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November 16,
2006
Investment in “speculative businesses” out of bounds for foreign contributions
A
sense of disappointment is pervading the social sector in India at
the Government of India's ("Government") proposal
in the new Foreign Contribution (Regulation) Bill, 2006 ("Bill"),
to disallow authorised
recipients to invest
foreign contributions or any income arising from it in
"speculative businesses" (see our previous Hotline, Tighter
controls for foreign contributions,
circulated
on November 11, 2006. The Bill will be introduced
for consideration in the imminent winter session of the Lok Sabha,
the lower house of the Indian Parliament.
Currently,
any not-for-profit entity registered under the Income Tax Act,
1961 ("IT Act") for tax exemptions (upon
compliance with certain conditions prescribed under the IT Act),
are permitted to invest their corpus, whether built from domestic
or foreign sources, only in specified investments.
Given the prevailing liberalized economy, there may have
been some anticipation that the scope for investment of such funds
would be expanded by the Government to enable non-profits to take
advantage of the boom in the capital market. This proposal puts
paid to any such hopes, at least in respect of foreign
contributions, currently amounting to over INR 70 billion received
annually by over 35,000 entities registered under the current
Foreign Contribution (Regulation) Act, 1976 ("FCRA").
The
Ministry of Finance ("MoF") is reportedly not
in favour of the proposal. In its opinion, capital market
investment could be a pragmatic way to park the funds before
they are disbursed for charitable purposes. The MoF has also
pointed out that the term "speculative businesses"
is not clearly defined, and could be open to "subjective
interpretation". A source from the Ministry of Home
Affairs has informed the Government that the term
"speculative investment" would be defined by the
Rules to be notified after the Bill ripens into an Act. The
Government's intention is apparently to firm up regulatory
controls on foreign contributions. The
Bill reflects its apprehensions in this age of terrorism that some
foreign contributions are being channeled for purposes other than
charity and social welfare and seeks to keep an eagle eye on the
trail of the utilization of foreign contributions. The Government
has indicated that it will enlist the help of the central
Intelligence Bureau and the investigative unit, the Research and
Analysis Wing, to monitor the "real objective" of the
donors. Genuine
non-profits may seek some comfort in knowing that such regulatory
controls and restrictions are targeted at those entities that are
merely a cover for more nefarious activities. The well-intentioned
Bill, if passed, may well result in the social sector being
recognized as one of the cleanest sectors in the Indian economic
scenario.
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can direct your queries or comments to the author
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Source:
The
Economic Times,
Mumbai edition, November 16, 2006
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