The amendments to the Foreign Contribution Regulations Act (FCRA) by the government of India had put the NGOs on a tricky situation. The move that is considered by the government to target for-profit organizations that exploit tax shelters for non-governmental organizations (NGOs) - has been perceived by the civil society organizations as restrictive. The sector is especially concerned that what could be achieved through constructive monitoring and engagement has been addressed through a move that might penalize the entire sector for the erring few.

A RoundTable discussion was held in March 2011 with different stakeholders, including representatives of grass-root organisations, local and national NGOs, donor agencies, academicians & professionals and Institute of Chartered Accountants of India. A working group was formed to offer feedback on the Draft Rules for formulating a representation the Ministry (Representation Letter on DRAFT FCRA Rules 2011, Submitted to Joint Secretary, FCRA Department). . Some of the important issues are discussed here.

One of the contentious area is how ‘charity’ has been defined in the new law. Until now, charity, as defined by the Income-tax Act, covered relief to the poor, education, medical relief, and a fourth area that included the “advancement of any other object of general utility”. The new clause states, “Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business.” The implications for the NGOs is that any revenue generating activity that does not contribute specifically towards relief of the poor, education or medical relief would no longer enjoy tax protection. This is unacceptable to the NGOs in the context of dwindling fundraising situation and inadequate state support for developmental work.

As it is, getting FCRA is not an easy task- the NGO should have a proven record of social activities for around 3-4 years. Often if the NGO wants to start work by using funds from abroad, it is difficult to do as they do not have this experience to demonstrate. The registration process also involves an inspection from the intelligence bureau. They collect information about the NGO by visiting their area of operation and their office. Often newly formed NGOs apply for case wise prior permission for the first few times. This way, the NGOs try to establish their credibility and also develop some kind of familiarly of the department with their work. A certificate from the district collector or state government, is also considered helpful, though the civil society activists is vocal against this as it undermines the case of NGOs that might not enjoy a good relationship with the state machinery.

The new act is also against the organizations that habitually engage themselves in or employs common methods of political action like bandh or hartal, rasta roko, rail rook, jail bharo, etc. in support of public causes.. However, many of the civil society organizations undertake demonstration and dharna to draw attention to various causes, such a rule could be misinterpreted by the officials implementing these rules. Also, these are effective tools for public mobilization around issues. There is surely room for improvement by adding a qualifier that that as long as these are peaceful demonstration that do not engage in any kind of violence including damage to public property, these should be considered acceptable.

At the same time there are also certain positive developments in the Act like taking stipend and scholarships out of scope of FCRA and the transfer of funds to unregistered bodies. Several NGOs also point out that there is more transparency in the Act as the Govt. has now codified several of the procedures which were earlier internal practices of the Department. Organisations receiving more than Rs 1 crore would need to publish the same on their websites. Although some quarters have indicated their reservation for this process, however it will further add to the transparency in the sector. The Act is also considered to be overall better structured.

Do you think that the new FCRA rules need ‘qualifiers’ to better address the concerns of the NGOs?

Anna Hazare’s fast was to get a commitment from the government to the Jan Lokpal Bill as proposed Lokpal Bill was considered to be toothless and actually ‘eyewash’. He and his supporters are rightly convinced that a strong bulwark against corruption requires an active role by the civil society. As such, the demand was to appoint a joint committee comprising fifty percent officials and the remaining citizens and intellectuals to draft the Bill.

The contentious point here as is raised by a few (including people like noted academician and the president, Centre for Policy Research, Delhi, is the fact that “the demand is premised on an idea that non-elected institutions that do not involve politicians are somehow the only ones that can be trusted (The Indian Express, 7 April, 2011). So, in a way, this is extrapolated by such writers from the contempt of politicians to a contempt of representative democracy. The fear is that “net result of a “Lokpal” will be to weaken the authority of even other well-functioning institutions”.

Is this a valid concern? Theoretically yes. However, the entire movement (if one can call it so) needs to be viewed in the context of the state of representative democracy that has lost its accountability and is fast losing its credibility. Of course this is not desirable. Of course it is not a good idea to have ‘draconian institutions that bypass or subvert other democratically elected institutions’. Surely, there must be better ways of putting mechanisms of accountability in place. However, at this point in time, the rot of corruption is so entrenched that there appear to be no alternative in functionalist or equilibrium approach to the problem. It is the so called ‘Historical Materialism’ moment – you might not agree with but you cannot ignore its appeal.

