Wednesday, 4 April 2018

FCRA – a tool to intimidate & control NPOs (But not political parties)!

An article in the Times of India (21st March 2018) and another published in the Economic times (31st March 2018) makes compelling reading in terms of the Government’s handling of the ominous Foreign Contribution Regulation Act 2010. It is a classic story of how a statute which is meant to ‘regulate’ can also be used as a tool to control and intimidate. 
However, when political parties themselves start to feel threatened or intimidated, the law is quickly amended to revise even a law that legally stands repealed. Amendments to FCRA under Finance Act 2016 and more recently under Finance Act 2018 are classic examples of political jugglery.
Amendment made to Section 2(1)(j)(vi)
Thanks to Amendment made to Section 2(1)(j)(vi) under the Finance Act 2016, Indian companies which have more than fifty per cent FDIs or FIIs are now not treated as 'foreign source' with retrospective effect from 26th September 2010. 

The Finance Act 2018 now goes further to bring the said amendment with effect from the 5th August, 1976 i.e. the date of commencement of the original Foreign Contribution (Regulation) Act, 1976, which was repealed and re-enacted as the Foreign Contribution (Regulation) Act, 2010!

Be it the amendment under Finance Act 2016 or the Amendment under Finance Act 2018, the government has not relaxed the law to oblige or ease the woes of the voluntary sector. The law had been amended in 2016 and amended even now in 2018 only to protect political parties which had violated the provisions of Section 2(1)(j)(vi) of FCRA even more than forty years ago or from the time the law was originally enacted during Late Mrs. Indira Gandhi’s Emergency. Any benefit that has come to NGOs is comparatively negligible and purely incidental.

Questionable Action
Legally FCRA 1976 stands repealed and is replaced by FCRA 2010. It is a matter of debate how this amendment under Finance Act 2018 could be made applicable to a law that has already been repealed?

FCRA is not revenue or finance related subject and it is even more debatable how amendment to this law can be repeatedly placed under the Finance Bill.

It’s a clear case of ‘might is right’ and ‘government can do no wrong’! It is a mockery of the current regime’s motto of ‘less government; more governance’.

Real reason behind this amendment
The Delhi High Court had in the year 2014 hauled up the Congress and BJP for receiving foreign funds from the UK based Vedanta group and its subsidiaries, in violation of the Foreign Contribution Regulation Act, and the Representation of People’s Act that specifically prohibits political parties from accepting contributions from a foreign source. The court had asked the government and the Election Commission to act against the two political parties. In response, the government amended the Act itself, and exempted from scrutiny all foreign funding to parties retrospectively from 1976! How clever indeed!

Selective Scrutiny
According to the report in the Times of India: “NGO founded by Olympic medalist and nominated Rajya Sabha Member of Parliament Mary Kom, the Rajiv Gandhi Charitable Trust chaired by Congress leader Sonia Gandhi, IT industry body NASSCOM Foundation and Amnesty International’s Indian arm are among 42 organisations under scrutiny of the home ministry for alleged irregularities in their foreign contribution receipts.”

The report adds: “In a written reply to a Lok Sabha question, Union junior home minister Kiren Rijiju said that while 21 NGOs had been served a standard questionnaire to check as part of preliminary inquiry into any alleged violation of the Foreign Contributions Regulation Act (FCRA) or Foreign Contributions Regulation Rules (FCRR). Audit and inspection of 21 other associations, including Public Health Foundation of India and many others with an evangelical background, had been completed for similar violations.”

Prominent FCRA-registered bodies served the questionnaire include, Bengaluru-based Centre for Internet & Society which had claimed massive leaks in the Aadhaar database last year, Rajiv Gandhi Charitable Trust that receives a good chunk of its funds from Bill & Melinda Gates Foundation, and Public Health Foundation of India (the latter’s FCRA license was cancelled last year), Asianet New Charitable Trust and Mary Kom’s boxing training school.

Anonymous donors to political parties
In the meantime what Pavan K Varma writes (Electoral bonds and FCRA amendments pave the way for unaccounted political funding) in the Economic Times is even more chilling!

Varma states:Earlier, the principal, but not only, means by which parties collected vast amounts of unaccounted money was the misuse of Section 29C of the Representation of People’s Act (RPA). This provision allowed parties not to declare the name of donors who contribute less than Rs 20,000. As a result, according to the Association of Democratic Reforms, as high as 85% of donors to Congress and BJP, the two largest political parties, were faceless people who had contributed up to Rs 19,999! The Election Commission (EC) has made countless proposals for electoral reform, to which no government has responded adequately. One such proposal was to reduce the financial ceiling of faceless donations from Rs 20,000 to Rs 2,000. Now, through an amendment of the Income Tax Act, the ceiling has been lowered to Rs 2,000. But the efficacy of this ‘reform’ is questionable, because parties can get away by simply saying that their unaccounted money is the result of multiple donations of less than Rs 2,000 instead of a larger sum.”

Electoral Bonds
Varma adds: “In the 2017 Budget, the government announced a new scheme of electoral bonds. Under this, bonds for contributions to political parties can be issued by the State Bank of India, and can be bought by any donor with a KYC compliant account. Donors can donate their bonds to any party of their choice, which can deposit it in their designated account. Donations will be tax deductible, and the benefitting political party will get a tax exemption for the amount received anonymous. Moreover, the value of donations can be unlimited."

Prior to 2017, Section 182 of the Companies Act, 2013, stipulated that a company can donate only up to 7.5% of its average profit of the last three years, and must disclose this amount and the beneficiary political party. Now, through the electoral bonds, there is no limit to the amount companies can donate, and the requirement for such firms to have existed for the last three years on a profit making basis has also been deleted.

The implication is that even loss-making companies or shell companies can be used to purchase electoral bonds. Essentially, then, corporate entities and individuals can now funnel unlimited amounts to a political party through electoral bonds, anonymously.

Moreover, under Section 13A of the Income Tax Act, companies contributing through electoral bonds will not even be required to keep records of such donations, and if no records are mandatorily maintainable, no questions can presumably be asked by Income Tax authorities.

Further, the Representation of People Act has been amended to exempt parties to inform Election Commission of any amount received above Rs 2,000, if made through electoral bonds. The result is complete financial opacity: The Election Commission cannot name the donors, and the Income Tax department, even if questioned under the Right to Information Act, can claim confidentiality granted to Assesses.

Furthermore, the amended Companies Act now allows any foreign company registered in India to make contributions through bonds to political parties, overruling legitimate doubts about who or where its real owners are, or what its source of funding is.

Is this transparency?
Was our Election Commission consulted on such sweeping changes? Major democracies have increasingly tightened disclosure rules. In the US, there is a requirement to provide the name, occupation, employers and addresses of all individuals who contribute more than $200 to political entities. In the UK, any contribution above £7,500 must reveal the name of the donor. By contrast, in India, the world’s largest democracy, electoral ‘reform’ has legitimized financial opacity.

The two reports can be read at:

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