Shaking the foreign hand

8226; What does FCRA contain? This act regulates all donations, gifts and grants made by any foreign entity to an Indian entity. It prohibits the acceptance of foreign donations by legislators, election candidates, political parties, judges, bureaucrats and PSU employees, and journalists. The law was amended in 1984 requiring that all others must register themselves with the home ministry in order to receive such donations. Students receiving scholarship or stipend from foreign sources above a certain sum notified by the government have to report such receipt.

8226; What is the objective of the act? The main objective is to regulate the use of foreign donations by parliamentary institutions, academic and other voluntary organisations etc so that they 8220;may function in a manner consistent with the values of a sovereign democratic republic8221;. FCRA was enacted in 1976, during the Emergency, a couple of years after other acts controlling foreign currency, such as FERA and COFEPOSA, were enacted.

8226; How many organisations are registered to receive grants in this way? The number of registered organisations rose from 16,740 in 1995 to 30,321 in 2005, of which 60-65 per cent reported accepting foreign contributions.

8226; What proportion of foreign exchange inflows are through this channel? In 2004-05, FCRA inflow was Rs 6,256 crore, or 0.6 per cent of the gross annual inflow of foreign funds. In comparison, the Indian corporate sector contributed an estimated Rs 30,000 to Rs 35,000 crore to charitable institutions in 2006-07. In addition, individuals donate to charitable causes.

8226; Other than registration, are there any other restrictions? FCRA registered organisations have to conform to certain guidelines. All funds received through this route must come through a single bank branch. All receipts and utilisation, with source of funding, must be reported.

8226; What is the need for a new bill? The government believes that 8220;significant developments have taken place since 1984 such as changes in the internal security scenario, an increased influence of voluntary organisations, spread of use of communications and information technology, quantum jump in the amount of foreign contribution received, and large scale growth in the number of registered organisations8221;. It proposes to replace this act by a new legislation that provides for closer government monitoring, additional registration requirements, and expands the classification of individuals barred from receiving foreign contribution. The Foreign Contribution Regulation Bill, 2006 was introduced in Rajya Sabha in December, and is being examined by the parliamentary standing committee on home affairs.

8226; Do other laws cover the major concerns?

Many of the objectives of FCRA and the pending bill are met by the Foreign Exchange Management Act as well as the Prevention of Money Laundering Act and the Unlawful Activities Prevention Act which was amended in 2004 to cover terrorist activities and funding. Auditing issues are covered by the Income Tax Act, 1961 as well as laws governing companies, trusts and societies. The conduct of bureaucrats and judges are governed by service rules and election candidates by election-related rules. Any loopholes in these can be plugged by amending the acts and rules.

8226; Does the new bill take into account current realities?

Some definitions are obsolete. For example, the 1976 Act included any company with majority shareholding by foreigners in the definition of 8220;foreign source8221;. Today, this would imply that organisations receiving donations from companies such as Infosys Technologies and ICICI Bank would require FCRA registration.

8226; Are there major loopholes in the law?

It is easy to bypass the provisions of this act and the new bill. Consultant fees, exports etc. are not covered by FCRA, and this provides a loophole for channeling funds without conforming to the requirements of this act.

8226; Are there any new requirements proposed for registration?

Under the earlier act, organisations had a lifetime registration. The proposed bill requires registration to be renewed every five years. The approving authority must be satisfied that the applicant 8220;has not indulged in activities aimed at conversion through inducement or force, either directly or indirectly, from one religious faith to another8221;. Also, that the organisation is 8220;not likely to use the foreign contribution for personal gains or divert it for undesirable purposes8221;; that is, the approving officer is required to predict future behaviour of the organisation.

8226; Does the new bill specify further restrictions?

The bill places a cap of 50 per cent of FCRA funds for administrative expenses. It could be argued that this is an issue to be settled between the donor and the user, with the government only ensuring that the use be not against national interest. The bill prohibits the use of FCRA funds for 8220;speculative business8221;, a term that is not defined. It is not clear whether investment in mutual funds or even government securities which carry market risk would be considered as speculative.

The writer is senior research fellow, PRS Legislative Research