Declining foreign aid threatens India’s NGOs and democratic health

Source: The post Declining foreign aid threatens India’s NGOs and democratic health has been created, based on the article “Demise of foreign aid in India” published in “The Hindu” on 5 May 2025. Declining foreign aid threatens India’s NGOs and democratic health.

UPSC Syllabus Topic: GS Paper2-Governance- the role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders.

Context: India’s relationship with foreign aid has long been inconsistent—sometimes welcoming, at other times cautious. With official aid declining globally—especially after U.S. cuts under Donald Trump—India faces a new challenge. The impact is sharpest on NGOs, threatening development work and civil society’s role.

From Aid Recipient to Global Aspirant

1. Early Dependence on International Aid: After Independence, India actively sought foreign aid. Between 1955 and 1965, most support came from Western countries and went to the government, seen as the key driver of change.
2. Declining Relevance of Official Aid: From the 1970s, aid declined steadily. By the 1990s, it had become insignificant due to India’s rapid economic growthand rising global standing.
3. Shift in Focus to Investment and Cooperation: India now seeks FDI and global partnerships in trade, technology, and climate action. The fall in official aid is less worrying than the decline in private foreign aid to NGOs.

Mounting Pressures on the NGO Sector

1. Critical Role of NGOs: NGOs fill governance gaps and hold authorities accountable. They are more exposed to shrinking aid than government agencies.
2. Changing Funding Landscape: NGOs initially relied on public donations, but from the 1960s, they became dependent on government grants and foreign aid. CSR funds only became notable after 2013.
3. Significant Decline in Aid: From 2017-18 to 2021-22, NGOs received ₹88,882 million. But accurate FCRA figures are unavailable, and estimates show a steep decline.

Government Control and Regulation of Aid

1. Tightening of FCRA Rules: The FCRA (1976) set tough terms for receiving foreign funds. Amendments in 2010, 2011, 2020, 2023, and 2024 made rules increasingly stringent, causing many NGOs to lose registrations.
2. Growing Official Distrust: Even before the 1975 Emergency, the phrase “foreign hand” was used to discredit dissent. Allegations included religious conversions and anti-government protests. Major donors like the Soros Foundation were discouraged.
3. Restrictive but Permissive Stance: While NGOs are technically allowed to accept aid, stringent conditions and mistrust have made the space increasingly restrictive.

Consequences of Aid Withdrawal

1. Erosion of Innovation and Oversight: Foreign aid provided flexibility, encouraged experimentation, and opened doors to global ideas. It allowed NGOs to act as watchdogs against excesses of state and market.
2. Risks to Development and Governance: Cuts in aid may cause job losses, halted projects, and slower social progress. More importantly, it reduces independent scrutiny of public policy.
3. A Strategic Miscalculation: While self-reliance is admirable, undermining foreign-funded NGOs may hurt India’s long-term development and democratic health.

Question for practice:

Discuss how the decline in foreign aid, especially to NGOs, affects India’s development and democratic governance.