Foreign Aid: Method, Rule, and Impact on India’s Development Dynamics

To prepare for GOVERNANCE for any competitive exam, aspirants have to know about Aid and Private Funding in Development. It gives an idea of all the important topics for the IAS Exam and the Governance syllabus (GS-II.). Aid and Private Funding in Development terms are important from Governance perspectives in the UPSC exam. IAS aspirants should thoroughly understand their meaning and application, as questions can be asked from this static portion of the IAS Syllabus in both the UPSC Prelims and the UPSC Mains exams. Even these topics are also highly linked with current affairs. Almost every question asked from them is related to current events. So, apart from standard textbooks, you should rely on newspapers and news analyses as well for these sections. 

Recently, the Central Bureau of Investigation raided Amnesty International’s offices on allegations that the Non-Governmental Organisation (NGO) had violated provisions of the Foreign Contribution (Regulation) Act, 2010. Amnesty has been vocal about human rights abuses, notably in Jammu and Kashmir and Assam. 

How does foreign aid affect India’s development goals and challenges?

Meaning: Development aid is financial aid given by governments and other agencies to support the economic, environmental, social and political development in developing countries. It involves a long term strategy to alleviate poverty.

• Foreign experts call India a ‘development paradox’. India is one of the largest economies with a high growth rate. It spends a substantial amount on the Defence expenditure. Yet, it seeks development aid. It has created quite a debate at international level.
• Corruption: Foreign grants (often in dictatorial states in Africa) are siphoned by government officials for private reasons. It has also bred numerous non-performing NGOs.
• Identification of Projects: A very great deal of money has been wasted in the past because proposals have not been sufficiently investigated before aid was granted, and because priorities have not been correctly established.
• Influence recipient countries: Aid donors are often accused of trying to exercise unnecessary influence over recipient governments and the policies they undertake.
• Debt Serving: In the global economic slowdown, many countries have not been able to service their debt.

Foreign Aid to India: Trends, Challenges and Economic Transformations

• The term “foreign aid” is derived from the concept of “Overseas Development Assistance” or ODA. In UN parlance ODA is a commitment assumed by developed countries, members of the OECD, to extend development assistance to developing countries. Currently, developed countries are committed to transferring 7% of their GDP as ODA to developing countries, though few have achieved this target.
• India was the sixth largest recipient of foreign aid in 2011 and continues to be one of the highest recipients. According to the data on the World Bank’s website, it received $3.2 billion in 2011, $1.6 billion in 2012 and $2.4 billion in 2013.
• The top donors have been – World Bank, Japan, Germany, Asian Development Bank, United Kingdom, France, Global Fund (to fight AIDS, tuberculosis and malaria), United States and European Union.
• India has also been giving aid to other countries. It has a foreign aid budget of $1.6 billion for the period 2015-16.
• However, in recent times foreign aid coming to India has declined partly due to India’s rapid economic progress and partly due to the ever-changing geo-political axis.
• S. aid to India, targeted toward clean energy, food security and health, has dropped 25 percent in recent years, from nearly $127 million in 2010 to a proposed $98.3 million in 2013.
• In 2015, the UK stopped giving aid to India owing to its economic growth. The Indian government welcomed the move by suggesting that ‘aid is past, trade is future’.
• India now sees – and projects – itself as a global power and a partner to developed nations like Britain, rejecting the traditional model of rich nations aiding poor ones.

India’s Foreign Aid Strategy: Empowering Neighbors and Regional Development

• Most of India’s foreign aid over the past decade has been directed towards its neighbours. According to the Finance Ministry, 84% of this $1.6 billion Indian foreign aid is to be directed towards South Asia, with Bhutan being allotted the largest share of 63% ($981 million). This is in consonance with India’s status as a regional power. India has historically been the largest donor to Bhutan.
• Much of India’s assistance here goes towards developing the hydro-power sector. India has signed a treaty with Bhutan in 2007 to develop and import a minimum of 10,000 megawatts of electricity by 2020.
• The next highest recipient is Afghanistan at 7% ($108 million). India has been assisting in the construction of large-scale infrastructure projects there, including the new parliament building in Kabul and the Salma Dam in Herat province.
• Other recipients include Sri Lanka at 5% ($80 million), Nepal at 4% ($67 million), Bangladesh and Myanmar at 3% each ($43 million) and Maldives at 2%. Moreover, African countries are also slated to receive 3% of this amount.

India’s Aid Diplomacy: Foreign Assistance and Natural Calamities

• The question of acceptance of foreign aid during natural calamities came to the front during 2018 Kerala floods. Many countries like UAE, Dubai, Thailand, Maldives offered aid to India to deal with havoc caused by Kerala floods. But India turned down all the offers.
• It was in 2004 that the Indian government took a decision to shed “the poor country” tag attached to India. In the aftermath of the tsunami in December 2004 in the Indian Ocean, the Indian government refused to accept financial assistance from foreign countries. Before this, India used to accept aid from the international community in the wake of a big natural calamity.
• India had graciously accepted foreign financial assistance in the aftermath of the massive Bihar floods in July-August 2004, West Bengal cyclone of 2002, Gujarat earthquake of 2001, Latur earthquake of 1993 and Uttarkashi earthquake of 1991.
• India refused to accept financial assistance to a massive earthquake in Kashmir across the Line of Control (LoC) in 2005. Nearly 1,500 people died and more than 20,000 homes were destroyed. But the government refused to accept financial aid from foreign countries.
• The policy of non-acceptance of foreign financial assistance has been practice ever since barring a few exceptions like the Uttarakhand cloudburst of 2013 and Odisha cyclone of 2014.
• India has projected its image of an aid-provider. It has taken pride in being the first responder to a calamity in its neighbourhood. India has extended assistance to Nepal, Myanmar, Philippines, the US and China.
• During Hurricane Katrina in the US in 2005, India sent tonnes of relief material by its Air Force aircraft. Similarly during the 2008 Sichuan earthquake in China, India sent relief materials to its northern neighbour.

