On Challenges of NGO Regulation – Impact-focused NGOs need to keep pace with India’s growth

Source: The post on Challenges of NGO Regulation has been created on the article “Impact-focused NGOs need to keep pace with India’s growth” published in “Live Mint” on 21st November 2023.

UPSC Syllabus Topic: GS Paper 2 Indian Polity – The role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders.

News: The article discusses the challenges in tracking and understanding non-profit organizations (NGOs) in India due to the lack of a unified registry and comprehensive data. It suggests the need for regulatory changes, better policies, and increased transparency in the NGO sector.

What are NGOs?

The World Bank categorizes NGOs as organizations committed to activities that alleviate suffering, protect the poor’s interests, preserve the environment, and provide essential social services or community development.

What are the regulatory provisions for NGOs in India?

Constitutional Provisions: Article 19(1)(c) guarantees the right to form associations; Article 43 promotes rural cooperatives; the Concurrent List in Entry 28 addresses charities and charitable institutions.

Legal Registration: In India, NGOs must legally register under specific acts, such as the Societies Registration Act (1860), the Indian Trusts Act (1882), and Section 8 of the Companies Act, 2013, to obtain legal status.

Financial Regulations for NGOs in India:

1. a) Foreign Contribution (Regulation) Act (FCRA), 2010: Regulates foreign funding of NGOs in India. Implemented by the Ministry of Home Affairs, it mandates NGOs to use foreign contributions for the stated purposes and necessitates registration renewal every five years.
2. b) Foreign Exchange Management Act (FEMA), 1999: Initially focused on managing foreign exchange for trade and payments, FEMA’s role expanded in 2016 to include the monitoring of NGOs receiving foreign contributions. This change aimed to centralize the oversight of foreign fund flows to NGOs under one regulatory body, enhancing the scrutiny and regulation of these funds.

What challenges exist in regulating NGOs?

Lack of Unified Registry and Inconsistent Data: India lacks a single, comprehensive registry for NGOs, leading to significant gaps in data. With an estimated 3 million NGOs but only about 175,000 registered on Niti Aayog’s Darpan portal, many NGOs remain untracked. This gap results in inconsistent data on their sizes, funding patterns, and activities.

Diverse Legal Structures: NGOs in India have varied legal forms such as societies, trusts, and Section 8 companies, each governed by different laws. This makes it challenging to implement a uniform regulatory framework.

Varied Funding Sources: The diverse sources of funding, both domestic and foreign, complicate the financial regulation of NGOs.

What changes are needed for NGOs in India?

Regulatory Overhaul: Current legal entity definitions are outdated and don’t reflect the diverse nature of NGOs, from grassroots organizations to large institutions.

Policy Measures for Micro-sized NGOs: Policies should be tailored to the specific needs of micro-sized NGOs, which make up a significant portion of the sector. This includes tax structures for philanthropy and rules for foreign donations, mirroring business policies for MSMEs.

Focus on Organizational Building: Given that private and corporate philanthropy in India is around ₹25,000 crore annually, NGOs need to grow in capacity to utilize this capital. Non-programmatic grants and capacity building support can help NGOs, especially those without significant retained profits or equity capital, to expand and increase their impact.

Transparency and Trust Building: NGOs should adhere to mandatory reporting and disclosures similar to those required of publicly listed companies. This will build trust with donors and ensure honest, transparent operations.

Question for practice:

Examine the broader impact of regulatory challenges faced by NGOs in India.