Foreign funding and the Maharajas among NGOs

Prof R Vaidyanathan | 01/07/2014 05:08 PM | 

It is speculated that a big portion of this money goes to politicians and bureaucracy as a large number of institutes are owned, controlled and managed by politicians and business houses
India is a fascinating country. The number of stock exchanges we have, as per official records is 20, but the number of functioning exchanges is only two. The number of scrips listed on the Bombay Stock Exchanges [BSE] is nearly 9,000, only 3500 of these are traded at least once a year, and the top 50 securities constitute nearly two-third of the turnover. Actually only 250 to 300 are “active” traded scrips. Interestingly, the latest Handbook of Statistics on Indian Securities Market published by the Securities & Exchange Board of India (SEBI) has dropped the column for number of scrips listed on the BSE! It is one way to solve the issue of numbers.
In a similar fashion, we decided to probe the number of not-for-profit or non-governmental organisations (NGO) in India. Being in the teaching line, we have the habit of probing issues that are otherwise not to be probed at all! Let sleeping dogs lie is the national dictum in such matters.
NGOs are also known as Voluntary Organizations (VOs) or Voluntary Agencies (VAs) and more recently as Voluntary Development Organizations (VDOs), Non-Governmental Development Organizations (NGDOs) or Non-Profit Institutions (NPIs). There are equivalent names for NGOs available in different Indian languages. In Hindi NGOs are called Swayamsevi Sansthayen or Swayamsevi Sangathan.
Prior to the enactment of the Societies Registration Act of 1860, voluntary action was guided mainly by religious and cultural ethos. Subsequently, a series of legislations addressing the non-profit sector were promulgated. The starting point in this respect was Article 19 of the Indian Constitution which recognized a number of civic rights including the right “….to form associations or unions”. It constitutes the legal basis of relevant legal provisions applicable to the non-profit sector. There are also non mandatory provisions that allow any group with the intention of starting a non-profit, voluntary or charitable work to organize itself into a legally registered entity. However, given the optional nature of these provisions, there is a large group of voluntary bodies that are not registered.
The United Nations Development Programme (UNDP) India and the UN Volunteers (UNV) programme had organized a Forum in January 2006 at UNDP’s Delhi office to discuss the issues relating to implementation of the UN Handbook on Non-profit Institutions (NPIs) in the System of National Accounts in India.
 
The meeting was attended by representatives of the Planning Commission, Ministry of Statistics and Programme Implementation (MoSPI), NGOs, UNV Headquarters, and the Centre for Civil Society Studies of Johns Hopkins University, which is leading the effort to implement the UN NPI Handbook throughout the World.
 
At this Forum, the UN Resident Coordinator and UNDP India Resident Representative stressed the need to implement the UN Handbook in order to capture the contribution of NPIs to the national economy. It was mentioned that the voluntary sector played a significant role in the economic and social change of the country and contributed significantly to the development in both rural and urban areas. The Forum therefore urged that India should take suitable steps to implement the UN Handbook on NPIs and compile accounts of NPIs functioning in the country.
The National Policy on the Voluntary Sector, adopted in May 2007, presumably under the guidance of the National Advisory Council, pledges to encourage, enable and empower an independent, creative and effective voluntary sector, with diversity in form and function, so that it can contribute to the social, cultural and economic advancement of the people of India. It constitutes the beginning of a process to evolve a new working relationship between the government and the voluntary sector, without affecting the autonomy and identity of voluntary organizations (GoI/Planning Commission, 2007). Accordingly, it is expected that the enabling environment will be further enhanced to encourage the development and active engagement of the non-profit sector, including volunteerism, in the community’s affairs and developmental efforts.
 
