Foreign Contribution Regulation Act (FCRA), Provisions and Importance

Context: The Government proposes changes to the Foreign Contribution (Regulation) Act, 2010, to address gaps in managing foreign funds received by NGOs. To improve oversight, ensure proper use of funds, and remove administrative uncertainties.

Foreign Contribution Regulation Act (FCRA)

The Foreign Contribution Regulation Act (FCRA) was enacted in 1976 during the Emergency period in India. Its purpose was to regulate foreign donations received by individuals and associations to ensure they operate in a manner consistent with the values of a sovereign democratic republic. Over the years, the FCRA has undergone amendments to consolidate the law and tighten control over the receipt and utilisation of foreign funds.

• Contributions made by Non-Resident Indians (NRI) from their personal savings through normal banking channels are not treated as foreign contributions under FCRA.
• The Ministry of Home Affairs (MHA) implements FCRA.

Key Amendments in FCRA

• 2010 Amendment: Strengthened regulations on acceptance and use of foreign contributions, emphasising national interest protection.
• 2020 Amendment: Introduced restrictions on fund transfers, reduced administrative expense allowance from 50% to 20%, and mandated a specific SBI branch in New Delhi for foreign fund receipts.

FCRA, 2010

• The FCRA, 2010 governs how individuals, organisations, and companies in India can receive and utilise foreign contributions.
• Its primary objective is to ensure that foreign funds do not threaten sovereignty, internal security, or public interest.

Key Amendments under FCRA, 2020

2020 Amendment in Foreign Contribution Regulation Act (FCRA): Introduced restrictions on fund transfers, reduced administrative expense allowance from 50% to 20%, and mandated a specific SBI branch in New Delhi for foreign fund receipts.

• Ban on transfer of funds: Foreign contributions cannot be passed on to other individuals or organisations, ensuring direct accountability of the recipient.
• Mandatory identification: Office bearers must provide Aadhaar (or passport/OCI for foreigners) to ensure transparency and proper identification.
• Designated bank account: All foreign funds must be received in a specific SBI branch in New Delhi, enabling better monitoring of transactions.
• Cap on administrative expenses: The limit on administrative spending was reduced from 50% to 20%, ensuring more funds are used for core activities.
• Stricter renewal process: Authorities can conduct detailed checks before renewing registration to prevent misuse or the existence of fake entities.
• Extended suspension period: Registration can be suspended for 180 days, extendable by another 180 days, allowing more time for investigation.
• Surrender of registration: Organisations can voluntarily surrender their licence with government approval if they no longer wish to receive foreign funds.
• Control over unused funds: The government can restrict the utilisation of unspent funds during inquiries to prevent misuse.

FCRA Rules, 2022

• The rules were updated to strengthen safeguards against harmful foreign contributions.
• The limit for receiving money from relatives abroad without prior intimation was increased to ₹10 lakh annually, improving ease for individuals.
• Expanded the list of compoundable offences and increased the foreign contribution limit from relatives without government notification to Rs 10 lakh.
• Extended the deadline for notifying the government about new bank accounts.

Key Proposed Amendments (Recent)

• Creation of a ‘Designated Authority’: A special authority will be appointed to manage or dispose of assets created from foreign funds.
  • This applies when an NGO’s registration is suspended, cancelled, or not renewed, ensuring assets are not misused or left unmanaged.
• Wider Definition of ‘Key Functionary’: The term will now include directors, trustees, partners, committee members, and others managing the organisation.
  • This ensures that all individuals involved in decision-making are clearly identified and accountable.
• Liability of Key Functionaries: Key persons in NGOs can be held responsible for violations under the law.
  • However, they can avoid liability if they prove a lack of knowledge or that proper care was taken.
• Prior Approval for Investigations: Any investigation by State agencies or police into FCRA-related matters will require prior approval from the Central government.
  • This is aimed at ensuring uniformity and preventing multiple or overlapping inquiries.
• Framework for Asset Management: The law earlier regulated only the flow of foreign funds, not the assets created from them.
  • The amendment introduces clear rules for handling such assets, especially during suspension or cancellation of registration.
• Timelines for Use of Funds: NGOs receiving funds under prior permission must utilise them within a fixed time period.
  • This prevents indefinite holding of funds and ensures timely use for intended purposes.
• Automatic Expiry of Registration: Registration will automatically end if not renewed, removing ambiguity about the status of organisations.
  • This creates clarity and avoids misuse by inactive entities.
• Rationalisation of Penalties: The maximum jail term for violations is proposed to be reduced from 5 years to 1 year.
  • The focus shifts towards administrative compliance rather than harsh punishment.

Foreign Contribution Regulation Act (FCRA) Objectives

• FCRA requires every person or NGO wishing to receive foreign donations to be registered under the Act, to open a bank account for the receipt of the foreign funds and to utilise those funds only for the purpose for which they have been received and as stipulated in the Act.
• The Act prohibits the receipt of foreign funds by candidates for elections, journalists or newspaper and media broadcast companies, judges and government servants, members of the legislature and political parties or their office-bearers, and organisations of a political nature.

