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ETIG Analysis: Need of a stimulus package for NGOs


Non-governmental organisations (NGO) in India, choked for funds by a welter of new regulatory compliance laws in the year of the Covid-19 pandemic, are hoping to see if the government could stitch together a stimulus package for the beleaguered sector. “There is no stimulus package being announced for us since NGOs are not looked at as a ‘sector’ per se,” said R Balasubramaniam, founder of Grassroots Research And Advocacy Movement.

The year 2020 has been a difficult year for NGOs in India (not just because of the pandemic) and the next year also potentially appears to be a difficult one. “Most NGOs are heavily reliant on their funders and with institutional funding drying up this year, several NGOs, especially the smaller ones, have suffered a lot”, said Priya Naik, founder of Samhita Social Ventures, a social sector consulting firm.

One of the amendments to corporate social responsibility (CSR) rules proposed in March stipulated companies to undertake CSR work only through their foundations or through a section 8 company – effectually excluding societies and trusts. “Till now the government has not clarified about the proposed amendment, which has been put on a back burner”, said Balasubramaniam. Besides, there is no legal pathway yet defined for a society or trust to become a section 8 company.

The Foreign Contribution Regulation Act (FCRA) was amended in September to stipulate more disclosures for NGOs getting foreign funding. The amendments prohibit NGOs from transferring foreign grants to other registered NGOs and lower the cap on administrative expenses. NGOs have to obtain the Darpan ID from NITI Aayog portal and register Aadhaar details of their officer bearers & key functionaries. About 19,000 NGOs are estimated to comply with the FCRA requirements. NITI Aayog’s Darpan portal shows 104,169 organisations registered as NGOs.

Under the Finance Act 2020, charitable trusts and tax-exempt institutions have been mandated to reapply for income tax registration. A new section, 12AB, inserted in the Income Tax Act lays down the requirement of renewing registration every five years – the deadline for which has been extended. The number of tax-exempted organizations listed on the Income Tax (IT) Department’s website stands at 220,058.

“It was clean-up time and a year of putting the house in order for the government – but the timing of the move added to the challenges faced by the NGOs”, said Pushpa Aman Singh, CEO of Guidestar India, a repository of NGOs in India. On the one hand, NGOs are struggling to meet the increased work towards Covid relief and on the other hand, they face challenges related to funding as well as meeting the new regulatory compliances introduced this year.

Singh estimates around 15-30% cuts in salaries implemented by NGOs with around 10-20% renegotiating rent. “As an organisation of 800 people, we have laid off 300 people and we have slashed off salaries by 50%” Balasubramaniam told ET. He is worried of the impact of such moves on the ability of the social sector to acquire good talent in the coming years.

Balasubramaniam estimates that at least 20-25% of NGOs would have been shut down. Singh feels it is too early to do an impact assessment on the sector. “I haven’t seen NGOs being wound up but many are feeling the pinch due to the pandemic,” she said. “We should have more clarity on the decline in the number of NGOs, if any, when the organisations file their tax returns for 2020-21.

“Annual budgets have been spent in a quarter on Covid relief work – but that does not mean the NGOs have done their intended work,” said Singh. Around Rs 8000-9,000 crore of CSR funds that would have typically come to the NGOs was diverted to PM Cares this year. With corporate profits hit this year, the CSR budgets for next year will shrink. Besides, next fiscal’s CSR funds too may likely be used for Covid vaccination.

Consulting firm FSG estimated in July that CSR funding to NGOs will see a 30–60% reduction. About two-thirds of CSR funders surveyed said they may have to reduce funding under some of their formal commitments, and all of them said that they likely would not be able to keep their informal or verbal commitments.

“The sector, nevertheless, has done extremely well in reinventing itself – organisations are cutting costs, trying to learn retail fund raising, getting certified and learning to pivot to the changed scenario”, said Singh. At a time, when Indians are becoming more philanthropic and seeking more disclosures, the sector needs attention.

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