Inconsistency between FDI policy and FCRA in the Media Sector

[Aditya Singh Rajput and Nelson Chaudhuri are researchers at the National Institute of Public Finance and Policy (NIPFP), New Delhi. The authors thank Radhika Pandey and Sumant Prashant from NIPFP for their valuable inputs]

The post highlights an inconsistency which exists in the current Foreign Direct Investment (FDI) Policy and the Foreign Contribution (Regulation) Act, 2010 (FCRA) with respect to the receipt of foreign funds in the electronic and print media sectors and suggests steps to address this inconsistency.

FCRA vs. FDI

Before we explain the inconsistency, it is important to understand the difference in the applicability of the FDI policy and FCRA. The FDI policy provides for a negative list wherein foreign direct investment are not allowed or restricted in certain sectors. Apart from the list, all the remaining activities are under the automatic route. A foreign entity invests under the FDI route in expectation of positive financial returns. Hence, FDI is a source for for-profit entities to receive foreign capital. The FCRA, on the other hand, prohibits foreign contributions in some specific type of activities, and permits some entities to receive foreign contributions only if they are registered in accordance with the requirements laid down in the FCRA. The FCRA route is primarily used for philanthropic purposes, which can be in the form of donation, delivery or transfer of foreign funds, without expectation of any return. Hence, the FCRA is a source for not-for-profit entities to receive foreign funds.

Print and electronic media are covered under both the FDI policy as well as the FCRA, but the treatment is inconsistent when it comes to receiving funding in the form of foreign investment or foreign contribution. This inconsistency is highlighted below.

Inconsistency

Sections 3(1)(b), 3(1)(g) and 3(1)(h) of the FCRA do not allow non-profit electronic news media (production or broadcast of audio news or audio-visual news or current affairs programmes) and print media (correspondent, columnist, editor, owner, printer, or publisher of a registered newspaper) to accept any foreign contribution. However, the FDI policy allows companies engaged in electronic and print media to receive foreign investment up to 49% and 26% respectively after approval by the Government. This means that a for-profit entity is allowed to receive foreign funds whereas a not-for-profit entity is not allowed to receive foreign funds despite the fact that both the entities are engaged in same activities.

Analysis

The FCRA was first enacted in 1976 and it prohibited foreign contribution in print media. In the year 2010, the FCRA 1976 was repealed and succeeded by FCRA 2010. In the new FCRA 2010, the prohibition was also extended to the electronic media. The reason for such prohibition was mentioned in the Parliamentary Standing Committee on Home Affairs report dated 21-10-2008. The committee observed that “…electronic media is included in the prohibited category since it plays an important role in influencing public opinion.” This means the reason for such prohibition under the FCRA is that the media houses play an important role in influencing public opinion and allowing foreign contribution in not-for-profit media houses can be detrimental to national interest.

FDI was not allowed in print media in the pre-liberalisation era. Following the liberalisation policy in 1991, the government allowed FDI in certain sectors. The decision to permit 26% FDI in print media was taken in 2002. Subsequently, in 2003, the Government also allowed 26% FDI in television broadcasting. The government allowed 26% FDI in print media highlighting that ownership rights would not change with this amount of investment and foreign participation will bring in the much-needed capital and technology in this sector.

The guiding principle of law is that unequals should be treated unequally, hence permitting differential treatment. Any differential treatment should be justified by the reason that both the entities are differently circumstanced and there is a definite objective which a lawmaker is seeking to achieve by treating two entities differently. For example, not-for-profit entities are exempted from income tax whereas for-profit entities are not. This differential treatment is justified as not-for-profit entities operate solely for the public benefit whereas for-profit entities operate for profit motive.

If the intention of the law is to prohibit media houses from receiving foreign funds, as they can influence public opinion, then both for-profit and not-for-profit entities should be treated equally. Hence, there is a clear contradiction in the treatment of similarly placed media houses. Since the Government is permitting foreign investment via FDI policy in media houses, similar treatment should be provided to media houses under the FCRA.

Solution

India’s FDI policy has progressed over the years since the liberalization era but the provisions of the FCRA remains static since its enactment in 1976. In this context, we argue that since the Government has already allowed FDI in print and electronic media, the prohibition under the FCRA has become obsolete. In this regard, the FCRA needs to be amended to address this anomaly. This can be addressed by deleting sections 3(1)(b), 3(1)(g) and 3(1)(h) of the FCRA. Removing these sections will lift the ban and would allow print and electronic media to receive foreign contribution subject to the registration requirement under FCRA.

Additionally, if the Government’s apprehension is that allowing foreign contribution can be detrimental to national interest, it may use its power given under section 9(d) of the FCRA. Under this section, the government can require any entity to obtain prior permission before accepting any foreign contribution. Using this power, the Government will have one more layer of protection, other than registration requirement, for receipt of foreign contribution by non-for-profit entities engaged in print and electronic media. This step would allow greater scope for development of not-for-profit media houses in India.

– Aditya Singh Rajput and Nelson Chaudhuri

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