Social Capital A Shared Destiny

Report covers the functioning of Self-Regulatory Authorities like the Bar Council of India
(BCI), the Medical Council of India (MCI), the Institute of Chartered Accountants of India
(ICAI), the Institute of Cost and Works Accountants of India (ICWAI) etc. The Report has
suggested that there is need to hive off professional education from their domain. In order
to bring transparency and credibility in their functioning, there is a suggestion to nominate
lay members in the Governing Bodies of these organisations. In Chapter 6, the Commission
has dealt with Cooperatives. The Report extends full support to various measures suggested
by the Vaidyanathan Committee. The Commission has also gone into the issues of Producer
Companies and suggested that they need to be strengthened so that more and more of existing
cooperative societies and other joint venture organisations could convert themselves into
Producers Companies in due course.
Items 8.3 and 8.4 of this TOR (d and e of Para 1.11) of the terms of reference primarily
concern issues of citizens involvement in governance; they will be dealt separately by the
Commission in its Report on Citizen Centric Administration.
1.13 In order to ascertain the views of various stakeholders on issues connected with the
functioning of social capital institutions in India, the Commission organized a National
Workshop on this subject in December, 2006 at Anand in collaboration with the
Institute of Rural Management, Anand (IRMA), Gujarat. The details of this Workshop
are at Annexure-1. The Commission was greatly benefited by the inputs provided by the
participating academicians, intellectuals, activists and government representatives. The
Commission would like to place on record its gratitude to all of them. Later, the Commission
and its officials held separate discussions with the Medical Council of India, the Bar Council,
Charity Commissioners of Maharashtra and Gujarat, and several representatives of charity
organisations. Their views and suggestions have been of immense help to the Commission
in formulating its recommendations. The Commission is thankful to the Secretary and
officers of the Department of Financial Services, Ministry of Finance for their valuable
inputs. The Commission also thanks the Ministry of Home Affairs for their inputs on the
issue of foreign contribution to voluntary organisations. The Commission appreciates the
efforts made by the two nodal institutions (a) Institute of Rural Management, Anand
and (b) Institute for Social and Economic Change, Bangalore in identifying the core issues
which have been utilized in preparation of this Report. In this connection, the Commission
would like to acknowledge the contributions of Mrs. Neelima Khetan and Prof. Debi
Prasad Mishra (both from IRMA) and Dr. Satyanarayan Sangita (from ISEC, Bangalore).
The Commission would also like to express its thanks to Shri Vijay Mahajan, BASIX, Shri
Rama Reddy, Cooperative Development Foundation, Hyderabad and Shri N.V. Belavadi,
National Dairy Development Board who provided significant inputs to the Commission
on Micro-Finance, Cooperatives and Producer Companies respectively.

Evolution and Growth

2.1 As already stated, the term social capital came into the Western lexicon in the later
half of the 20th century but, in some form, it has been a necessary element of agrarian life
in India right from the early days of our civilisation. The Rigveda refers to some elements
of collective social entrepreneurship which manifested in the form of charity / faith based
philanthropy as a duty and responsibility of a conscious human being. During the reign
of the Mauryas and Guptas (4th century BC to 5th century AD) and even later, a strong
village community based on collective entrepreneurship and social cohesion was in existence
across the country. The modern concept of social capital may partly be thought of as an
offshoot of the above tradition of (i) charity / faith based philanthropy; and (ii) strong and
cohesive community life.
2.2 Social Action Groups and Self-Help Movement
2.2.1 In later years, with the emergence of the Industrial Revolution in Europe, political
ideas of equality, human rights and social welfare led to formation of intellectual groups
and thereafter of organisations which started taking up issues of social concern. In India,
such social action groups began taking shape in the early 19th century. The socio-cultural
regeneration in 19th century India was occasioned by the colonial presence, but not created
by it3. Ideas of social reform combined with national sentiment led to the formation of
Societies and Sabhas such as the Brahmo Samaj, Arya Pratinidhi Sabha, Arya Samaj, Prathana
Sabha, Indian National Social Conference etc. Important social figures like Raja Ram Mohan
Roy, Keshav Sen, Dayanand Saraswati, Jyotiba Phule and Mahadev Govind Ranade provided
leadership to this movement to take up issues to combat social bigotry, unequal status of
women, the caste system, irrational beliefs and practices based on superstition. The Ahmediya
and Aligarh movements, the Singh Sabha and the Rehnumai Mazdeyasan Sabha represented
the spirit of reform among the Muslims, the Sikhs and the Parsees respectively. Religion
being the dominant ideology of the period, to some extent, it influenced the growth of the
reform movement in the country. But, by and large, contemporary social action groups
were inherently driven by intellectual and rational intentions. They created organisational
structures which were solidly based on social support and participation.