Details of Foreign Contribution (Regulation) Amendment Act, 2020

The Foreign Contribution (Regulation) Amendment Act regulates the acceptance and utilisation of foreign contributions by individuals, associations and companies. Foreign contribution is the donation or transfer of any currency, security or article (of beyond a specified value) by a foreign source.

FCRA Registration Criteria 

To receive foreign donations, individuals or NGOs must fulfil specific criteria outlined in the FCRA. These criteria include:

FCRA Exceptions and Prohibitions

The FCRA outlines exceptions and prohibitions regarding the receipt of foreign funds. These include:

• Prohibited Categories: Foreign donations are not permitted for candidates during elections, journalists, media broadcast companies, judges, government servants, members of the legislature, political parties or their office-bearers, and organisations of a political nature.
• Eligibility Criteria: Applicants must not be fictitious, prosecuted for conversion activities, involved in creating communal tension or disharmony, or engaged in the propagation of sedition.

FCRA Account

• Foreign contributions must be received only in an account designated by the bank as an “FCRA account” in such a branch of the State Bank of India, New Delhi, as notified by the central government.
• No funds other than the foreign contribution should be received or deposited in this account.
• The person may open another FCRA account in any scheduled bank of their choice for keeping or utilising the received contribution.

FCRA Validity and Renewal 

FCRA registration is valid for a period of five years. NGOs are required to apply for renewal within six months of the registration’s expiry date. The government has the authority to cancel the FCRA registration of an NGO if it violates the Act, fails to engage in reasonable activities in its chosen field for two consecutive years, or becomes defunct. Once the registration is cancelled, the NGO is ineligible for re-registration for three years.

Suspension of Registration

• Earlier governments may suspend the registration of a person for a period not exceeding 180 days.
• The Act adds that such suspension may be extended up to an additional 180 days.
• The Union government reserves the right to cancel the FCRA registration of any NGO if it finds it to violate the Act.
  • Registration of the NGO can be cancelled for a range of reasons. Once the registration is cancelled, it is not eligible for re-registration for three years.
  • All orders of the government can be challenged in the High Court.

Prohibited Activities

• Bans fictitious or deceptive entities.
• Forbids involvement in religious conversions and activities causing communal unrest or sedition.
• Restricts certain individuals and organisations, including political entities and government officials, from receiving foreign funds.

Recent Issues Related to Foreign Contribution Regulation Act (FCRA)

• The Centre recently suspended the Foreign Contribution Regulation Act (FCRA) license of the Centre for Policy Research (CPR).
• The Union Home Ministry suspended the licenses of some NGOs that were alleged to have used foreign contributions for religious conversion. Several international and well-known NGOs, such as Compassion International, Greenpeace India, Sabrang Trust, Lawyers’ Collective, Amnesty International, and Ford Foundation, have come under the government’s scanner for alleged violations of FCRA.
• The Supreme Court (SC) upheld the constitutional validity of the Foreign Contribution Regulation Amendment Act (FCRA), 2020. It held that receiving foreign donations cannot be an absolute right and can be regulated by the Parliament.
• The PM CARES Fund received an exemption from all provisions of the Foreign Contribution (Regulation) Act.

Need for FCRA

• Regulation of foreign funds: Ensures that foreign donations are used for legitimate and lawful purposes, avoiding misuse.
• Protection of national interests: Prevents foreign funding from being used in activities that may harm sovereignty, integrity, or security.
• Monitoring and accountability: Establishes a licensing system to track how funds are received and utilised.
• Mandatory registration: NGOs must obtain registration or prior permission from the Ministry of Home Affairs, ensuring only eligible entities receive funds.

Impact of FCRA

• Strict compliance requirements: Organisations must follow detailed rules, and non-compliance leads to cancellation of licences.
• Action against misuse: Licences are revoked in cases of fund diversion or activities against national interest.
• Operational constraints: NGOs may lose registration if they remain inactive or fail to meet reporting requirements, affecting their functioning.
• High number of cancellations: Over the years, thousands of licences have been cancelled, reflecting strict enforcement.
• Reduced number of active NGOs: A significant number of licences have either expired or been cancelled, showing increasing regulatory scrutiny.

Foreign Contribution Regulation Act UPSC 

The Foreign Contribution (Regulation) Act (FCRA) is an important topic for the UPSC exam as it falls under the domain of governance and polity. Understanding the provisions, amendments, and implications of the FCRA is crucial for aspirants preparing for the UPSC exam, as it is a part of the UPSC Syllabus. Knowledge of the FCRA is vital to comprehend the legal framework governing foreign donations and their utilization by individuals and associations in India. Aspirants can take help from resources like UPSC Online Coaching and UPSC Mock Test to cover such topics comprehensively. 

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