This piece is not yet another article about the Union Budget presented last week. However, it will start by noting the finance minister’s statement that he still hopes to raise as much as Rs 30,000 crores by disinvesting government stake in state-owned companies – a bit lower than the Rs 40,000 crores targeted last year, but yet, sizeable.
Interestingly, just days before the finance minister made this estimate public, The Children’s Investment Fund, a UK-based hedge fund whose profits go to charity, issued a legal notice to Coal India Ltd, a listed state-owned company. Despite being a listed company, Coal India had rolled back a well-considered hike in coal prices at the bidding of the government. The fund has threatened legal action against the directors on the board of Coal India for breach of fiduciary duty to public shareholders.
Just days before the first ever legal threat was issued to any listed public sector company, the government was hitting out hard at social activism. The government’s chief executive Manmohan Singh made a statement about the “foreign hand” being behind the opposition from non-governmental organisations (“NGOs”) to the nuclear plant at Koodankulam. Taking the cue, the home ministry cracked down on NGOs, freezing bank accounts of a few, and this triggered the chatterrati to speak up against “anti-development NGOs”.
Not too long ago, the government had armed itself with powers to intimidate NGOs. In 2010, the government got Parliament to amend the Foreign Contribution Regulation Act (FCRA) to prohibit “organisations of a political nature” from accepting donations from outside India. Rules under the FCRA framed last year specified the grounds on which an organization could be regarded being “of a political nature”. These included having “objectives of a political nature”, participation “in political activity” and employment of “common methods of political action… (such as picketing)…in support of public causes.”
By definition, NGOs work in the same space as the government. Therefore, arguably, no NGO activity may receive any foreign donation. Therefore, if an NGO’s workers were to court arrest to protest against the Planning Commission’s insensitive definition of poverty (inability to spend Rs 32 per day) that NGO would be involved in “political activity” and would therefore be prohibited from accepting foreign donations. An NGO that organises awareness seminars for municipal corporators to make them aware of educational issues, or one that works with members of Parliament to sensitize them about a new law they would consider, could be prohibited from taking foreign donations.
There is a shameful irony here. A foreigner may make an investment into an Indian company. That Indian company may lobby members of Parliament, bureaucrats, and local governments. It may engage “public affairs consultants” and influence policy – say, mining policy of the government. Yet, if an NGO were to protest against the government’s mining policy, it would be prohibited from getting any donations from foreign sources.
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The worst abuse of the “NGO” tag happens onshore in India, and not from offshore donations. Pompously-named organisations purporting to be “watchdogs”, “centres” and “sentinels” spring up at short notice to file writ petitions and initiate public interest litigation – invariably funded by Indian industry players just to harass competitors. In a nation where “know your client” compliance borders on harassment of genuine salaried retail investors, there is no disclosure norm at all for a purported NGO to meet, before filing public interest litigation.
On the other hand, any NGO that would like to raise foreign donations has to register under the FCRA and file multiple forms and returns for its foreign funding. And yet, the government has armed itself to stymie such genuine NGOs from using charity funds merely by regarding them as “organisations of a political nature”. In short, the government is so thin-skinned that it would not like any credible transparent funding to be obtained by any NGO that can organize a quality protest.
It is in this backdrop that the foreign equity investment by the Children’s Investment Fund becomes interesting. Considering its objects are charity, it could be regarded as an NGO. Its activism in calling the board of directors to account (asking the directors to explain how they take instructions from one shareholder alone (the government) on pricing policy despite being accountable to all other shareholders, could easily be regarded as “political activity”. After all, in the eyes of the quintessential government babu, a foreigner demanding that Coal India should not blindly obey the Indian government without regard to shareholder rights, would constitute an act of treason.
The Empire of the Government of India should stop taking offence at every criticism. The board of directors of Coal India (without government nominee directors participating) should justify to the Children’s Investment Fund, their decision on coal pricing. If India has any claim to being a true democracy, the rules under the FCRA should be scrapped so that every NGO activity is not capable of being classified as being “political” in nature, giving the government the power to choke receipt of foreign donations.
Meanwhile, the finance minister can forget about raising even Rs 30,000 crores from public sector disinvestment.
(The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own.) Disclosure: The author is on the board of directors of an NGO. somasekhar@jsalaw.com