7
Book titled Indias Struggle for Independence by Shri Bipin Chandra

Social Capital A Shared Destiny

Evolution and Growth

2.2.2 During the struggle for Independence the whole emphasis of the Gandhian movement
was on self-help and cooperation. The cooperative movement gained momentum as a part
of such self-help ethos embedded in the independence movement. To Gandhiji the swadeshi
movement was the greatest constructive and cooperative movement in the country. In
propagation of khadi and village industries, he found the panacea for Indias growing
pauperism and an object lesson in cooperation4. Gandhiji looked at cooperation as a
moral movement.

improvement of service delivery in urban areas. These organisations have made a positive
impact on all aspects of citizen-government interface in the country.

2.3 Corporate Foundations

2.3.1 Towards the end of the 19th century the corporate community in India also
began setting up organisations dedicated to the welfare and development of the
underprivileged. The J N Tata Endowment Trust was established in our country in
1892, much before Rockfeller and Carnegie set up their philanthropic foundations in
the USA. A major contribution of this endowment was the establishment of the Indian
Institute of Science at Bangalore. In the coming years, such business philanthropy led
to substantial action in the field of art, social work and education and within a span
of the next fifty years, a large number of Corporate Trusts and Societies came into
existence at major industrial and business centres of the country. The JJ School of Arts,
Tata Institute of Social Sciences, Tata Institute of Fundamental Research, Birla Institute
of Technology, Sri Ram College of Commerce and many more such institutions were
set up in metropolitan cities.
2.4. Socio-Political Movement and Growth of Constitutionalism and Equity
2.4.1 On the socio-political front, Vinoba Bhaves Bhoodan and Jai Prakash Narains
Sarvodaya movement were the two major voluntary action initiatives which caught the
attention of people across the country in the 1950s and 60s. These movements were based
on a large network of selfless and dedicated volunteers who were deeply impressed by the
ideology of the above two great figures.
2.4.2 Towards the 1970s and 1980s, the growth of constitutionalism and the emergence of
economic liberalisation fueled ideals of equity, human rights and expansion of economic
opportunities. The environment of liberalism led to a recognition that people needed to be
empowered through social action network. This supported emergence of newer categories of
charities and voluntary action groups in our country. Currently, most of these organisations
are active in sectors of social and community advancement; promotion of human rights,
public health, maternal and child health care; expansion of education; scientific promotion,
culture, arts and heritage; amateur sports; environmental protection; child rights and
8

2.5 Cooperatives
2.5.1 In the early years of the 20th century, government thought of organizing farmers into
voluntary groups which could secure cheap farm credit on a collective basis and thus save
them from usurious practices of money lenders. Thus, cooperative societies were born. A
legislation was enacted in 1904 titled the Cooperative Credit Societies Act, 1904. The
inspiration for this Act had come from the success of the cooperative movement in Europe.
Though, the first steps in this direction were initiated by the government, the concept
received excellent response from rural India and within a few years a number of cooperative
societies were in existence in large parts of the country. The Act was further refined in 1912.
Provinces like Bombay, Madras, Bihar, Orissa and Bengal made all out efforts to expand
cooperatives in their territory and made their own enactments on the pattern of the 1912
Act. The Reserve Bank of India which was established in 1934 had agriculture credit as
one of its primary functions and by extending refinance facility to the village cooperative
system it played an important role in spreading the cooperative movement to all corners
of the country. After Independence, the reports of the All India Rural Credit Cooperative
Survey Committee (1951-54) and formation of District and Apex Cooperative Banks in
the 1960s provided further fillip to this sector.
2.5.2 In order to provide legal recognition to voluntary organisations, the then Government
came up with legislative enactments in the later part of the 19th century. The first in the
series was the Societies Registration Act of 1860; a soft law under which institutions, if they
liked, could register themselves. This legislation was followed by the Religious Endowments
Act of 1863, the Indian Trusts Act of 1882 and the Charitable Endowments Act of 1890.
These enactments too were rather mild, as at that stage the intention of the government
was just to register the presence of such institutions; imposing strong regulatory controls
was not on their mind. Towards the beginning of the 20th century, the British Government
added two more legislations to this list: (i) the Charitable and Religious Trusts Act, 1920;
and (ii) the Trade Unions Act, 1926.
2.6 Existing Laws
2.6.1 After Independence the Union and State Governments enacted several laws with
regard to Public Trusts, Waqfs, Producer Companies, other voluntary sector / civil society
organisations and cooperative societies. As on date the existing major laws on the subject
are as follows:
9

