The Establishment and Financing of Non-Profit Organizations in India

This report describes the structure of non-profit organizations (also called ‘NPOs’,charitable organizations or third sector) in India with the intention to increase nationaland international understanding and to provide a guideline for social organizations.For better understanding of the special conditions in India the paper starts withbackground information about its society, legislation and economy.Afterwards it focuses on history of Indian social action which was influenced byimportant social events such as the struggle of Independence and the boom of foreignaid. In the meantime publication of negative incidences has harmed the reputation ofNPOs. Nowadays the atmosphere Indian organizations face is characterized bysuspicious, mistrust and governmental control.The next topic explains Indian legislation concerning social organizations. According tothe laws three valid forms of registering an organization are proposed: as a trust, as asociety and as a company. The three types are examined focusing on the varyingformation process and functioning. Regulations in terms of personnel and financialrequirements, costs and duration of registration and international recognition differ.The Income Tax Act and Foreign Contribution Regulation Act are represented which donot distinguish between the three legal forms. Details about the process of registrationunder both acts are depicted.Table 3 and Table 5 summarize all the important legal aspects with particular emphasison the comparison of the three legal forms of NPOs.The following section focuses on sustainability of social organizations. First, the historyof funding is illustrated for better understanding of the current conditions of the socialsector. Initially it used to enjoy the boom of traditional funds from government, foreignagencies and religions. The number of social organizations has mushroomed to anextent that it is out of proportion to the amount of these funds available nowadays. Thefinancial existence of numerous organizations is threatened and they face an enormouscompetitive pressure. They are forced to utilize alternative sources which are listed inthe publication. Although every organization has to figure out its own optimal financialstrategy to become self-sustainable universal applications are illustrated. Financialindependency is one crucial factor for a lasting existence. That is why the reportexplains importance on a balanced mixture of different financial sources. As sustainabledevelopment is a never ending process various problems occur, which social organizations have to cope with. Some of these challenges are described as completionof this topic.The added case studies illustrate the theoretical part of this publication. They are basedon direct experience as an employee, completed by interviews with representatives ofthe third sector and extensive literature research.Finally, a critical valuation of the NPOs and its value for India’s social development isadded.Summarizing the facts, one can say that almost the entire social engagement is restedon the NPOs’ shoulders while the social effort of government is insignificant and ismainly limited on financial support of NPOs. Furthermore the legislation often guides theactivities of social organizations in wrong directions. The NPOs’ social programmesoften do not cope with all aspects of pressing needs of society. That is why the report iscompleted by some advises for more effective and efficient social development in India