign funding?

    • Prior permission: The other way to receive foreign contributions is by applying for prior permission.
      • A letter of commitment from the foreign donor specifying the amount and purpose is also required.
    • Specific activities or projects: It is granted for receipt of a specific amount from a specific donor for carrying out specific activities or projects.
    • Registration: The association should be registered under statutes such as the Societies Registration Act, 1860, the Indian Trusts Act, 1882, or Section 25 of the Companies Act, 1956.

    Source: TH

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