Book titled Mahatma Gandhi and the Cooperative Movement by Shri B. K. Sinha

Social Capital A Shared Destiny

Evolution and Growth

2.2.2 During the struggle for Independence the whole emphasis of the Gandhian movement
was on self-help and cooperation. The cooperative movement gained momentum as a part
of such self-help ethos embedded in the independence movement. To Gandhiji the swadeshi
movement was the greatest constructive and cooperative movement in the country. In
propagation of khadi and village industries, he found the panacea for Indias growing
pauperism and an object lesson in cooperation4. Gandhiji looked at cooperation as a
moral movement.

improvement of service delivery in urban areas. These organisations have made a positive
impact on all aspects of citizen-government interface in the country.

2.3 Corporate Foundations

2.3.1 Towards the end of the 19th century the corporate community in India also
began setting up organisations dedicated to the welfare and development of the
underprivileged. The J N Tata Endowment Trust was established in our country in
1892, much before Rockfeller and Carnegie set up their philanthropic foundations in
the USA. A major contribution of this endowment was the establishment of the Indian
Institute of Science at Bangalore. In the coming years, such business philanthropy led
to substantial action in the field of art, social work and education and within a span
of the next fifty years, a large number of Corporate Trusts and Societies came into
existence at major industrial and business centres of the country. The JJ School of Arts,
Tata Institute of Social Sciences, Tata Institute of Fundamental Research, Birla Institute
of Technology, Sri Ram College of Commerce and many more such institutions were
set up in metropolitan cities.
2.4. Socio-Political Movement and Growth of Constitutionalism and Equity
2.4.1 On the socio-political front, Vinoba Bhaves Bhoodan and Jai Prakash Narains
Sarvodaya movement were the two major voluntary action initiatives which caught the
attention of people across the country in the 1950s and 60s. These movements were based
on a large network of selfless and dedicated volunteers who were deeply impressed by the
ideology of the above two great figures.
2.4.2 Towards the 1970s and 1980s, the growth of constitutionalism and the emergence of
economic liberalisation fueled ideals of equity, human rights and expansion of economic
opportunities. The environment of liberalism led to a recognition that people needed to be
empowered through social action network. This supported emergence of newer categories of
charities and voluntary action groups in our country. Currently, most of these organisations
are active in sectors of social and community advancement; promotion of human rights,
public health, maternal and child health care; expansion of education; scientific promotion,
culture, arts and heritage; amateur sports; environmental protection; child rights and
8

