India’s strict rules on foreign aid snarl Covid-19 donations

Bake sales on Instagram. Online fundraisers involving Hollywood celebrities. Pledges of aid from companies like Mastercard and Google. A middle-of-the-night flight by a FedEx cargo plane transporting thousands of oxygen concentrators and masks.

India’s devastating surge in Covid-19 cases has galvanized corporations, nonprofit organizations and individuals in the United States into raising millions of dollars and sending medical supplies to the nation of 1.4 billion.

But a sweeping change to India’s decades-old law governing foreign donations is choking off foreign aid just when the country needs it desperately. The amendment, passed by the government of Prime Minister Narendra Modi in September with little warning, limits international charities that donate to local nonprofits.

Read more: Covid-19 Wrap-up: India sees highest rise in single-day deaths

The effect is far-reaching. Almost overnight, the amendment gutted a reliable source of funding for tens of thousands of nongovernmental organizations, or NGOs, that were already stretched thin by the pandemic. It prompted international charities to cut back giving that supported local efforts — and supplemented the government’s work — in fields such as health, education and gender.

The amended law has forced newly formed charities to rush to find NGOs that can accept their donations without tripping legal wires. And it has smothered nonprofits in red tape: To receive foreign funds, charities must get affidavits and notary stamps and open bank accounts with the State Bank of India, which is government-owned.

“Everyone was caught off guard, especially given the role that NGOs played in Covid relief last year,” said Nishant Pandey, chief executive of the American India Foundation, one of the largest US nonprofits working in India. “To come with an amendment like that in the middle of pandemic was problematic.”

Pandey’s foundation, which has raised $23 million for Covid-19 relief efforts, wired $3 million to its affiliate on the ground on May 5 to build 2,500 hospital beds for Covid-19 patients. A week later, the money still had not cleared, Pandey said. He attributed the holdup to the new bank requirement; funneling aid through a single bank during a time of overwhelming need can make the process frustratingly slow.

The Modi government has said the amended law would strengthen compliance, improve monitoring and bring more accountability to an important source of funding in the nonprofit sector. The government has also encouraged international donors to contribute to official charities, including one called the PM Cares fund, which was founded last year and is controlled by Modi and other government leaders. The government, however, provides little clarity around how donations will be used.

The Ministry of Home Affairs in New Delhi did not respond to calls or an emailed request for comment.

The new regulations have “paralyzed” India’s nonprofit sector, a group of 13 NGOs said in a letter that was recently sent to various Indian and US government bodies and shared with The New York Times. The regulatory changes have forced NGOs to “divert scarce time, bandwidth and human resources” toward compliance rather than delivering relief during the pandemic, the letter said.

The signatories — including the Center for Advancement of Philanthropy, the National Foundation for India and the Center for Social Impact and Philanthropy — sought a delay or relaxation of the new restrictions during the crisis. “The organizations best placed to respond to community needs at the grassroots in a timely, agile manner are unable to access these donors,” the letter said.

India’s needs are pressing. It has suffered more than 22 million infections and over 236,000 deaths, but experts say the toll is severely undercounted. Medical oxygen is in short supply. Hospitals are turning away patients. Only a tiny fraction of the population has been vaccinated. Modi’s government has come under increasing criticism inside and outside the country over its handling of the second wave.

Nongovernmental organizations help provide basic health services in India, picking up the slack in a country where government spending in that area totals 1.2% of gross domestic product. The United States spends close to 18% on health care. When the pandemic first surged in India, in March 2020, Modi asked NGOs to help provide supplies and protective gear and to spread the message on social distancing.

At the same time, India’s relationship with NGOs — a catchall term for the roughly 3 million nonprofits working across the country, including religious, educational and advocacy groups — has occasionally been fraught.

Various governments have tried to regulate the flow of foreign aid into the country. The original legislation, called the Foreign Contribution Regulation Act, was passed in 1976 by the government of Prime Minister Indira Gandhi with the aim of limiting foreign involvement in domestic politics.

In 2010, the law was amended to put some curbs on foreign investment. In 2015, a year after Modi came to power, his government tightened restrictions on some prominent charitable groups including the Ford Foundation, citing national security.

In September, the Indian government raided the premises and froze the bank accounts of Amnesty International, forcing it to close its India operations. Amnesty said the actions were reprisals for criticizing India’s human rights record. The government said the organization had violated India’s rules on foreign funding.

The ties between Indian NGOs and their foreign benefactors had long been symbiotic: Global foundations provided the money, while local nonprofits brought the expertise. They obtained a license under India’s law so that they could accept foreign funds, but relied largely on donations — called sub-grants — from foreign nonprofits that worked in India rather than soliciting grants directly from abroad.

Last year, about a quarter of India’s NGO funding — roughly $2.2 billion — came from foreign donors, according to Bain & Co., the consulting firm. The September amendment, which was met with a backlash from India’s vocal community of activists, changed the landscape drastically.

“It came into existence so quickly that there was not the kind of public input or eyes on it that could tell you why it came into existence,” said Ted Hart, the chief executive of Charities Aid Foundation of America, an Alexandria, Virginia, nonprofit. “It was a shock.”

Charities Aid Foundation’s India counterpart was forced to relinquish a major part of its business model, which involved making grants to smaller nonprofits that could carry out the work, Hart said. Now, both entities are directly managing the programs they support rather than sub-granting, he said.

“Regulations are happening,” Hart said. “We have to comply.” The foundation has recently provided over 75,000 K-N95 masks to state governments and is distributing dry rations to poor communities.

Some nonprofits have resorted to creative workarounds.

Direct Relief, a Santa Barbara, California, nonprofit, recently wired $2.5 million to United Way in Bangalore. The funds were raised by an Indian organization called Act Grants from mostly Silicon Valley donors. But Act Grants, which was set up by the country’s startup community during the pandemic, did not have government approval to receive foreign funds. Procuring it would have been time-consuming, said Thomas Tighe, the president and chief executive of Direct Relief, so his firm helped channel the money through United Way.

“They had supporters but didn’t have a mechanism to get the funds over, so we said, ‘Let us help you do that,’” Tighe said.

Direct Relief, which has long worked with FedEx, also partnered with the shipping giant to charter a Boeing 777F to transport supplies to India free of cost.

The Indian diaspora of about 4 million people in the United States has swung into action. Some have given money to online platforms such as GiveIndia that route money to Indian nonprofits set up to receive foreign contributions.

It took just a few days for Indiaspora, a nonprofit community of mainly Indian American donors, to raise around $5 million, including $1.6 million through an online fundraiser in Hollywood.

“The approach we’ve taken is that the house is burning,” said Indiaspora’s founder, M.R. Rangaswami, a Silicon Valley investor and entrepreneur who lost his sister to COVID-19 in India. But his group is stepping carefully in giving that money away. It decided to stick with a small group of well-established nonprofits to which to direct its funding.

“The way we’re handling our giving is that we’re making sure that the organizations are FCRA compliant,” Rangaswami said.