Aakar Patel | To widen ease of biz in India, lift draconian curbs on NGOs

Few people have understood what the Niti Aayog is or what it does, but its head Amitabh Kant has given his view on how to “enhance the ease of doing business” in India. His answer is “single window clearances, timely clearances and land acquisition”. Mr Kant also says that “public-private partnerships in social infrastructure such as healthcare is yet another avenue of investment in India”.
It is of course extremely important that India do this as the number of people who are employed in India has shrunk in the past five years, though the population has grown. I wanted to look at one sector which I understand reasonably well.

NGOs, or non-governmental organisations, are the third largest workforce in the United States. The retail and manufacturing sectors employ more people than the NGO sector there. In 24 American states out of 50, NGOs actually employ more workers than all the branches of manufacturing combined. It is similar in the United Kingdom. In Europe, 13 per cent of all jobs are in the NGO sector, and this is 2.8 crore jobs in total. To put this figure in perspective, consider that less than 10 per cent of all jobs in India are in the formal sector.

Now let us look at how this government has enhanced the ease of doing business for this part of the private sector in India. In 2020, the Narendra Modi government ordered a change in the way that NGOs could work in India. The first change is that the 23,000 NGOs which received any form of foreign donations could receive that money only in a single branch of the State Bank of India at Parliament Street in New Delhi. Only 1,488 NGOs were registered in New Delhi, and so the rest must come to New Delhi to open and operate their account, and this is during the Covid-19 pandemic. No other part of the private sector is asked to do this and corporate bodies can receive foreign money in any bank account anywhere in India.

Over 46 per cent of these NGOs had received no foreign money in 2018-19 though they had an FCRA licence, and another 41 per cent had received less than '1 crore.

The second change was that the NGOs could spend only 20 per cent of the money they received on what the government defines as “administrative expenses”. Salaries, travel expenses, the cost of hiring individuals, consumables like electricity and water charges, telephone charges, postal and courier charges, repairs to the office, stationery and printing charges, transport, the cost of accounting for and administering funds, running and maintenance of vehicles, cost of writing and filing reports, legal and professional charges and rent were all classified as administrative expenses. No more than 20 per cent could be spent on these things. Again, no other part of the private sector is given orders on what it can and cannot do with its own money.

The third is that the law now prevents an NGO from redistributing its funds to smaller NGOs, which worked on the ground and did not have access to money. This rule would hit the sector because NGOs do not compete with each other and cooperate in many areas. A study by Ashoka University showed that half of the 4,107 small NGOs who received money in this fashion in 2018-19 got only '7.6 lakh or less. They would no longer get even this.

There were some other changes too but let us leave those aside to consider what the damage to India has been. When the second wave of the Covid-19 pandemic hammered India, the Modi government turned to these same NGOs for help. Ten NGOs the BBC spoke to for a report on its Newsnight show said they all had trouble distributing aid because of the new rules. Indian hospitals and charitable trusts could not receive Covid relief material sent by donors abroad because of the law. This jeopardised plans by donors to buy oxygen plants and concentrators, especially in rural areas. In one hospital where two dozen people had already died for lack of oxygen, foreign donors could not send an oxygen production plant because of the law. No entity could receive foreign aid even as medicines or equipment to save lives, without being registered under the NGO law, called the Foreign Contribution Regulation Act.

Moreover, the very stringent provisions of this FCRA law means that the intended use of the foreign contribution should also “match the specified objective of the trust at the time of FCRA registration”. This means that if the NGO has registered its specified objective as education, it cannot use its money to buy ventilators. None of these restrictions apply to any part of the rest of the private sector. It is only the NGOs of India who are subjected to this, even though it damages the country and hurts the poorest Indians as the pandemic has exposed very clearly.

If the government is serious about making it easier to operate in India, there is one easy way for it to do so. It should stop what it is deliberately doing to the NGO sector and let it operate as freely as the rest of the private sector. And it should look at the United States, Britain and Europe and consider what the benefits of a large and robust NGO sector are to the economy, employment and to society.