A Regulator for Social Sector Organisations?

A late 2020 newspaper report suggested that the government is considering a proposal to set up a regulator for charities (non-government organisations or NGOs) that get foreign funds.

The proposed regulator could take the form of an independent national commission with powers to take action including deregistering NGOs that misuse their funds. There would be “‘arm’s length’ regulation so as to reduce allegations of biased and unreasonable actions.”

The newspaper report said that, if set up, the writ of the commission will apply only to those receiving overseas contributions. There is to be “an institutional reorganisation which apart from the commission envisages setting of separate bodies at the national and state level for awarding grants to NGOs, besides a rationalised, comprehensive and unified legal framework.” The reported proposal is on the lines recommended by a study of the Central Economic Research Bureau (CEIB) of the finance ministry.

The proposal is long overdue and welcome. Properly framed and implemented, some regulation would not be amiss. The onus of accountability on NGOs is high because they enjoy greater social trust than either business or government. While there have been no major scams on the same scale as in the business sector, misuse of funds by NGOs is a cause of concern and civil society leaders have themselves suggested reforms.

But it is inexplicable why the proposed commission is to be limited to NGOs receiving foreign donations. Foreign contributions are only a miniscule percentage of total private funding. The bulk of the sector receives hardly any foreign money to justify a national commission to regulate a few organisations. Coming against the background of recent heavy-handed use of the Foreign Contributions Regulation Act (FCRA) to suppress dissent voiced by some NGOs, a regulator solely for foreign-funded NGOs is likely to be strenuously resisted by civil society. If there has to be a regulator, it should oversee the whole sector, be independent of government, and not be a “caged parrot”.

An uneasy state of affairs

On the one hand, there is a growing awareness amongst government and the general public about the beneficial role played by non-profit organisations in development, especially after the service rendered by them during the pandemic. On the other hand, a growing unease amongst NGOs about the increasing regulation.

The sector is already subject to independent audit and these audited financial reports are filed with the income tax department. NGOs also have to comply with the reporting requirements of several other authorities including the Registrar of Societies, Charities Commissioners, and the Registrar of Companies (in case they are registered under the Companies Act), not to mention the very restrictive compliances demanded under the FCRA.

There is a feeling in the sector that the FCRA is being used to carry out a witch hunt of non-conforming NGOs. The rules under the FCRA have been progressively tightened so as to almost eliminate foreign funding of NGOs. According to the Bain and Co’s annual India Philanthropy Report for 2019, there has been a decline of 40% in foreign funding since 2011. Of the total private funding of the social sector of Rs 70,000 crore, foreign contributions now account for only 1%.

This would not be a matter of concern if alternative domestic sources of income were sufficient to facilitate their work. But unfortunately, this is not so; even though individual philanthropy and corporate giving under the corporate social responsibility rules (CSR) have increased.

To increase private domestic funding for the NGO sector to realise its full potential, it is necessary to create a conducive environment. This includes creating a legal and fiscal framework that allows voluntary non-profit organisations to come into existence and operate without restraint, and to have direct and indirect access to legitimate funds from all sources.

Facilitating civil society

Any regulator for the sector should also be a facilitator for such an environment and not just an “inspector”. For many years now there have been discussions and studies in civil society as to the form such a regulator should take.

In 2004 the Sampradaan Indian Centre for Philanthropy had, on the basis of extensive research, prepared a report for the erstwhile Planning Commission on the problems faced by NGOs with the current charities administrators. The report had recommended a new institutional infrastructure charged with policy and promotion as well as regulation. It had recommended most of what is being proposed now and is therefore worth a recap.

A majority of respondents in Sampradaan’s research survey favoured a single regulator, on the lines of the charities commission in the United Kingdom. However, since charity is a state subject in India and since the volume of work involved is far greater than in the UK, it would be difficult and unwieldy to centralise all work in a national level organisation. Therefore, the report recommended state level commissions, whose function would be not only to regulate but also to support the sector.

The commissions’ mandate would include modernising the purposes, governance and administrative arrangements in the constitutions of existing charities; advising on legal and regulatory requirements; and authorising actions and transactions which charities would not otherwise have the legal power to carry out. The report recommended an independent tribunal for interpretations of the law and appeals against the commissions’ decisions, to avoid recourse to civil courts each and every time.

The report suggested that these commissions be created by legislation with their own statutes, regulations, and resources. Their mandate would be to simultaneously protect the public interest and to provide effective support and a regulatory system for civil society organisations. They would have to ensure that the regulatory process is as simple, non-duplicative and cost effective as possible. They would report directly to Parliament or the state assemblies on their annual performance.

The report further recommended that all the IT work related to the NGOs should be put in charge of one Non-Profit Organisations Directorate (or Charities Directorate), that would work in close co-ordination with the charities commission and come together periodically to discuss issues of mutual concern and interest. It also made suggestions for short-term measures like augmentation of financial resources of the agencies; modernisation of offices, staff augmentation, and training and capacity building of all officers and staff.

Later deliberations in the NGO sector had endorsed most of these suggestions. One does not know whether what is proposed now is as comprehensive as the reform recommended in 2004. This is written with the hope that the proposed regulator will not turn out to be a heavy-handed inspector. Another layer of scrutiny will be unnecessary and will only further restrict the autonomy of an already over-regulated sector. Both government and civil society should work towards a regulator playing the role of friend, philosopher, and guide.

Pushpa Sundar is the author of “Foreign Aid for NGOs: Problem or Solution?"