Cutting NGOs to size

Over the past decade, India's regulatory approach to foreign-funded organisations has tightened steadily. Since 2012, more than 20,000 Foreign Contribution (Regulation) Act (FCRA) registrations have been cancelled. This brought down the pool of authorised organisations from over 40,000 to roughly 16,000. So, what was once framed as a compliance-driven regime is now entering a more consequential phase. The latest set of proposed amendments does not merely seek to monitor the flow of foreign funds; it introduces provisions that could extend state control over the assets of organisations that fall afoul of the law.

This marks a shift in the character of regulation. It is shifting from mere oversight of fund receipt and use to determining what happens to institutions themselves when permissions are withdrawn. The implications go beyond the legal domain. Many of the affected organisations run hospitals, schools, and community programmes in areas where the state's presence is limited. Any disruption to their functioning is therefore not confined to the sector but carries wider public consequences.

The FCRA framework regulates foreign contributions, i.e., grants or donations received for charitable, social, educational, religious, or cultural purposes. It does not apply to commercial transactions, equity investment, or business operations. The stated objective of the Bill is to provide for the handling of assets created out of foreign contributions when an organisation's registration is suspended, cancelled, surrendered, or ceases.

The core innovation in the proposed Bill is to create a Designated Authority, which may be an officer or an authority, to which all foreign contributions and assets derived from it are automatically vested upon cancellation or surrender of the approval, until it is renewed. If fresh registration is not granted, the vesting will become permanent. Even if the asset is created partly from a foreign contribution, the provisions apply.

If FCRA is suspended, no dealing with foreign-funded assets is permitted without prior Central approval. Key functionaries—trustees—must surrender records, keys, and premises on demand and face personal liability. The Authority (or an Administrator) can seize control of premises, bank accounts, and operations "in public interest", sell assets or transfer them to any government body, with proceeds going to the Consolidated Fund of India.

Rules framed by the Central Government will prescribe a time period for renewing FCRA permission, and if it is not renewed within that period, it will be permanently vested with the designated authority. Interestingly, all these decisions are by the same authority, i.e, MHA, and any delay in its decision-making will adversely affect the property owners. This leaves one to doubt if the provisions of the proposed Bill comply with the principles of natural justice and the due process guaranteed under the Constitution.

Another concern is about the retrospective application of this Bill. Any organisation that has received FCRA in the past is also covered, and it looks like this provision ties an organisation that received any foreign contribution to perpetually seek an extension from the central government to prevent the vesting of assets, even if it doesn't want to receive foreign contributions now.  

If the organisation is dissolved or ceases to function, the foreign contribution and all assets derived from it shall be permanently vested in the Designated Authority without any further proceedings. The Designated Authority can immediately sell or transfer the assets to government bodies.

The government has been serious about regulating foreign contributions. More than 20,700 FCRA registrations have been cancelled since 2012, with over 16,000 of those occurring between 2015 and 2024. Currently, only about 16,000 organisations have valid FCRA permission. Thousands of renewal applications have remained pending for months, forcing the Ministry of Home Affairs to issue repeated extensions to prevent automatic lapse.

The religious institutions built out of FCRA funds have some exceptions. A temple, church, mosque, or gurudwara built or renovated with foreign contribution, if its FCRA is suspended, vests in the Designated Authority. However, the Authority cannot sell it, convert it to secular use, or hand it over to a government department. Instead, it must entrust its management to an appropriate religious person/body while preserving the religious character.

NGO Sector
NGOs are required to register at NITI Aayog's Darpan portal, which has 37 lakh registrations. Their presence is significant in Uttar Pradesh, Maharashtra, and Delhi. However, serious players are few in number. For the Assessment Year (AY) 2023-24, approximately 6.40 lakh filed the ITR-7 forms mandated for NGOs. This shows that for a country with almost 80 crore people on government ration, only about 6.5 lakh active NGOs exist, an abysmally low number. They are governed through the Income Tax Act. Of this, only 16,000 have a valid FCRA registration.

Foreign donations have financed hospitals, school buildings, and supported a large number of organisations working for the rural poor. Such organisations are found across all religious faiths. These century-old partners in nation-building have filled critical gaps the state has struggled to address, particularly in education and healthcare. A cancellation of FCRA in case of a hospital could lead to a freeze of accounts, halt medicine procurement, salaries, and hand management to a government bureaucrat. Recipient institutions argue that the medicine is worse than the disease.

The proposed Bill treats foreign-funded charitable assets as quasi-state property once regulatory approval lapses, ignoring the decades of investment, local community trust, and non-profit ethos. This amounts to expropriation by stealth. The government, under its ease-of-doing-business policy, seems to be over-regulating charitable institutions. Parliament needs to carefully analyse if the Bill shifts from regulation to potential expropriation.
(Author is a professor at National Law School of India University, Bengaluru)