So we can conclude that at the beginning of the United Progressive Alliance (UPA)’s second term, the so called voluntary or NGO sector was fully ensconced in decision making and fund collecting activities.
NGOs can be registered under several regulations or none—the latter is more common.
The main statutory laws governing the various types of registered non-profit organizations are: The Societies Registration Act, 1860; The Indian Trusts Act, 1882; Public Trust Act, 1950; The Indian Companies Act (Section 25), 1956
Religious non-profit organizations can be registered under: the Religious Endowments Act, 1863; The Charitable and Religious Trust Act, 1920; Mussalman Wakf Act, 1923; Wakf Act, 1954 and the Public Wakfs (Extension of Limitation) Act, 1959
By 2009, a total of 33 lakh societies reported as “Societies registered under the Societies Registration Act/ Mumbai Public Trust Act”. Of these, the State Directorates of Economics and Statistics [DESs] were able to collect information for about 22.58 lakh units and computerize the information relating to about 21 lakh units.
But when the Central Statistics Office (CSO) sent people searching for these NGOs in the states, it could not trace lakhs of them. Of the roughly 22 lakh NGOs it tried to verify, only 6.95 lakh could be traced.
These figures did not include non-profit organizations registered under the Charitable and Religious Trust Act, 1920, which, if counted, would add a few thousands to the number. Then there are non-profit companies under the Indian Companies Act, 1956, and other laws that also help set up trusts.
The numbers also did not include many groups and associations, which, in common parlance are referred to as mass-based groups, usually operating at block and village levels, at times federating into larger organizations for specific purposes or campaigns. A study by PRIA and Johns Hopkins University suggested, nearly 50% of the total voluntary organizations in India were not registered under any law.
The antiquated societies registration law is blind when it comes to classifying these registered groups. It treats all registered societies the same way. These numbers include societies that run hugely profitable schools, colleges, hospitals and sports bodies in the country. Remember, the Board of Control for Cricket in India (BCCI) is also an NGO, registered under the Tamil Nadu Societies Registration Act. The Confederation of Indian Industries (CII) too is an NGO, under the law.
The Major Findings from the CSO Survey are as follows:
The CSO’s study covered only the societies registered under the Societies Registration Act 1860/Bombay Public Trusts Act, 1950 and companies Registered under section 25 of Indian Companies Act, 1956.
 
Data available from the first phase shows that there are about 31.7 lakh NPIs registered in India and that 58.7% of these are located in rural areas. A majority of NPIs are involved in community, social and personal services, cultural services, education, and health services.
 
The number of NPIs formed after 1990 has increased manifold. This is the post economic reform period when global powers began to show interest in India. There were only 1.44 lakh societies registered till the year 1970, followed by 1.79 lakh registrations in the period from 1971 to 1980, 5.52 lakh registrations in the period from 1981 to 1990, 11.22 lakh registrations in the period from 1991 to 2000, and as many as 11.35 lakh societies were registered after 2000.
Since there is no clause in the Act for the de-registration of defunct societies, the first phase of the survey results give number of societies and their distribution on the basis of records available with the registering authorities.
About 18 lakh societies have been visited during the second phase, i.e. 57.6% of the registered societies. Out of these, results are available for 4.65 lakh. The top three sectors where these societies were engaged is as follows: engaged in Social Services (35%), followed by Education & Research (21%), and Culture & Recreation (15%). The top three activities account for 71% of the registered societies.
The data on total work force includes volunteers and paid workers. Out of the 144 lakh work force, only 11 lakh are paid workers. The CSO used the sum of their operational expenditures to come to a value of their economic output at a whopping Rs41,292 crore!
Non Profit Institutions are also registered under the Indian Companies Act (Section 25), 1956. The financial data in respect of 2,595 companies listed with Ministry of Corporate Affairs has been obtained and analyzed. However, no information could be obtained in respect of the workforce of these companies and activities/purposes in which they are involved.
 
CSO decided to limit the coverage to the Societies registered under Societies Registration Act 1860, Mumbai Trust Act and the Indian Companies Act (Section 25), 1956. This is because a majority of the NPIs are registered under Societies Registration Act 1860. This also means that NGOs under various religious non-profit organisations were excluded and they constitute a large number.
The study found that in most States, the provision of submitting financial statements is not strictly enforced. Even if societies file financial statements with the registrar’s office, there is no mechanism to maintain this database.
Maharajas among NGO’s:
A category of NGOs are registered with Ministry of Home Affairs -under Foreign contributions regulations Act [ FCRA] –These can be called Euro or Dollar NGOs  who get funds from private charities as well as Government organizations abroad.
 
