When Charity Becomes a Substitute for the State

Regulating Foreign Contribution

Dr. Abhinandan Magotra

abhinandanmagotra01@gmail.com

One often encounters a familiar scene outside hospitals, on social-media feeds or at busy traffic intersections: an NGO appealing to ordinary citizens for money to provide food, medicines, education or shelter. A passer-by contributes Rs 100, another gives Rs 500, and the campaign moves forward.

The act of giving is noble. It reflects compassion, solidarity and the instinct to help another human being in distress. Yet, behind this familiar appeal lies an uncomfortable question: why are citizens who already pay taxes repeatedly required to privately finance basic services that the state is expected to provide?

The taxpayer appears to pay twice-first through taxation and then through charity.

This is the paradox of a welfare system in which the government collects revenue, allocates funds through departments and schemes, and sometimes routes those funds through non-governmental organisations. When delivery fails, however, citizens are asked to step in once again. Charity, which should ideally supplement public welfare, gradually becomes a substitute for it.

The problem is not that NGOs exist. A vibrant civil society is indispensable to a democracy. NGOs often reach remote communities, respond quickly during disasters, innovate in healthcare and education, and assist vulnerable groups whom formal institutions may overlook.

The examples are closer to home than one may realise. During the 2014 Kashmir floods, several organisations and voluntary groups came forward to support relief and rehabilitation efforts. Chinar Kashmir worked towards immediate relief and reconstruction, while Sewa Bharti, in association with IDRF, distributed essential supplies, clothing and ration. Organisations such as ActionAid India, Greater Kashmir Welfare Trust and the International Committee of the Red Cross also contributed to relief efforts and helped augment the response of government agencies.

Such interventions demonstrate the value of civil society. But they also raise a larger institutional question: should citizens have to depend on voluntary generosity for services that ought to be guaranteed as public rights?

The flawed funding loop

The problem becomes more serious when public funds are routed through organisations whose functioning is not adequately monitored.

The chain can become disturbingly simple:

Taxes are collected, funds are allocated, grants are released, NGOs implement schemes, monitoring becomes paperwork-driven, outcomes remain uncertain-and citizens are eventually asked to donate for unmet needs.

This arrangement creates opportunities for inflated claims, fictitious beneficiaries, duplicate expenditure, weak utilisation certificates, conflicts of interest and diversion of funds. A project may be financially "settled" on paper while remaining socially unsuccessful on the ground.

The Srijan scam in Bihar remains a major illustration of this danger. Government funds meant for development and welfare were allegedly diverted through a network involving the Srijan organisation, officials and banking channels. The case, involving hundreds of crores of rupees, revealed how collusion among public authorities, banks and private entities can allow financial irregularities to continue for years.

The lesson is not that charitable institutions are inherently corrupt. It is that public money cannot be protected merely because it passes through an organisation described as non-profit.

When charity becomes a security concern

The misuse of NGO structures can have consequences beyond financial loss. In certain cases, charitable channels may allegedly be used for political manipulation, foreign interference, extremist mobilisation or terrorist financing.

The National Investigation Agency's case RC-37/2020/NIA/DLI records allegations concerning certain NGOs, trusts and societies collecting funds in India and abroad in the name of charitable and welfare activities while allegedly maintaining links with proscribed terrorist organisations, including Lashkar-e-Taiba and Hizb-ul-Mujahideen. The case material refers to the alleged collection and movement of funds connected with terrorist networks.

These remain investigative allegations and must be tested through due process. Nevertheless, they demonstrate why financial scrutiny cannot be separated entirely from national security.

The danger may not always take the form of a direct transfer to a terrorist organisation. Financial channels can be layered through donors, trusts, front entities, informal remittance systems or apparently legitimate welfare activities. Funds may potentially be diverted towards recruitment, propaganda, logistics or other prohibited activities.

This is why the Foreign Contribution (Regulation) Act is not merely an accounting statute. The Ministry of Home Affairs has consistently emphasised the need to regulate foreign contributions and ensure that they are not used in a manner detrimental to the national interest.

Yet, the response must remain evidence-based. A foreign-funded NGO is not automatically anti-national. Criticism of a government policy is not, by itself, proof of unlawful activity. Peaceful protest, environmental advocacy and public-interest research are legitimate components of a democratic society.

The controversy surrounding protests against the Kudankulam nuclear power project illustrates this difficult balance. The Union government had alleged that certain foreign-funded NGOs violated FCRA provisions and diverted funds towards the anti-nuclear agitation. The allegations led to investigations and regulatory action, while the organisations concerned disputed the claims.

The broader lesson is not that every protest supported by foreign resources is illegitimate. It is that foreign-funded advocacy involving strategic projects must be transparent about its donors, expenditure, institutional relationships and objectives.

The distinction must remain clear:

Peaceful dissent is not terrorism. Environmental advocacy is not automatically foreign interference. Foreign funding is not automatically unlawful. But concealed funding, diversion of funds, undisclosed conflicts of interest and support for prohibited activities require investigation.

A mature democracy must protect both national security and legitimate civil liberties.

The importance of evidence

Public debate about NGO financing sometimes includes claims that charitable or zakat-based institutions in neighbouring countries have been used by terrorist organisations for fundraising or logistical support. Such risks are recognised in the broader global discourse on terrorist financing. But specific organisations must not be declared guilty on the basis of political accusations, unverified media reports or social-media claims.

