The Modi Government is Cornering Public Funds via PM CARES while Robbing States of GST Share

Mahua Moitra

The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020 is deeply problematic because it further weakens the rights and resources available to the states by taking away the statutory promises made under the new GST regime and while on the other hand cornering public funds for PM CARES to the direct disadvantage of state relief funds.

Clause 7 of the Bill seeks to amend the Central Goods and Services Act of 2017, allowing the government to extend the time-limit for completion of actions under the Act in events of force majeure (such as an “epidemic”) with retrospective effect. This will permit the government to retrospectively validate its failure and extend the time-limit indefinitely while disbursing compensation to states.

Does the finance minister conveniently forget that GST was made possible because the states ceded almost all their powers to levy local level indirect taxes? The underlying promise made to the states while accepting this was that revenue shortfalls arising from the transition to GST would be made good from a “pooled GST compensation fund” for a period of five years ending in 2022. This corpus was to be funded by a compensation cess levied on so called “demerit goods”. The mechanism for this is spelt out in Section 7 of the GST Act 2017 which you now seek to destroy.

This quantification was to be done annually by projecting a revenue assumption on 14% compounded growth on the revenue of the base year (2015-16) and calculating the difference between that figure and the actual GST collections of any year. Applying this promise to the states for the year 2020-2021, the anticipated shortfall is 3 lakh crore rupees. The compensation pool, however, has only 0.65 lakh crore rupees. The Centre cannot shy away from its responsibility and MUST cover the shortfall of 2.35 lakh crore. I ask myself in such a situation can sheer incompetence bordering on negligence be force majeure? Perhaps this is new and evolving jurisprudence which our finance ministry wishes to announce with its next midnight dhamaka? This sends a terrible signal to parties entering commercial contracts, giving them an easy way out from fulfilling obligations and adding to the terrible mess that our economy is in.

The second insidious objective of this Bill is to give a blanket clearance with no accountability whatsoever to the PM CARES Fund.

The origin of this fund is not only steeped in opacity but furthers rips apart the fabric of federalism and is inherently discriminatory in nature. I was among the first petitioners in the Supreme Court against the discriminatory nature of the fund – but the bench in its wisdom while not dismissing my petition on merits asked me to bring it up in parliament. So here I am, wondering how an issue of constitutionality that should have attracted judicial review is now instead being debated in this august house.

The government issued a circular on March 28, 2020 notifying that all contributions to the PM CARES Fund qualified as eligible CSR expenditure under Item No. (viii) of Schedule VII of the Companies Act, 2013. But it disqualified contributions made to the ‘state relief funds’ from being treated as valid CSR activities, despite the same being expressly permissible under Schedule VII of the Act of 2013. Items (i) and (xii) under Schedule VII specifically permit companies to fund activities pertaining to the promotion of health care and preventive health care and disaster management and relief efforts.

This unequal treatment of the state and central relief funds is in violation of Article 14 of the constitution. Unfair treatment of identical contributions to the state relief funds is against public interest and public policy. It completely disincentivises corporate contributions which the state governments would have otherwise received. It creates an unfair, unjust and discriminatory distinction against the ‘state’ and ‘chief minister’s relief funds’ in favour of the ‘PM CARES’ Fund, despite both being permissible under the statutory mandate of the Companies Act, 2013.

Finance minister Nirmala Sitharaman, while introducing the bill on Thursday, read out a long list of schoolchildren and pensioners who apparently readily and happily gave away their meagre savings to the PM CARES fund. But why was the minister silent on the 38 PSUs that have donated more than 2100 crore rupees to PM CARES – almost 70% of the total corpus. These are public sector undertakings – share capital subscribed to by the government of India with the people’s money. Without an audit, the conflict of interest is writ large.

We should also remember that the PMO in response to an application for disclosure of the incorporating documents of the PM CARES trust said that it is not a public authority as far as the RTI is concerned and thus refused to disclose its origins.

The very legislative intent behind Section 135 of the Companies Act, creating CSR, was to encourage companies to commit contributions for public welfare activities locally and in areas where they operate.