There is another journalistic piece that talks about the symbolism associated with the movement- the singing of Vande Mataram, about the assorted religious figures associated with it, talks about sindur, shringar and a loosely hung Hindutva kind of ambience. Saba Naqvi proclaimed that, “This was more in the nature of a mass jagran that provided a pravachan or a religious discourse and belted out desh bhakti songs. It was a made in India spectacle as kitschy as our popular culture”. http://www.im4change.org/rural-news-update/the-jagran-at-jantar-mantar-by-saba-naqvi-7110.html. Perhaps, it was confused, this assessment is just putting style over substance. Obviously, spontaneity has little value for the journalist. How does it matter if it gave the people a platform to voice their concern, a cause they identified with but had no means to convey or rally around? It also had to be ‘politically correct’? What can be more kitschy than to dwell with mere manifestations with emphasis on and make judgments about people and their efforts based on that.

Do you think are the points against the anti-graft movement are well made?

The driving principles behind the corporate sector accountability initiatives across the world taken up by the civil society organizations are to protect the rights of the people affected by business initiatives and strengthen accountability and transparency in the corporate sectors in line with international best practices.

However, it is not necessary to perceive the relationship between corporate and communities as essentially an antagonistic one. Financial and political power notwithstanding, many business houses realize that the risks associated with poor relations with the stakeholders in any project– and the opportunities provided by constructive ones –need to be better understood and captured in project planning and implementation. While there is perhaps an overwhelming confidence that political connections will see them through, it is a fact that companies that grasp the importance of actively developing and sustaining relationships with affected communities and other stakeholders throughout the life of their project, can reap the benefits of improved risk management and better outcomes on the ground. As approaches to consultation and disclosure change from a short-term means of meeting regulatory and lender requirements, to a longer-term, more strategic channel for relationship-building, risk mitigation, and new business identification, new approaches and forms of engagement are evolving.

In general some best practices can be put together that can ensure that the civil society can exercise a greater control over the corporate:

· Make it mandatory for the corporate to engage civil society organizations in the impact assessment studies. The civil society, on their part should guarantee collective and fair representation of the affected communities. Ensure consultation with adversely affected individuals, communities and indigenous people to guarantee a thorough analysis of the problem and identify meaningful solutions and to give greater visibility to those whose rights are negatively affected by business.

· Initiate an inter-governmental process for the adoption of global standards on business and human rights, in conjunction with ongoing conceptual and policy discussions. Establish a broader mandate on business and human rights that includes an explicit capacity of the civil society to examine real life instances of business abuse so that the views, experiences and expertise of those affected by business-related abuses fully inform the effort to identify appropriate solutions. Enhance accountability and capacity of governments to fulfill their obligation to protect the people.

· Intensify efforts to strengthen redress and accountability to guarantee that individuals and communities have the capacity to defend their rights and that those responsible are held to account.

· Engage the media and the internet based social networking to create awareness about the issues and generate public opinion and pressure.

What are the components of a good working relationship between the corporate sector and the civil society?

 As business corporations are increasingly getting larger and powerful, there are widespread concerns about the way their conduct business. Specifically, their close proximity to and influence over the politically powerful is often seen as a way to subvert human rights, especially those of the poor and the vulnerable, at the altar of their varied ambitions- expansion, diversification, et al. That the state machinery ever so ready to accommodate business plans of the corporate at the cost of the poor has been well-documented even in government commissioned report such as the Arjun Sengupta report that questions the government stand on creating Special Economic Zones (SEZ) for corporations while undermining the needs of the informal sector that employs the bulk of the population. The state-corporate collaborations have also led to violent political mobilizations in some parts of the country, notably in West Bengal.

Abuses involving corporations impact communities and workers not just in India but throughout the world. Indigenous communities uprooted by mining operations, agricultural workers suddenly finding their lands being acquired for throwaway prices, infants harmed by creating a false demand for baby formula, unsafe working conditions, the list is endless. Even Corporate Social Responsibility (CSR) initiatives have come under suspicion as they are often seen as tokenism of throwing crumbs at people after having devastated their means of livelihood.