For instance, allegations concerning the use of the Zakat Foundation in Pakistan by terrorist groups should be presented as established fact only if supported by a formal finding of a competent government agency, a court judgment, an official sanctions document or a verified investigation report.

The principle should be simple:

Terror financing must be pursued without hesitation, but allegations must be supported by evidence and subjected to due process.

From paperwork to outcomes

Conventional audits often verify whether bills, expenditure statements and utilisation certificates have been submitted. They may not establish whether the beneficiaries actually existed, whether the service was delivered, whether procurement was genuine, or whether the claimed outcome was achieved.

A more credible system must move from document-based compliance to outcome-based accountability, as highlighted by Economic survey 2026,in the context of microfinance realm in India. But the same principle applies to this discussion as well.

Every major project should be traceable through the entire chain:

Budget allocation , sanction , grant agreement , fund release , procurement , service delivery , inspection , payment settlement and finally outcome assessment.

A public dashboard should disclose not merely how much money was released, but what was delivered. If ?50 lakh is sanctioned for a nutrition programme, citizens should be able to see how many children were covered, where the programme operated, what quantity of food was supplied, who inspected it and what beneficiaries reported.

What needs to change?

The first reform must be to make essential welfare a dependable state guarantee. Healthcare, primary education, nutrition, drinking water, old-age assistance, disability support, basic housing and emergency relief should not depend on whether a charitable campaign succeeds, but they should succeed in-spite of it.

NGOs may supplement public services, but citizens should never be left without essential support because donations have dried up.

Direct cash transfers can provide autonomy and reduce middlemen, but cash cannot replace a functioning hospital, school, water system or public distribution network. Universal basic services and targeted financial support must therefore complement each other. In this regards the Norwegian model of Guaranteed Universal Basic Services can be a case in study.

Second, every government grant to an NGO should be placed on a single, searchable public registry. It should disclose the organisation's registration details, purpose of the grant, amount sanctioned and released, project duration, implementing location, procurement details, beneficiaries targeted, utilisation certificates, audit findings and outcomes achieved.

No organisation should receive multiple grants for the same activity without full disclosure.

Third, NGOs handling substantial public or foreign funds should be subject to risk-based financial scrutiny. Red flags may include sudden unexplained increases in donations, large cash transactions, repeated payments to related entities, duplicate beneficiaries, unexplained transfers between connected organisations, inflated administrative expenses and a mismatch between declared activities and actual expenditure. This can be a valued objective step in the recent FCRA (Amendments) 2026.

Tax records, banking information, procurement databases, CSR disclosures and FCRA returns should be interoperable, subject to privacy safeguards and lawful access. Automated systems should identify risk, but should not themselves determine guilt.

Fourth, foreign contributions should be accompanied by clear disclosure of donor identity, beneficial ownership, project purpose, expenditure categories, sub-grants, related-party transactions, advocacy expenditure and assets created from foreign funds.

The recently discussed FCRA changes for 2026 should be implemented with strong safeguards against diversion and misuse, while also ensuring predictable rules, time-bound decisions, written reasons and effective appeal mechanisms. Genuine humanitarian, educational, environmental and research organisations should not be paralysed by procedural uncertainty. At the same time, foreign funding must not become an unaccountable parallel channel of influence. In this regards , the total halt on inter-NGO fund transfers , should be reconsidered, for not only bringing transparency but also ensuring "Ease of providing complementary services" by genuine NGOs. Fifth, rigid overhead caps should be re analysed. Requiring every NGO to spend 85 or 90 per cent of its funds directly on programmes may appear attractive, but accounting, trained personnel, cybersecurity, legal compliance, monitoring and safeguarding are also legitimate expenses.

The more meaningful question is:

How much measurable social value is produced per rupee spent?

Sixth, performance-linked grants should be used carefully. Payments may be connected to independently verified milestones, but organisations must not be encouraged to select only beneficiaries who are easiest to assist. Difficult and remote populations often require greater resources and longer engagement.

Finally, citizens must be empowered to ask five basic questions:

What was sanctioned? Who received the money? What was delivered? Who verified it? What action followed when delivery failed?

The Right to Information, social audits, public hearings, time-bound grievance redress, independent ombudsman institutions and whistle-blower protection must become practical instruments rather than merely formal provisions.

The way ahead

The future should not be a choice between an all-powerful state and an unregulated charity sector. It should be a partnership in which responsibilities are clearly defined. Thus the principle of "Public private partnership" should not only remain confined to infrastructure projects but also extend to 'public welfare projects' as well.

The state must guarantee the welfare floor. NGOs should bring innovation, specialised knowledge, community trust and emergency capacity. Citizens should retain the freedom to donate, volunteer and organise. But public money must remain publicly accountable, and foreign contributions must never become a concealed channel for unlawful influence or terror financing.

The ultimate reform is not merely stricter regulation of NGOs. It is the creation of a system in which citizens can trace every rupee from taxation to public benefit, while security agencies can identify suspicious financial networks without treating legitimate civil society as an enemy. A compassionate society will always give. But a just state must ensure that no citizen is compelled to depend on charity for an essential right. Charity may express compassion, but Public welfare must express responsibility, while the National security must be protected through evidence, not suspicion.

(The author a JKAS Officer, is SSO, Directorate of Handicrafts and Handloom, Jammu)