The PM CARES diverts those funds away from local communities into a dark hole where not even a speck of light can enter. Coal India has committed 221 crore rupees to the fund while it cannot contribute to the state relief funds of Bengal and Jharkhand which account for all of its business! ONGC has mentioned that it has offered funds from its CSR budget for this year, even though this allocation is “yet to be determined”. HPCL has admitted to contributing 120 crore rupees from its CSR budget for the ongoing financial year which is yet to be finalised. Power Finance Corporation contributed 200 crore rupees even though its entire CSR allocation is only 150 crore. It is like the courtiers of the emperor competing with one another to give him gifts with public funds.

Donations from Chinese firms

If these improprieties were not bad, enough please consider the massive donations made by Chinese companies. Xiaomi , a Chinese company accused on snooping on users gave PM CARES 10 crore, TikTok, banned by the Modi government a few weeks ago, gave 30 crore and Huawei – banned all around the world for its well-documented links to the Chinese Army, donated 10 crore. Why did the government take this money at a time from India’s enemies? Why doesn’t it return this tainted money? I am sure no dying Indian would choose to be on a ventilator paid for by Chinese money. The government says it has put 2000 crore towards 50,000 ventilators. It should lay on the table of this house how many ventilators have been physically delivered to which hospitals and in which states. And also disclose the manner of procurement. We hope its friends – who have been buying up our Indian airwaves and airports – have nothing to do with this.

The dangers of these unverified foreign donations are amplified by the fact that the PM CARES fund exempted itself from FCRA regulations even though it does not meet the pre-condition of a body whose funds are audited by the CAG.

To conclude, there are three points to take away:

First, the government is raising funds on the basis of public office. The very name – a “Prime Minister’s” fund – makes people think this is a government authority. So by saying it is not open to RTI, it is running away from the spirit of transparency it should be wedded to.

Second, cabinet members are trustees to administer the funds, so this impermissibly expands the scope of ministerial office in excess of the mandate determined by the constitution.

Third, it is commandeering resources – donations by default. A circular issued by the Department of Revenue under the Ministry of Finance on April 17 to all officers and staff appealing to them to “contribute their one day’s salary every month till March 2021” to the PM CARES Fund. Anyone having any objection has to say so in writing. With the atmosphere of fear and vengeance prevalent in society under this government, which bureaucrat, which public servant will say they do not wish to donate?

In the end, I would like to make three appeals to this government..

First, stop lying to us all the time. About foreign incursions into Indian territory. About growth rates, and migrant welfare, and expenditure, and PM CARES.

Second, stop marketing 20,000 crore packages as relief measures when in truth it comprises money already spent and money to be given as loans, and imaginary money that will never reach the people who need it.

Third, stop cheating the state governments of their dues, made through a constitutional promise. Stop wasting funds on your vanity projects, when the state governments – who actually make a difference in people’s lives and not just on their television screens – need what is owed to them to govern.

We need to remember Hans Christian Andersen’s story, the Emperor’s New Clothes, where the emperor was cloaked in nothing but his sycophantic courtiers did not tell him so. The Bengali poet Nirendranath Chakravorty in his poem ‘Ulongo Raja’ quoted only a little innocent child in the entire kingdom who had the courage to ask the naked emperor – Raja tor kaapor koi? I too ask today – Emperor, Where are your clothes?

(Mahua Moitra is a Trinamool Congress MP from West Bengal. This article has been adapted by The Wire from her speech in the Lok Sabha on September 19, 2020. Article courtesy: The Wire.)

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The Proposed FCRA Amendment Will Deal Another Blow to India’s Non-Profit Sector

Suvojit Chattopadhyay

The Foreign Contribution (Regulation) Amendment (FCRA) Bill, 2020 has been introduced in the current parliament session.

The amendment seeks to make specific changes to the FCRA law, first introduced in 2010 by the UPA government and whose rules were amended in 2012, 2015 and 2019. The law provides the framework under which organisations in India can receive and utilise grants from foreign sources. This primarily affects the non-profit sector in India, comprising a wide range of organisations – NGOs that implement development projects, research organisations, civil society activists, etc.

Governments have argued that the receipt and use of foreign grant funds need to be regulated to ensure that they are not used to hurt the national interest. Nobody denies that there should be greater transparency when it comes to activities that are funded by foreign sources.