2.5 Cooperatives
2.5.1 In the early years of the 20th century, government thought of organizing farmers into
voluntary groups which could secure cheap farm credit on a collective basis and thus save
them from usurious practices of money lenders. Thus, cooperative societies were born. A
legislation was enacted in 1904 titled the Cooperative Credit Societies Act, 1904. The
inspiration for this Act had come from the success of the cooperative movement in Europe.
Though, the first steps in this direction were initiated by the government, the concept
received excellent response from rural India and within a few years a number of cooperative
societies were in existence in large parts of the country. The Act was further refined in 1912.
Provinces like Bombay, Madras, Bihar, Orissa and Bengal made all out efforts to expand
cooperatives in their territory and made their own enactments on the pattern of the 1912
Act. The Reserve Bank of India which was established in 1934 had agriculture credit as
one of its primary functions and by extending refinance facility to the village cooperative
system it played an important role in spreading the cooperative movement to all corners
of the country. After Independence, the reports of the All India Rural Credit Cooperative
Survey Committee (1951-54) and formation of District and Apex Cooperative Banks in
the 1960s provided further fillip to this sector.
2.5.2 In order to provide legal recognition to voluntary organisations, the then Government
came up with legislative enactments in the later part of the 19th century. The first in the
series was the Societies Registration Act of 1860; a soft law under which institutions, if they
liked, could register themselves. This legislation was followed by the Religious Endowments
Act of 1863, the Indian Trusts Act of 1882 and the Charitable Endowments Act of 1890.
These enactments too were rather mild, as at that stage the intention of the government
was just to register the presence of such institutions; imposing strong regulatory controls
was not on their mind. Towards the beginning of the 20th century, the British Government
added two more legislations to this list: (i) the Charitable and Religious Trusts Act, 1920;
and (ii) the Trade Unions Act, 1926.
2.6 Existing Laws
2.6.1 After Independence the Union and State Governments enacted several laws with
regard to Public Trusts, Waqfs, Producer Companies, other voluntary sector / civil society
organisations and cooperative societies. As on date the existing major laws on the subject
are as follows:
9

Book titled Mahatma Gandhi and the Cooperative Movement by Shri B. K. Sinha

Social Capital A Shared Destiny

The Societies Registration Act, 1860

The Indian Trusts Act, 1882
The Charitable Endowments Act, 1890
The Trade Unions Act, 1926
The Charitable and Religious Trusts Act, 1920

The State list Entry 32 Incorporation, regulation and winding up of corporations, other
than those specified in List I, and universities; unincorporated trading, literary, scientific,
religious and other societies and associations; co-operative societies.
The Union list Entry 43 Incorporation, regulation and winding up of trading
corporations, including banking, insurance and financial corporations but not including
co-operative societies.

The Bombay Public Trusts Act, 1950

Entry 44 Incorporation, regulation and winding up of corporations, whether trading or

not, with objects not confined to one State, but not including universities.

The Waqf Act, 1954

Concurrent List Entry 10 Trusts and Trustees.

Section 25 of the Companies Act, 1956

Entry 28 Charities and charitable institutions, charitable and religious endowments and
religious institutions.

The old State Co-operative Acts and the new Mutually Aided Co-operative
Societies Acts (operative in nine States)

Laws on Self-Regulatory Authorities such as the Indian Medical Council Act,

1956; the Advocates Act, 1961; the Chartered Accountants Act, 1949; the Cost
and Works Accountants Act, 1959; and the Architects Act, 1972

2.7.2 Since forming Associations is a Constitutional right under Article 19(1)(c) of the
Indian Constitution, it is quite feasible to set up a non-profit/voluntary organisation without
any kind of registration or recognition under any of the entries mentioned above. In fact,
some of the community based organisations like village committees, small religious groups
and many Resident Welfare Associations function in this manner. However, when it comes
to claiming exemptions under the Income Tax Act and for availing of other benefits from
the Government, there is insistence on formal registration.

Acts / Amendments enacted by different States after 1947

2.8 Government Policy

The Multi-State Co-operative Societies Act, 2002

In the post-Independence period, many of the States have amended / enacted their own
laws on Societies, Trusts and Cooperatives.
2.6.2 In addition, laws applicable to provision of services such as education, health, recreation
and sports etc., too are applicable to the organisations which operate in those areas.
2.7 Social Capital Organisations and Indias Constitution
2.7.1 The Indian Constitution provides a distinct legal space to social capital / civil
society institutions (a) through its Article on the right to form associations or
unions Article 19 (1)(c); (b) through Article 43 which talks of States making endeavour
to promote cooperatives in rural areas; and (c) through explicit mention in entries made
in Schedule 7.

