Compliance or constraint? New FCRA bill sparks debate on NGO freedom

Provisions in the Foreign Contribution (Regulation) Amendment Bill have alarmed organisations, as they go beyond ‘regulation’ and into ‘control’ of assets

The introduction of the Foreign Contribution (Regulation) Amendment Bill, 2026, in the Lok Sabha on March 25 signals a fresh wave of regulatory tightening, aimed at further constraining NGOs and extending government control.

Some proposed amendments appear to go beyond ‘regulation’ and into ‘control’ of assets. The premise that a statute should ‘regulate’ rather than ‘control’ is fundamental to law. While the State may ‘regulate’ activities in the public interest, it must avoid unreasonable restrictions that amount to prohibition, takeover, or total control of rights.

In a significant 2022 judgment, the Supreme Court ruled that receiving foreign contributions is not a fundamental right, but a regulated activity that can be restricted to protect national sovereignty.

The government justifies stricter oversight as essential to curb misuse of funds and improve accountability, but the effects on welfare delivery are hard to ignore. Perhaps no other statute demands such transparency and accountability as the FCRA has since its radical 2020 amendment.

For the past five years, all foreign contributions must be received only in the NPO’s/NGO’s designated FCRA bank account at the State Bank of India, New Delhi Main Branch. Funds must be used solely for the NPO’s/NGO’s own activities and cannot be sub-granted. Administrative expenditure is capped at 20% of foreign contributions.

Annual returns in Form FC-4 require detailed disclosure of receipts and expenditure. Governing board members must file affidavits and the law requires that they are not under any prosecution for any offence. Given this level of scrutiny, one wonders what further misuse the government seeks to prevent when NGOs already account for every rupee.

For many NGOs, especially those in remote or underserved regions, reduced access to funding and increased compliance burdens have forced scaling back of programmes in health, education, nutrition, and livelihoods,  leaving gaps state systems cannot immediately fill.

The ban on onward granting has dismantled nodal agencies that once channelled funds from foreign donors to grassroots NGOs after due diligence and monitoring.

What began as the Union government’s push for transparency has slowed, if not disrupted, welfare interventions. Heightened scrutiny, risk of registration cancellation, and provisions around asset control are making organisations overly cautious, limiting outreach and innovation. Advocacy itself is increasingly treated as taboo in a sovereign democratic republic.

Historically, civil society in India was vibrant, innovative, and known for research-based advocacy. It has played (and can continue to play) a vital role in nation-building, acting as both a partner and constructive challenger. Civil society creates political and social space for collaborations based on trust, service, and the collective good. Both government and civil society should build institutional relationships based on mutual trust and a shared vision.

Two decades ago, Dr Lester M Salamon and Dr Helmut K Anheier of the Johns Hopkins Comparative Nonprofit Sector Project conducted a research study of the nonprofit sector in 20 countries, including India.

In 1997, the first survey of India’s non-profit sector estimated 1.2 million voluntary organisations involving 19.2 million people — equivalent to 2.7 million paid employees and 3.4 million full-time volunteers, a total of 6.1 million. This exceeded the 3.3 million Union government employees in 2000. Contrary to popular perceptions, 51% of receipts were self-generated, 36% came from government grants and loans, and only 7% from foreign sources.

Reportedly, this study influenced the United Nations in formulating the Millennium Development Goals, later replaced by the Sustainable Development Goals. Globally, voluntary organisations are valued; domestically, they remain underappreciated.

India’s voluntary sector does more than fill gaps in the government’s service delivery — it contributes significantly to GDP and livelihoods. A detailed census study is needed to measure its depth and magnitude, and to demonstrate that ‘voluntary organisations go where market solutions don’t go’.

While corporate laws have been reformed for transparency and ease of business, civil society has not seen any similar reforms. No one seems to be talking about the ‘ease of doing good’.

Startups enjoy incentives, but CSOs face obstacles under the FCRA and corporate social responsibility (CSR) laws. The government should play the role of an empowering agency and act as an enabler.

According to the Ministry of Home Affairs (MHA), about 15,000 organisations are currently registered under the FCRA, while registrations of nearly 22,000 have been cancelled, and another 15,000 have expired.

A key proposed change in the current Bill empowers the MHA to appoint a ‘Designated Authority’ to take over, manage, or dispose of the assets created from foreign funds by NGOs whose FCRA registration has been suspended, cancelled, or not renewed.

This amendment simply addresses a previously existing legal gap: Section 14A and Section 15 of FCRA 2010, amended in 2020, vests such assets in a "prescribed authority". This proverbial ‘sword of Damocles’ has hung over NGOs since then. The proposed amendment will now enable a ‘Designated Authority’ to give effect to the provisions of Section 14A and 15.

There is no need to strengthen restrictive laws or add more compliance requirements given that the government already has ample powers to investigate, through the Comptroller Auditor General (CAG) and the Central Bureau of Investigation, those it believes are not transparent enough.

Instead, the MHA should consider constituting an appellate authority (similar to the income tax appellate tribunal) to address FCRA-related grievances. ‘Approval Raj’, ‘Inspector Raj’, and ‘Licence Raj’ are detrimental to sectoral growth.

Civil society is the glue that binds public and private activity together to strengthen the common good. It has an important role of holding all stakeholders, including itself, to the highest levels of accountability. Civil society embodies ‘collective private action for public good’, and includes the spectrum of collective action from grassroots movements and community groups to research organisations, think-tanks, structured philanthropies, non-profit organisations, and social enterprises.

The State should enable civil society institutions to promote the welfare of the people in India. It should also establish mechanisms to consult, fund, and collaborate with civil society institutions. A national commission on civil society institutions should be established and made answerable to Parliament.

Finally, the government often questions what public good civil society organisations do apart from voicing dissent. It must understand and accept that dissent itself is a public good in a democracy. Consciousness-raising is integral to democracy.

(Noshir H Dadrawala is an advisor on governance and compliance issues for nonprofits and corporate social responsibility, and is chief executive of the Centre for Advancement of Philanthropy)