In response, many NGOs and grassroots groups, as well as some governments and international organizations have called for greater corporate accountability for human rights. The need for advocacy for international corporate accountability cannot be overstated. This needs to be done at various levels:

· At the grassroots level by supporting and strengthen the voice of communities and groups challenging abuses of human rights by corporations.

· At the national level through action research and policy advocacy, by documenting and highlighting particular cases in solidarity actions, publications and public forums

· At the international level, through forming international network of human rights organizations that keep a watch on the corporations and come together as a solidarity and pressure group whenever there is any violation.

Eventually, such a process can build the capacity of those involved through social networking, by connecting groups to one another, providing resources for advocacy, and creating space for the exchange of information.

Needless to say, this would require support: in the form of resources for conducting action research, organizing events, creating educational and informational materials, facilitation of broad-based participation, documentation, and lobbying. This can happen only as a collaborative process and the civil society has to come together in a way to achieve complementarities - not just in resources but in ideas. It is only by articulating a robust collective voice that civil society can demand business accountability.

Does civil society have the power to demand business accountability?

The last decade was certainly the decade of the micro credit. Governments, NGOs, multilateral organizations, all focused on the new found panacea- micro credit. Hunderds of thousands of Self Help Groups (SHGs) were formed across the country. Micro credit was hailed as the one-point solution for poverty eradication.

The merits of the programs cannot be discredited. It brought women together. It gave the women a sense of purpose and a platform to address social issues with credit as a rolling agenda. Financially, quite a few women started and maintained reasonably viable enterprises. It also led a few women to political arena contesting and winning local elections.

However, it is being increasingly realized that micro credit, as a one-point intervention in most of the situations is not enough to pull a poor household out of poverty. This is especially the case with the poorest of the poor who are often unskilled and have poor bargaining power.

In such cases, it is important to focus on building skills, creating capacities and an enabling environment in which livelihoods can be expanded. The state of Rajasthan, that has been rather successful in implementing the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has recently published a document titled Innovative Approaches to Livelihoods, an initiative of the Rajasthan Mission on Skills and Livelihoods supported by UNDP. The document is an impressive collection of civil society led initiatives that have worked at a small scale but have been successful in creating replicable models that can serve as useful reference points for undertaking similar actions elsewhere in the country.

LabourNet, set up in 2005, an initiative of MAYA, a registered NGO based in Bangalore, for example is an innovative social enterprise that is leveraging the capacity of informal sector micro and small entrepreneurs (MSEs) to provide a technology-enabled labour exchange for matching demand and supply. The LabourNet has already registered over 6,000 MSE profiles and has a reach of close to 20,000 informal sector workers through its existing MSE network. Umeed in Ahmedabad mainstreams the youth with disabilities into workforce creating awareness among employers about moving past disability and instead judging candidates based on their level of skill and commitment to the job. Umeed disability has successfully placed 53 students in the first year of its implementation. Growth Oriented Micro Enterprise Program (GMED) successfully collaborated with the Municipalities to engage slum dwellers in waste management across municipal wards.

There are numerous such examples across India. However, the point is to use these and scale these up to levels where it starts to have a macro impact. It is encouraging to note that a governmental mission has recognized and published a document that lists such successes. Is it not time that we build on these?

How can the innovative approaches to livelihood strengthened?

Currently, there are over 70,000 trusts and charitable institutions registered with the Income-Tax Department and get tax exemption on their activities. The Direct Tax code bill removes an exemption currently given to donations made to religious institutions.

The move will likely affect the functioning of NGOs. It could also restrict the activities of organizations that actually turn a profit from providing healthcare or educational services but utilize it for supporting other welfare activities. Under the proposed code, the tax liability of a non-profit organization will be 15% of the aggregate of-

(i) the amount of surplus generated from the permitted welfare activities; and
(ii) the amount of capital gains arising on transfer of an investment asset, being a financial asset.