10

Evolution and Growth

2.8.1 The Union Government in its National Policy on the Voluntary Sector (formulated by
the Planning Commission and approved by the Union Cabinet in May, 2007) stipulates that
Voluntary Organisations (VOs) mean to include organisations engaged in public service,
based on ethical, cultural, social, economic, political, religious, spiritual, philanthropic or
scientific and technological considerations. VOs include formal as well as informal groups,
such as: Community-Based Organisations (CBOs); Non-Governmental Development
Organisations (NGDOs); charitable organisations; support organisations; networks or
federations of such organisations; as well as Professional Membership Associations.
2.8.2 As a first step in this process, it is necessary to clarify what exactly the non-profit/
third sector in India is. One can visualise different types of organisations which are eligible

11

Social Capital A Shared Destiny

The Societies Registration Act, 1860

The Indian Trusts Act, 1882
The Charitable Endowments Act, 1890
The Trade Unions Act, 1926
The Charitable and Religious Trusts Act, 1920

The State list Entry 32 Incorporation, regulation and winding up of corporations, other
than those specified in List I, and universities; unincorporated trading, literary, scientific,
religious and other societies and associations; co-operative societies.
The Union list Entry 43 Incorporation, regulation and winding up of trading
corporations, including banking, insurance and financial corporations but not including
co-operative societies.

The Bombay Public Trusts Act, 1950

Entry 44 Incorporation, regulation and winding up of corporations, whether trading or

not, with objects not confined to one State, but not including universities.

The Waqf Act, 1954

Concurrent List Entry 10 Trusts and Trustees.

Section 25 of the Companies Act, 1956

Entry 28 Charities and charitable institutions, charitable and religious endowments and
religious institutions.

The old State Co-operative Acts and the new Mutually Aided Co-operative
Societies Acts (operative in nine States)

Laws on Self-Regulatory Authorities such as the Indian Medical Council Act,

1956; the Advocates Act, 1961; the Chartered Accountants Act, 1949; the Cost
and Works Accountants Act, 1959; and the Architects Act, 1972

2.7.2 Since forming Associations is a Constitutional right under Article 19(1)(c) of the
Indian Constitution, it is quite feasible to set up a non-profit/voluntary organisation without
any kind of registration or recognition under any of the entries mentioned above. In fact,
some of the community based organisations like village committees, small religious groups
and many Resident Welfare Associations function in this manner. However, when it comes
to claiming exemptions under the Income Tax Act and for availing of other benefits from
the Government, there is insistence on formal registration.

Acts / Amendments enacted by different States after 1947

2.8 Government Policy

The Multi-State Co-operative Societies Act, 2002

In the post-Independence period, many of the States have amended / enacted their own
laws on Societies, Trusts and Cooperatives.
2.6.2 In addition, laws applicable to provision of services such as education, health, recreation
and sports etc., too are applicable to the organisations which operate in those areas.
2.7 Social Capital Organisations and Indias Constitution
2.7.1 The Indian Constitution provides a distinct legal space to social capital / civil
society institutions (a) through its Article on the right to form associations or
unions Article 19 (1)(c); (b) through Article 43 which talks of States making endeavour
to promote cooperatives in rural areas; and (c) through explicit mention in entries made
in Schedule 7.

10

Evolution and Growth

2.8.1 The Union Government in its National Policy on the Voluntary Sector (formulated by
the Planning Commission and approved by the Union Cabinet in May, 2007) stipulates that
Voluntary Organisations (VOs) mean to include organisations engaged in public service,
based on ethical, cultural, social, economic, political, religious, spiritual, philanthropic or
scientific and technological considerations. VOs include formal as well as informal groups,
such as: Community-Based Organisations (CBOs); Non-Governmental Development
Organisations (NGDOs); charitable organisations; support organisations; networks or
federations of such organisations; as well as Professional Membership Associations.
2.8.2 As a first step in this process, it is necessary to clarify what exactly the non-profit/
third sector in India is. One can visualise different types of organisations which are eligible