But is it too much to hope that the government will see NGOs and civil society organisations as genuine partners in India’s development journey? As demonstrated during the ongoing pandemic and the migrant workers’ crisis, NGOs and activists routinely make up for gaps in government programmes, by reaching the unreached, supplementing the quality and quantity of services provided, and speaking for those whose voices are marginalised.

Restraining non-profit organisations is equal to restraining democracy itself. But several elements of the FCRA rules and their vague definitions of national interest makes it hard to believe that the government sees this sector as an ally. The government has used the FCRA as an instrument for harassment of political rivals or activist organisations such as Amnesty International. Starting from environmental activism to religious activities – a wide range of organisations have come under the scanner of government authorities in recent years.

The central objectives of the latest amendment Bill are the following:

• To prohibit any grants from abroad being made to organisations that involve ‘public servants’, or in other words, any organisation that is “controlled or owned” by the government;
• To prohibit the transfer of grants received under FCRA to any other person or organisation;
• To lower the cap on administrative expenses that can be funded by FCRA funds from 50% to 20%;
• To expand the power of the Ministry of Home Affairs, GoI to cancel FCRA certificate for more than 180 days;
• To make Aadhaar mandatory for persons who control recipient organisations, and
• To stipulate that foreign grants can only be received at the State Bank of India at New Delhi.

According to the GoI’s FCRA dashboard, there are 22,447 active FCRA registrations in India today. In 2018-19, 21,915 annual returns were filed – a compliance rate of 97.6%. It can hardly be argued that non-compliance is a concern here. Making Aadhaar mandatory is another step towards expanding the use and coverage of the unique identity and does little to improve transparency or oversight by the government. Similarly, the stipulation that all foreign fund recipients need to use SBI bank accounts will only increase the transaction costs for organisations that receive such funds.

Let’s look at the more substantive provisions of the Bill. The provision that public servants cannot be involved in organisations that seek to receive foreign grants – as others have pointed out – seems to have been introduced with its particular objections to Indira Jaisingh, whose NGO had received foreign funds while she was the additional solicitor general of the Government of India. That aside, the amendment does not explain what it is that the government finds objectionable about a public servant being involved in public causes through non-governmental organisations. It is even more baffling in the light of recent revelations that the PM CARES fund had received exemptions from complying with FCRA provisions when it is headed by Union cabinet ministers and administered by PMO officials.

This amendment Bill also seeks to prohibit the transfer of FCRA funds to other persons or organisations. Again, other than creating obstacles for implementing projects, it is not clear how this provision would contribute to better transparency in the use of foreign funds. All this does is to prevent an organisation that raises funds from abroad from transferring funds to partner organisations.

A far easier option would have been to ask organisations that receive foreign funds under FCRA to annually report on all activities towards which those funds are utilised. Is it even clear any more that the government is genuinely interested in improving transparency? The 2015 amendments to the FCRA struck a blow to any such notions when it retrospectively allowed political parties (which we know are amongst the most non-transparent of organisations) to receive foreign funds.

Through this amendment, the government wants to limit the proportion of administrative expenses in the utilisation of foreign funds to 20%. This one is truly an example of a regulation that serves no purpose but to make life difficult for larger organisations who have higher overheads (administrative costs). This is the equivalent of the government introducing laws that ask for-profit companies to impose a cap on expenditure on salaries or facilities.

Organisations that are able to raise funds from abroad do so on the basis of their credibility or relationship with the donor. If donors determine that funds are not being used on direct delivery of programmes but instead are being wasted on administrative expenses, it is up to them to respond. There is hardly any need for the government to get involved in such matters.

Finally, this Bill gives the Ministry of Home Affairs powers to suspend FCRA certificates for more than 180 days, without specifying an upper limit. In the current circumstances, this should worry NGOs and civil society organisations. By suspending the FCRA certificate, the government can starve organisations of funds while it investigates them. For India’s already-suffering civil society, this is very bad news.

In summary, the proposed amendments will increase the cost of doing business for India’s non-profits, while making them further vulnerable to harassment. This may not be a drastic change, but signals a worsening trend for India’s non-profit sector.

(Suvojit Chattopadhyay is currently based in Dhaka, and works on issues of public sector governance and development management in South Asia.)