On Tuesday, nearly 1,000 Indian non-profit organisations lost their licences for foreign funding, in the latest instance of the central government cracking down on “defaulting” trusts and institutions.

Since May 6, the ministry of home affairs has cancelled the licences of a total of 4,470 non-profit organisations under the Foreign Contribution Regulation Act, which was passed in 2010 to keep a tab on the funds that the social sector receives from outside India. Earlier this year, in April, 8,975 other NGOs and trusts across India had their licences revoked.

The names of the penalised organisations are diverse and surprising: it includes the Supreme Court Bar Association, the Vikram Sarabhai Foundation, the All India Lawn Tennis Association and even a host of premier educational institutes like the Jawaharlal Nehru University, Indian Council of Agricultural Research, Gujarat’s Sardar Patel University and the National Institute of Fashion Technology.

The FCRA penalises non-profits for violating various aspects of the act, and in most cases, it is because the organisation failed to file its annual returns. But what does it mean for an organisation to lose its FCRA licence? How big an offence is it, and what does an NGO have to do to get its licence back?

What kind of foreign funding does the FCRA monitor?
Broadly, within the context of the FCRA, foreign funding refers to the donation of any article or currency or security received by an Indian social sector organisation from a foreign source. The source could be any foreign company, agency, government or citizen, but excludes some specific agencies listed with the ministry of home affairs, such as the United Nations or the World Bank.

Any organisation with a cultural, social, educational, religious or economic programme can receive foreign contributions if it is licensed by the FCRA. To apply for a licence, the organisation must be registered either under the Societies Registration Act, the Indian Trusts Act or section 25 of the Companies Act for at least three years.

Why is foreign funding monitored?
The stated aim of the FCRA is to ensure that foreign contributions to Indian organisations come from legitimate sources and are used for legitimate purposes. NGOs are not allowed to use these funds for anything that contains an element of risk, which includes mutual funds or other speculative investments. The foreign funds cannot be mixed with local funds and tax returns have to be filed separately.

Through FCRA licensing, the government says it aims to ensure that foreign funds coming to the Indian social sector do not affect the sovereignty, security or integrity of India, or its strategic, scientific or economic interests.

There is no similar monitoring of foreign funding in the commercial sector, however.

What if an NGO is not regular in filing annual returns?
For not filing returns on foreign funding in time, an organisation can be fined by the home ministry. If an NGO is 90 days late, the fine is either 2% of the foreign funds it received that year or Rs 10,000, whichever is higher. For a 180-day delay, the fine increases to 4% of the funds or Rs 20,000, and any further delay can invite a fine of 5% of the foreign funds or Rs 50,000.

For what reasons can an FCRA licence be revoked?
Under the Act, the central government can cancel an FCRA licence if an organisation has made a false claim at the time of registration, violated the terms and conditions of the Act, failed to engage in “reasonable activity” in its chosen field or become defunct for two years and if the government feels it is necessary to cancel the licence “in public interest”. But a licence can only be cancelled after the organisation in question has been given an opportunity to be heard.

What is the fallout of losing a licence?
If an FCRA licence or certificate has been cancelled, the organisation’s foreign funding will be cut off for at least three years. During this time, the organisation will not be eligible to apply for re-registration with the FCRA to get grants.

Sometimes, the outcome can depend on the reason for cancellation of the licence. Last year, for instance, the government had blocked foreign funding to PRS Legislative Research – a non-profit research institute that helps members of parliament – because its members work too closely with MPs and foreign funding could lead to “lobbying”. Even though PRS represented its case before the home ministry, its FCRA licence has been completely refused and it now has to rely entirely on domestic funding from Indian corporates.

In the past month, a host of premier educational institutions have also lost their FCRA licence. This could affect their research capacities for the next three years, since institutes of higher education typically accept foreign funds for academic research.

Cancellation of licences, however, is different from the suspension of an FCRA license – which is also a fate that many organisations have faced. A licence can be suspended for a maximum of six months if the government’s decision of cancelling the licence is pending and it feels the need to block foreign funding meanwhile.