The amount of surplus generated from the permitted welfare activities shall be the “gross receipts” as reduced by the “outgoings”. The “gross receipts” shall be the aggregate of the following:-

(i) The amount of voluntary contributions (this would mean that donations would be taxable in the hands of the receiving organization though the donor would still enjoy exemption to some extent) received during the financial year
(ii) Any rent received in respect of a property consisting of any buildings or lands appurtenant thereto
(iii) The amount of any income derived from a business which is incidental to any of the permitted welfare activities; Profits of any business held under trust would not be eligible for concessional treatment even if such profits are to be used for permitted welfare activities. This is in contradiction to the decision of the Supreme Court in the case of Thanti Trust, wherein it was held that exemption could not be denied to profits generated by a business of a charitable organization which could not be utilized except for charitable activities
(iv) Full value of the consideration received from the transfer of any investment asset, not being a financial asset
(v) Full value of the consideration received from the transfer of any business capital asset of a business incidental to its permitted welfare activities
(vi) The amount of any income received from any investment of its funds or assets; and
(vii) All other incomings, realizations, proceeds, donations or subscriptions received from any source.

The amount of outgoings shall be the aggregate of:

(i) voluntary contributions received during the financial year by the nonprofit organization made with a specific direction that they shall form part of the corpus of the non-profit organization
(ii) the amount actually paid during the financial year for any expenditure, excluding capital expenditure, on the permitted welfare activities
(iii) the amount actually paid during the financial year for any expenditure, excluding capital expenditure, on the permitted welfare activities
(iv) the amount of capital expenditure actually paid during the financial year in relation to-
(a) any business capital asset of a business incidental to any of the permitted welfare activities; or
(b) any investment asset, not being a financial asset
(v) any amount actually paid during the financial year to any other nonprofit organization engaged in a similar permitted welfare activity
(vi) any amount applied outside India during the financial year if the amount is applied for an activity which tends to promote international welfare in which India is interested and the non-profit organization is notified by the Central Government in this behalf.

The provisions of the new code are aimed at preventing tax avoidance. On a more fundamental level, it is even questionable as to why a non-profit organization that carries out welfare work the state is unable to ought to pay tax at all. An obvious concern is to avoid misuse, but is the appropriate response to impose a tax of 15 per cent or regulate the sector in other ways?

Is the Direct Tax code bill right in its move to tax the charities?

The financial crisis is expected to have a significant impact on humanitarian funding, with drastic cuts in official development assistance (ODA).  According to the United Nations, the financial crisis could cut Official Aid by 30%. Official government aid is the main funding source for most UN agencies. The importance of ODA can be understood as it accounts for more than 70 percent of the UN Children’s Fund (UNICEF) budget.

Past economic crises have made donor countries inward-looking- they focus on addressing national problems like unemployment and economic slump. The most common reaction has been to cuts government foreign aid and decrease in charitable contributions by large corporations and foundations. For example, Finland’s aid fell 62 percent during its economic crisis in the early 1990s, while Japan’s declined 44 percent during its decade-long slump. In addition to decreased foreign assistance spending by governments, contributions from some major sources of private funding also fall as profit margins shrink in times of economic crises. Foundations, for example, whose endowments are often invested in the stock market, have fewer resources for making grants to health and social programs (http://www.stwr.org).

Any substantial drop in foreign aid to developing countries is likely to cut the funding of social programs, many of which target poor people. Some major donors, including the United States, Norway, and Denmark, have pledged to keep their commitments and increase their foreign assistance. While this at least may alleviate the anticipated cuts in funding of social services in many developing-country governments themselves, only time can say if they are able to live up to their commitments.

At the macro level, the realization of the Millennium Development Goals (MDG) may be affected as OECD countries direct their finances toward supporting their own economies. At the micro level, as donor funding declines, civil society organizations such as the NGOs may reduce the scope and range of their programs. This would compromise their abilities to deliver social developmental impacts. The organizations also stop hiring and/ expanding thereby reducing their ability to provide aid and reach those who need it.

At this juncture, it is important to for the countries like India to prioritize public expenditures in order to ensure that effective social protection programs are in place. India has strategically reduced bilateral funding by putting in place a framework by which only six bilateral agencies can give funding to India. While the move from being being aid-receiving nation to aid granting nation has been controversial, it has made its position clear vis a vis’ streamlining aid receiving operations.

It is also important that international developmental funding in India directs its attention creating enduring institutions systems and capacities rather on short term relief measures.

What have been the impact on the economic downturn on the internationally supported developmental programs?