GOVERNANCE HANDOUT-1 (CLASS-1) BY Mr.

SAHIL GOYAL
Development Processes and the Development Industry
● NGOs: Non-state, voluntary associations regulated by the state,
registered as trusts, societies, or charitable companies. They work in
areas like environment, human rights, research, and filling gaps left by
the state.
● SHGs: Self-Help Groups play a crucial role in local development
efforts.
● Donors and Charities: Contribute resources to various social welfare
activities.
● Institutional Stakeholders: Include government bodies, private
organizations, and international agencies involved in development.
Welfare Schemes for Vulnerable Sections
● Centre and States: Implement welfare schemes for vulnerable groups
addressing health, education, and social services.
● Performance: Evaluation of these schemes' effectiveness and impact
on target populations.
Mechanisms, Laws, Institutions, and Bodies
● Protection: Bodies and institutions dedicated to protecting vulnerable
sections' rights and improving their conditions.
● Betterment: Laws and mechanisms aimed at improving social sector
services in health, education, and human resources.
UNDP Reports on Human Development
● HDI (Human Development Index): Measures life expectancy,
education (mean and expected years of schooling), and standard of
living (GNI per capita).
● Inequality Adjusted-HDI: Adjusts for intra-dimensional inequalities
using the Atkinson method.
● Gender Development Index (GDI): Compares female to male human
development achievements.
● Gender Inequality Index (GII): Focuses on gender disparities in
health, education, and labor market participation.
● Global Multi-Dimensional Poverty Index (MPI): Measures
overlapping deprivations in health, education, and living standards.
National Multi-Dimensional Poverty Index
● Developed by NITI Aayog: Focuses on health (nutrition, child
mortality, maternal health), education (years of schooling, enrollment),
and living standards (basic amenities, assets).
Role of Civil Society Organizations (CSOs) and NGOs
● NGOs: Formal associations working voluntarily for social welfare,
registered under Trust, Society, or Charitable Company Acts.
● Scope: Includes advocacy, human rights, research, filling gaps left by
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the state, and service provision.

● Roles: Advocacy, policy formulation and implementation partnership
with the state, citizen participation in governance, transparency,
accountability, catalyst for social change, and service provision.
Examples of NGO Impact
● Advocacy: Using tools like PILs for social change (e.g., Bhartiya
Muslim Mahila Andolan, Young Lawyers Association).
● Policy Formulation and Implementation: Partnering with the state in
policy development and implementation (e.g., through social audits).
● Transparency and Accountability: Promoting transparency through
RTI and social audits.
● Service Provision: Providing services to vulnerable sections and in
disaster management.

Problems with NGOs

. Politicization of NGOs
○ Issue: NGOs receiving funds from political parties, impacting their

neutrality.
○ Ethical Concern: NGOs are expected to remain neutral and

independent.
. Misuse and Diversion of Funds
○ Issues: Funds diverted for purposes other than stated, including

money laundering and excessive administrative expenses.

○ Impact: Creates trust deficit between NGOs and stakeholders.

. Lack of Transparency and Accountability

○ Transparency: Reluctance to come under RTI, lack of voluntary

disclosure of financial sources.

○ Accountability: Limited oversight on their actions and spending.

. Working in Silos
○ Issue: Lack of coordination among NGOs working on similar

issues.
○ Result: Duplication of efforts and inefficient resource utilization.

. Poor Capacity Building

○ Challenges: Lack of skilled professionals and digital infrastructure.
○ Impact: Hinders effective implementation and innovation.

. Interaction Issues with the State

○ Problem: Poor communication and collaboration between NGOs

and government bodies.

○ Result: Delays in policy implementation and development projects.

State's Approach
● Policy Recommendations:
○ Partner in Development: Involve NGOs in Environmental Impact

Assessments (EIA) and Social Impact Assessments (SIA) to provide

feedback.
 ○ Regulation: Avoid over-regulating NGOs, facilitate fund
mobilization, and ensure compliance with FCRA rules.
○ Recognition of Criticism: Understand criticism as essential for a
healthy democracy, avoiding labeling NGOs as anti-national.
NGO's Responsibilities
● Enhancing Transparency:
○ Actions: Voluntary disclosure of financial activities, including audit

reports on websites to build trust.

○ Compliance: Adhere strictly to FCRA regulations, refrain from

foreign-funded activism detrimental to national interests.

○ Capacity Building: Invest in skills development and digitalization

to enhance operational efficiency.

FCRA (Foreign Contribution Regulation Act)
● Purpose: Regulates receipt of foreign funds by NGOs in India.
● Compliance: Mandatory FCRA registration, funds utilization rules,
limitations on administrative expenses.
● Recent Amendments: Stricter norms to prevent misuse, including
limiting administrative expenses and prohibiting re-granting.
RTI (Right to Information) Status of NGOs
● Legal Clarity: Only NGOs substantially funded by the state are subject
to RTI.
● Interpretation: Definition of "substantial funding" varies, but typically
refers to a significant portion of funding or indirect support like
subsidized land.

