New Policy on Foreign Funds

Syllabus: GS2-Governance /GS3-Economy 

In News

• The Ministry of Home Affairs (MHA) announced that foreign funds obtained through the prior permission route under the Foreign Contribution (Regulation) Act, 2010, will now be valid for four years.

Foreign Contribution (Regulation) Act (FCRA)

• The FCRA, first enacted in 1976 and amended in 2010 and 2020, requires NGOs to register if they wish to receive foreign donations for social, educational, religious, economic, and cultural purposes. 
• Besides NGOs, the FCRA also applies to groups and associations receiving foreign contributions, all of which must register under the Act. Registration is valid for five years and can be renewed.
  • They must file annual returns, similar to income tax filings. 
• In 2015, the Ministry of Home Affairs (MHA) introduced rules requiring NGOs to ensure foreign donations don’t affect India’s sovereignty, integrity, communal harmony, or foreign relations.

Exemptions 

• Certain individuals and entities, including members of the legislature, political parties, government officials, judges, and media persons, are prohibited from receiving foreign contributions.
  • A 2017 amendment allowed political parties to receive funds from foreign companies with Indian subsidiaries or those with more than 50% Indian ownership. 

When is a registration suspended or cancelled?

• FCRA registration can be suspended for up to 180 days if accounts are found in violation. During this time, the organization cannot accept new donations or use more than 25% of existing funds without MHA approval.
  • If an organization’s registration is canceled, it cannot reapply or receive prior permission for three years.

Key Highlight of the new policy

• Foreign funds received through prior permission will now be valid for four years from the date of approval, instead of the previous policy where the spending window remained open until the funds were fully utilized.
• Violation of Time Limit: Not adhering to the new time limit will be considered a violation of the Foreign Contribution (Regulation) Act, and punitive actions could be taken.
• Existing Approved Applications: If an organization already has prior permission and the approved project or activity still has more than three years left as of April 7, 2025, then the time limits (three years to receive funds and four years to use them) will start from April 7, 2025, instead of the original approval date.
• Eligibility for Prior Permission: If an NGO is not eligible for FCRA registration, it can still apply for prior permission to receive specific funds for projects, provided it is registered under statutes like the Societies Registration Act, 1860, Indian Trusts Act, 1882, or Section 25 of the Companies Act, 1956.

Significance of FCRA

• Protects National Security: Prevents misuse of foreign funds for activities against India’s sovereignty and integrity.
• Regulates Foreign Funding: Controls and monitors foreign contributions to individuals, NGOs, and associations.
• Promotes Transparency: Ensures proper accounting and reporting of foreign funds received and utilized.
• Prevents Political Influence: Prohibits political parties and candidates from accepting foreign donations.
• Prevents Money Laundering: Reduces the risk of illegal activities and financial crimes through foreign channels.

Source :TH