The salient features for 2011-2012 are as follows:
I. A total of 43,527 Associations have been registered under the FCRA until 31 March 2012. During 2011-12, as many as 2001 associations were granted registration and 304 associations were given prior permission to receive foreign contributions.
II. 22,702 Associations reported a total receipt of Rs11,546.29 crore as foreign contributions. [Under or non-reporting is common]
 

TRENDS OVER LAST 10 YEARS

Year No. of Registered Associations No. of Reporting Associations Amount of Foreign Contributions
      [Rs Crore]
2002-2003 26404 16590 5046.51
2003-2004 28351 17145 5105.46
2004-2005 30321 18540 6256.68
2005-2006 32144 18570 7877.57
2006-2007 33937 18996 11007.43
2007-2008 34803 18796 9663.46
2008-2009 36414 20088 10802.67
2009-2010 38,436 21,508 10,337.59
2010-2011 40,575 22,735 10,334.12
2011-2012 43,527 22,702 11,546.29
Total from 2002 -2012     97383.53

1. Source: Ministry of Home Affairs –Foreigners Division, FCRA wing

 

III. Delhi reported the highest receipt of foreign donations at Rs2,285.75 crore, followed by Tamil Nadu (Rs1,704.76 crore) and Andhra Pradesh (Rs1,258.52 crore).
 

IV. Among districts, Chennai reported the highest foreign donations (Rs889.99 crore), followed by Mumbai (Rs825.40 crore) and Bangalore (Rs812.48 crore).

 

V. The list of donor countries is headed by the US (Rs3,838.23crore), followed by UK (Rs1,219.02 crore), and Germany (Rs1,096.01 crore).
 

VI. The list of foreign donors is topped by the Compassion International, US (Rs183.83 crore), followed by the Church of Jesus Christ of Latter day Saints, US (Rs130.77 crore), and the Kinder Not Hilfe (KNH), Germany (Rs51.76 crore).
 

VII. World Vision of India, Chennai, Tamil Nadu (Rs233.38 crore) received the highest foreign donations among NGOs, followed by the Believers Church India Pathanamthitta, Kerala (Rs190.05 crore) and Rural Development Trust, Ananthapur, AP (Rs144.39 crore)
 

VIII. The highest foreign contribution was received and utilized for–Rural Development (Rs945.77 crore), Welfare of Children (Rs929.22 crore), Construction and Maintenance of school/colleges (Rs824.11 crore) and Research (Rs539.14 crore). Activities other than those mentioned above received Rs2,253.61 crore.
 

Interestingly establishment expenses [Building/ cars/ Jeeps/ Computers/ Cameras etc.] constituted the bulk of expenditure in most of the NGOs.

 

Need of the Hour:

In the context of the Intelligence Bureau’s (IB) report on anti-development activities of many foreign funded NGOs, it may be time to constitute a commission of experts including those from the IB to comprehensively study this sector. Also, to use experiences of other countries like Russia, China and the US in dealing with NGOs and formulating regulation to govern them. Perhaps, it is also time to re-look the foreign funding of NGOs in the context of compulsory CSR contributions introduced in the Companies Act 2013—since we are no more the white man’s burden!

 

(The author is Professor of Finance at IIM-B—views are personal)

 

(R Vaidyanathan, Professor of Finance and Control, has taught at IIM Bangalore for over three decades and is consistently rated as one of its most popular teachers. Prof Vaidyanathan has coined the term India Uninc for the largest component of the Indian economy comprising small entrepreneurs, households. Prof Vaidyanathan sits on the advisory boards of SEBI and the RBI.)

 

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2 comments

  1. Mukund Puranik · · Reply

    The information revelead is shocking.

  2. An outstanding piece, Vaidy. Congratulations. I have always felt the Societies Registration Act had been abused for unintended purposes. Your analysis confirms this suspicion. Agree high time these organisations are brought under some regulatory discipline. It is easier said than done I suppose, given the highly placed and influential vested interests involved as beneficiaries!

    Bala

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