What are the implications of the FCRA Amendments on Foreign Aid, Political Parties, and NGO Funding in India?

• Finance Bill 2016, inserted an amendment that shielded political parties from violating the norms of FCRA. The amendment was brought after a case was filed in Delhi High Court regarding donations made to BJP and INC by London based multinational Vedanta.
• In March 2018, the parliament through Finance Bill 2018 amended the repealed Foreign Contribution Regulation Act (FCRA), 1976 The aim is to exempt political parties from scrutiny of funds they have received from abroad since 1976.
• It must be reiterated that the Representation of the People Act and the FCRA bar political parties from receiving foreign funds.
• Foreign firms can now fund NGOs in India as well as the political parties.
• Impact of the amendment: More NGOs will try to become political parties. As the political donations are tax free. Under Section 13A of the Income Tax Act, political parties are 100% tax exempt for income derived from any source, including business income.

How does Foreign Aid Impact NGOs in India under FCRA Regulations?

• Being non-profit organizations, NGOs entirely depend upon contribution – foreign or domestic – for their functioning. In recent times, many NGOs have come under the government scanner.
• The Foreign Contribution (Regulation) Act, 2010 (FCRA) and Foreign Contribution (Regulation) Rules, 2011 (FCRR) framed thereunder regulate the receipt and usage of foreign contribution by non-governmental organizations (NGOs) in India.
• The FCRA regulates the receipt of funding from sources outside of India to NGOs working in India. It prohibits the receipt of foreign contributions “for any activities detrimental to the national interest”.

Understanding Recent NGO Issues, FCRA Regulations, and the Role of Foreign Aid in India

• An Intelligence Bureau (IB) report, submitted to the PMO and National Security Adviser in June 2019, alleged that several foreign-funded NGOs were stalling India’s economic growth by their obstructionist activism.
• The report accused Greenpeace of attempting to destabilise India’s energy mix in collusion with a US-based anti-coal lobbying group. The IB subsequently advised the government to cancel Greenpeace’s FCRA registration.
• Earlier, in 2015, the Home Ministry had canceled the FCRA licenses of 10,000 organisations, including prominent international funding agency Ford Foundation, the environmentalist Constitutional & Administrative group Greenpeace, and human rights advocacy group Lawyers Collective, etc.

Is India’s FCRA 2010 a Regulatory Framework for Foreign Aid and What Impact Does It Have on NGOs?

This act replaced the Foreign Contribution (Regulation) Act, 1976 (FCRA). The act seeks to regulate the acceptance and utilisation of all foreign funds through donations, gifts or grants.

• The 1976 Act lists a number of organisations and individuals that are prohibited from accepting foreign contributions. The Bill adds organisations of a “political nature” and electronic media organisations to the list.
• The act requires all persons to register under FCRA to accept foreign contributions. The central government may deny, suspend or cancel certification under certain conditions.
• Organisations must renew FCRA certification every five years.
• It prohibits acceptance and use of foreign contribution or foreign hospitality by a certain specified category of persons such as a candidate for election, judge, journalist, columnist, newspaper publication, cartoonist, et al.
• The act prevents use of foreign contribution or foreign hospitality for any activity detrimental to the national interest.
• The foreign contribution shall be utilized for the purpose for which it has been received and such contribution can be used for administrative expenses up to 50% of such contribution received in a financial year.
• Every bank shall report to such authority, as may be prescribed, the amount of foreign remittance received, sources and manner and other particulars.
• Every NGO registered or having prior approval under the Act must file an annual report with the Authority in the prescribed form. This report must be accompanied by an income and
• expenditure statement, receipt and payment account, and balance sheet for the relevant financial year. For financial years where no foreign contribution is received, a ‘NIL’ report must be furnished with the Authority.
• New provisions have been made for suspension as well as cancellation of registration granted for violation of the provisions of the Act.

The act has a very wide scope and is applicable to a natural person, body corporate, all other types of Indian entities (whether incorporated or not) as well as NRIs and overseas branches.

subsidiaries of Indian companies and other entities formed or registered in India. It is implemented by the Ministry of Home Affairs, Government of India.

Can NGOs Overcome Regulatory Challenges and Foreign Aid Reduction Impact under FCRA?

• On July 24, 2018, the Union Minister of State for Home Affairs in a reply to Lok Sabha said that FCRA registration of nearly 19,000 NGOs have been canceled from 2011 till now and they have been barred from receiving foreign funds. He also told the House that as on date, 2,547 NGOs have not adhered to the government orders to submit their pending annual returns – income and expenditure, receipts of funds from abroad and balance sheets.
• Of all the total funds that are coming, 13% is for contentious issues like religious institutions and awareness campaigns. Government is terming both as anti-national activity as religious institutions are fueling terrorist activities and awareness campaigns are targeting developmental projects of Government Experts have signaled towards a paradox where India promotes FDI but throttles contribution to NGOs. In the past, similar bans were put by communist countries like Russia and Hungary.
• An IB report blamed NGOs for slump in India’s GDP. It is also accused that some Christian NGOs are engaged in proselytisation. US based NGO Compassion International was put on ‘priority list’ by the government.
• In June 2018, the government relaxed penalties on NGOs violating FCRA norms. From now on, instead of suspension or cancellation of licenses, hefty fines will be levied on NGOs. These fines will not be applicable retrospectively.

DOWNLOAD PDF