The existing Act (FCRA 1976) was enacted during the days of Emergency, and has shades of similar laws governing other sectors, such as FERA enacted at that time. Since reforms initiated in 1991, many of these laws have had a paradigm shift. Instead of the earlier system of prior ‘licences’, the focus has been on a liberalised framework with a negative list. For example, FERA has been replaced with FEMA, which requires reporting rather than prior permission in most cases. The current FCRA 1976 is akin to obtaining a prior licence. The proposed FCRA Bill makes the conditions even more stringent. It also specifies detailed requirements rather than broad guidelines for the functioning of groups receiving foreign contribution.

Under the current law, organisations (including societies and associations) require prior permission before being eligible to accept any contribution from a foreign source. They need to obtain a FCRA certificate from the home ministry, and their accounts are open to inspection. The returns of the FCRA accounts need to be reported to income tax authorities annually. The certificate has perpetual validity unless it is withdrawn by the government. Under the proposed law, the certificate will be valid for only five years, and would have to be renewed six months prior to expiry.

‘Foreign source’ includes any company that has over 50 per cent foreign shareholding. By this definition ICICI Bank (72 per cent shares held by FIIs and ADRs) and Infosys (50.1 per cent) would be considered ‘foreign source’, and any donations by them would be subject to FCRA requirements.

The Bill prohibits acceptance of ‘foreign hospitality’ by a legislator, office bearer of a political party, judge, government servant or an employee of a PSU without prior permission. Foreign hospitality includes free boarding, lodging and transport, and excludes any offer which is “a purely casual one”. Thus, it is not clear whether a government servant staying with his brother or a classmate on a trip to the US for a week would need prior permission or such hospitality would be considered a casual one.

The Act lists eight categories that are prohibited from receiving any foreign contribution. In addition to legislators, judges and bureaucrats, this list includes correspondents, columnists, cartoonists, editors, printers and publishers of newspapers. It also includes any association or company engaged in production or broadcast of audio news or audio visual news or current affairs programmes through any electronic mode (thus covering radio, TV and the internet). This implies that ICICI Bank (which is a “foreign source”) cannot institute an award for the best cartoonist in India.

The Bill sets a cap of 50 per cent of any foreign contribution to be used for administrative expenses. The definition of what constitutes “administrative expenses” is left to be prescribed by the central government. This raises two issues. First, why should the government specify how the funds may be used as long as they are not for illegitimate purposes. And second, are salaries paid to staff (including teachers) by an NGO considered administrative expenses? We are back to detailed prescriptions, which means a field day for those who can find their way through the maze of regulations.

The central government has to satisfy itself, before granting the FCRA certificate, that the applicant “is not likely to use the foreign contribution for personal gains or divert it for undesirable purposes”. How the government is supposed to foresee the likelihood of misuse is a mystery.

Similarly, it has to be satisfied that the applicant “has not indulged in activities aimed at conversion through inducement or force, either directly or indirectly, from one religious faith to another”. What constitutes an inducement? Would the promise of a good after-life or peace of mind be considered an inducement — most religions offer these. If so, this clause could affect the work of educational institutions run by Christian bodies, which are affiliated to various churches.

The foreign contribution may not be used for “speculative” business. The Bill does not define speculative business. Can the contribution be invested in stock markets? What about government securities? (Government securities carry the market risk of changes in interest rates, and are used by market participants as short-term investments.)

The foreign contribution has to be received through an account in a branch of a bank which has to be specified in the application for FCRA certification. This could pose practical problems. For example, what does one do if a bank closes that particular branch?

The FCRA accounts are subject to special audit requirements. The detailed accounts and the record of utilisation of funds are subject to government audit. The central government has the powers to inspect all accounts, and to seize the accounts. It can also seize any currency or security (shares, bonds, etc) that it believes is being held in contravention of the Act.

This brings us to the larger question. What is the purpose of this law? The Unlawful Activities (Prevention) Act 1967 and the Prevention of Money Laundering Act 2002 address issues such as terrorist financing. Governance and transparency requirements are addressed through laws governing societies, trusts, companies, etc. Reporting of income can be ensured through the Income Tax Act. The prohibition of receiving foreign contribution by various groups such as legislators, bureaucrats, etc, could be enforced through service rules and codes of conduct rules. And if there are loopholes in any of these laws, they can be plugged by amending the respective rules. And we could just use one clause from the proposed law: Clause 54(1) that reads, “The Foreign Contribution (Regulation) Act, 1976 is hereby repealed.” (Full disclosure: the writer works with an institution that receives foreign contribution).

The writer works with PRS Legislative Research at the Centre for Policy Research, New Delhi