As we move forward, the relationship (or the lack of it!) between FCRA and CSR will continue to evolve. CSR has already demonstrated its power to step in when foreign funding was restricted
By Desh Raj Singh
In 2020, the landscape for civil society organisations in India underwent a significant shift. The amendments to the Foreign Contribution (Regulation) Act (FCRA) created new challenges for organisations that were heavily reliant on foreign funding. The amendments introduced stricter norms for foreign donations, limiting the ease with which non-profits could access funding from overseas sources. This created a huge gap in the financial ecosystem for NGOs.
Interestingly, in the same period, Corporate Social Responsibility (CSR) laws, which had been introduced in 2014, started playing a pivotal role in filling this gap.
FCRA and CSR in the Development Sector: A Critical Shift
For years, the non-profit sector in India primarily depended on government funding and international donations, the latter being facilitated by the FCRA. Foreign funds allowed NGOs to scale their operations, expand their reach, and implement long-term projects that were crucial for community development. More importantly, these funds supported civil society organisations working to empower the weakest with a knowledge of their rights and entitlements. But the FCRA amendments of 2020 introduced restrictions that made it more challenging for NGOs to receive foreign contributions.
On the flip side, Corporate Social Responsibility (CSR) funding emerged as a lifeline for many organisations. The CSR framework, introduced under Section 135 of the Companies Act, 2013, requires companies meeting specific criteria to report spending of a portion of their profits (2 per cent of net profit) on social development activities. This mandate paved the way for companies to engage more actively in social welfare and development programmes, with a focus on sectors like healthcare, education, sanitation, and poverty alleviation.
As the FCRA limitations came into effect, CSR funding started filling the void for a number of organisations. The pandemic, many claimed, further highlighted the importance of CSR as companies quickly mobilised resources to support healthcare, education, and food relief efforts during lockdowns.
Key Differences and the Evolving Role of CSR
While both FCRA and CSR serve as key funding sources for NGOs, they differ in several fundamental ways:
- Source of Funding:
FCRA funding primarily comes from foreign donations, while CSR is a domestic initiative, with funding coming directly from Indian companies. This distinction means that CSR is less volatile to changes in international regulations, as it operates within India’s legal and economic framework. - Flexibility in Allocation:
FCRA funds are often earmarked for specific projects that require international support or focus. In contrast, CSR funding is more flexible and is allocated to a wide range of development activities, based on the needs of the community or the strategic objectives of the CSR programs. - Accountability and Oversight:
FCRA funding has been accompanied with compliances and more compliances; and with stringent regulations imposed by the Ministry of Home Affairs (MHA), with NGOs having to maintain strict transparency in the use of funds.
CSR funding, though also regulated, is largely overseen by the Ministry of Corporate Affairs (MCA) and the companies themselves. While CSR also emphasises transparency and impact, the oversight is generally seen as less rigid than that of FCRA.
- Impact of the 2020 FCRA Amendments:
The 2020 FCRA amendments made it more difficult for NGOs to access foreign funds, limiting the amount of foreign contributions they could use and imposing stricter reporting requirements. This forced many organisations to pivot and seek alternative funding avenues, especially from domestic sources like CSR.
Beyond Financial Support
CSR has evolved significantly over the years, with companies increasingly seeing it as more than just a financial obligation. The pandemic has further accelerated the shift towards a more holistic view of CSR, where companies are not just writing cheques but also actively engaging in social causes, offering expertise, and mobilising their networks to support development efforts.
For NGOs and social organisations, CSR is no longer just an additional funding source but an essential partner in driving social change. Here’s how CSR has become a key pillar in strengthening the development sector:
- Filling the Gap Left by FCRA:
The restrictions placed on foreign donations by the 2020 FCRA amendments forced many organisations to turn to CSR for support. For example, non-profits that were providing critical healthcare services or disaster relief efforts had to rely heavily on CSR funding to maintain their programmes. - Strategic Alignment with Corporate Goals:
CSR has become more aligned with a company’s core business objectives. Many organisations now focus on specific sectors like healthcare, education, and environment, which also happen to be priority areas for the government. Through CSR, companies can integrate their social impact efforts with their long-term business strategies, helping them fulfil both social and corporate responsibilities. - In-kind Contributions and Volunteerism:
Beyond financial contributions, CSR has expanded to include in-kind donations, skills-based volunteering, and capacity-building initiatives. Corporates are increasingly engaging their employees in volunteering activities, such as distributing food, providing medical assistance, or building infrastructure in underserved areas. This collective effort enables organisations to address a wider range of community needs. - Leveraging Corporate Networks and Expertise:
One of CSR’s most significant contributions has been the ability to tap into the corporate sector’s vast network and technical expertise. Whether it’s building digital literacy programmes, or mobilising resources for healthcare interventions, CSR enables NGOs to leverage professional skills and networks, creating a greater impact. - Post-Pandemic Focus on Long-Term Sustainability:
The pandemic has made it clear that social development efforts need to be more sustainable and far-reaching. CSR is now focusing on long-term solutions, such as building resilient healthcare systems, improving educational infrastructure, and creating employment opportunities in rural areas. The focus is no longer on short-term fixes but on creating systemic change that benefits communities in the long run.
What Does the Future Hold?
Even if FCRA regulations ease in the future, the role of CSR in India’s development sector will remain crucial. The flexibility of CSR funds, along with the active involvement of companies, will continue to drive innovative solutions to social challenges. CSR will likely evolve further, moving beyond traditional philanthropy towards more sustainable, collaborative partnerships that address systemic issues such as healthcare access, poverty alleviation, and environmental protection.
CSR can play a central role in ensuring that all segments of society, especially vulnerable groups, have access to the resources they need to thrive. It can also provide an important platform for cross-sector collaboration, with non-profits, companies, and the government working together to create lasting change.
As we move forward, the relationship (or the lack of it!) between FCRA and CSR will continue to evolve. CSR has already demonstrated its power to step in when foreign funding was restricted, and it is poised to play an even more central role in the future. The development sector, more than ever, requires collaboration across all sectors – government, corporate, and non-profit – working together to ensure that no one is left behind.
While the 2020 FCRA amendments challenged NGOs, CSR rose to the occasion and became a major support system during a global crisis. This collective response has set a new precedent for how the corporate and non-profit sectors can collaborate for the greater good.
In conclusion, CSR’s impact is not just financial – it is turning into a cornerstone for sustainable change, and its role will only continue to grow in the coming years. Embrace this opportunity to work together and ensure that social development efforts remain strong, impactful, and inclusive will only be helpful.
Image: Aravanaikkum Karangal Trust
Desh Raj Singh works with the Sharda Welfare Foundation.