FCRA 2010:
. Prohibited Individuals:
○ Judges, cartoonists, journalists, Members of Parliament (MPs), and

Members of Legislative Assembly (MLAs) are prohibited from

receiving foreign funds.
. Political Nature Organizations:
○ Organizations with a political nature cannot receive foreign funds

under FCRA regulations.

. FCRA License and Account:
○ NGOs intending to receive foreign funds must obtain an FCRA

license.
○ FCRA account must be opened in the State Bank of India (SBI) and

needs to be renewed every five years.

. Compliance Requirements:
○ NGOs must adhere to FCRA rules which include:
◆ No diversion of funds from their intended purpose.
◆ Submission of annual audit reports to ensure transparency.
◆ Funds should not be used for activities considered anti-

national or against developmental interests.

 ◆ Administrative expenses are limited to 50% of foreign funds
received.
FCRA 2020 Amendments:
. Expansion of Restrictions:
○ Bureaucrats are now also prohibited from receiving foreign funding

under the amended FCRA 2020.

. Prevention of Regranting:
○ Prohibition on regranting foreign funds to prevent money

laundering and diversion of funds.

. Stricter Limits on Administrative Expenses:
○ Administrative expenses are further restricted to 20% of the

foreign funding received.

. Operational Details:
○ FCRA account can only be opened in the SBI branch located in

New Delhi.
○ Requirement to submit Aadhar details of NGO employees if they

are involved in receiving foreign funding.

Implementation and Compliance:
● Regulation and Oversight: The Ministry of Home Affairs oversees the
implementation of FCRA regulations and ensures compliance.
● Audit and Reporting: NGOs are required to maintain proper records,
undergo regular audits, and submit reports to demonstrate fund
utilization as per FCRA guidelines.
● Penalties for Non-Compliance: Violations of FCRA rules can lead to
penalties, suspension, or cancellation of FCRA registration, impacting
an NGO's ability to receive foreign contributions.
Conclusion:
The FCRA regulations aim to ensure transparency, accountability, and prevent
misuse of foreign funds in India. NGOs must strictly adhere to these regulations
to maintain their credibility and legal standing while contributing to socio-
economic development in the country. The amendments in FCRA 2020 have
further tightened the norms to safeguard against potential misuse and enhance
oversight.

Benefits of SHGs:
. Poverty Alleviation:
○ Self-employment opportunities: SHGs help create livelihoods

through entrepreneurship in non-farm sectors.

○ Reducing debt traps: Members move away from informal money

lenders.
○ Increased household income: Women contribute to family

earnings.
○ Alternate employment: Generates job opportunities in rural areas.
 ○ Women entrepreneurship: Encourages women to start and
manage their businesses.
. Financial Inclusion:
○ Micro Finance Institutions: SHGs act as microfinance institutions,

providing financial services to underserved communities.

○ Financial literacy: Promotes banking and accounting skills among

women.
○ Business correspondents: Authorized by RBI to facilitate financial

transactions.
○ Jan Dhan Accounts: Encourages women to open bank accounts.

. Women Empowerment:
○ Outside household: Women take leadership roles, become

entrepreneurs, and participate in Panchayati Raj Institutions (PRIs).

○ Within household: Increased participation in decision-making,

better access to reproductive rights, improved education, and

health outcomes.
○ Gender sensitization: Promotes equality between men and

women.
. Positive Spin-off Effects:
○ Social impact: Addresses social issues, improves child nutrition,

education, reduces child labor, and fertility rates.

Problems with SHGs:
. Exclusionary Nature:
○ Exclude women without savings or from marginalized communities

like SC/ST due to stigma.

○ Disturb group dynamics if male members are included.

. Limited Growth:
○ Lack of continuous support from NGOs, banks, and the

government.
○ Insufficient diversification into non-agricultural sectors.
○ Poor market access for SHG products.

. Competition:
○ Face competition from MNCs and cooperatives due to economies

of scale.
○ Internal competition among SHGs.

. Operational Challenges:
○ Many SHGs fail, leading to Non-Performing Assets (NPAs) for

banks.
○ Regional imbalances in SHG formation and support.

Solutions:
. Inclusivity:
○ Address exclusionary practices by providing support and

encouragement to marginalized groups.

○ Ensure balanced participation without disrupting group dynamics.
 . Capacity Building and Support:
○ Strengthen handholding support from NGOs, banks, and the

government for sustainable growth.

○ Encourage diversification of SHG activities beyond agriculture.

. Market Access:
○ Improve supply chains and marketing networks for SHG products.
○ Facilitate linkages with larger markets and businesses.

. Regulatory Support:
○ Create supportive policies and frameworks to enhance SHG

federations and cooperation among SHGs.

○ Address regional imbalances through targeted interventions and

incentives.
By addressing these challenges and implementing supportive measures, SHGs
can continue to play a pivotal role in empowering women, reducing poverty, and
fostering inclusive growth in rural India.