11

Social Capital A Shared Destiny

for tax exemption, ranging from business associations to charitable organisations and
social clubs. But behind this wide canvas under the definition of non-profit sector, lie five
critical features that all these entities share. To be considered part of the non-profit sector,
therefore, an entity must be:5
organisational, i.e., an institution with some meaningful structure and
permanence;
non-governmental, i.e. not part of the apparatus of government;
non-profit-distributing, i.e., not permitted to distribute profits to its owners or
directors. They are required to be ploughed back in the organisation;
self-governing, i.e., not controlled by some entity outside the organisation; and
supportive of some public purpose.
2.8.3 While all organisations that meet these five criteria are part of the generic non-profit
sector, they may formally be placed into two distinct categories. The first category consists
of pure member-centric Bodies. While serving some public purpose, they primarily exist
for taking care of the interests, needs and desires of their own members. The examples
are social / welfare clubs, business associations, labour unions, Professional Bodies and
political parties. The second category consists of public-serving organisations which are
formed to serve the needs of the general public. The examples are charitable grant-making
institutions, religious formations, and a wide range of educational, scientific and other
related service organisations whose activities may range from running orphanages and
old age homes to managing advocacy groups on current issues.
2.8.4 This distinction between the above two sets of organisation is recognized formally
by law in most of the countries and they are guided by different taxation provisions. In
the USA, public-serving organisations fall into a special legal category Section 501(c)
(3) of the US Tax Code that makes them eligible not only for exemption from federal
income taxation and most State and local taxation, but also for tax-deductible gifts
from individuals and corporations. Under the Indian Income Tax Act too, there exist
similar provisions for public service centric voluntary sector in the form of Sections
10 and 11 of the Act.

Evolution and Growth

2.9 Civil Society as a Major Economic Force

2.9.1 With liberalisation of the economy and globalisation, there has been a phenomenal
growth in the number of non-governmental organisations across the world in the last
few decades. Experts say that India has more than two million NGOs, Russia four lakhs
and in Kenya some 240 NGOs are formed each year. The United States has an estimated
two million non-profit organisations which employ more than eleven million workers
about eight per cent of the nations total workforce6. They are further supported by a large
number of unpaid volunteers (about six millions) who have strong individual initiative and
commitment to social responsibility. The presence of NGOs ensures depth and resilience in
civil society. It gives expression to citizens voices. It enables them to take responsibility for
how their society is performing and allows them to talk to their government in organised
ways. In India too, this sector is emerging at a fast pace.
2.9.2 Since non-profit sector organisations in India do not have any apex organisation
(a Federation or a Union) for collection and dissemination of information, it is quite difficult
to assess the scale of their operations in terms of their number or the range of their activities.
As already stated, there are more than two million such organisations registered under the
Societies / Trusts Acts in the country. This includes a wide diversity of local youth clubs,
mahila mandals, private schools, old age homes and hospitals. How many of these are actually
functional is hard to estimate. In recent years, even government organisations like DRDA
and District Health Society have been registered as Societies. From the data maintained by
the Central Social Welfare Board (CSWB), KVIC, CAPART and Ministry of Social Justice
and Empowerment, it appears that they have been funding an estimated 10,000 different
voluntary organisations in the country. A government survey in 1994 (Economic Census,
1994), estimated that sixty per cent of these organisations were concentrated in the four
States of West Bengal, Tamil Nadu, Maharashtra and Uttar Pradesh7.
2.9.3 It is equally difficult to estimate the quantum of resources being used by this sector.
As on 31.3.2006, 32,144 Associations were registered under the Foreign Contribution
(Regulation) Act, 1976, out of which, 18,570 organisations reported receipt of foreign
contribution amounting to Rs. 7,877.57 crores during the year 2005-06 (source: Annual
Report 2005-06, Ministry of Home Affairs, Government of India). Different Ministries
and Departments of the Union and State Governments have floated a vast number of
schemes which fund voluntary work (Report of the Steering Committee on Voluntary
Sector for the 10th Five Year Plan prepared by the Planning Commission, in January 2002).
The non-governmental sector receives a large sum from these government departments
and agencies including large development projects funded by bilateral and multilateral
agencies (estimated to be Rs. 7,000 crores in the year 2000-01). In addition, India has

12

13
Neither Market nor State The Dutch nonprofit sector in a comparative perspective Ary Burger, Paul Dekker

Voice of America news 25th May, 2007

http:/www.pria.org/showarticles.php?article_id=6&allow=1

6
7

Social Capital A Shared Destiny

for tax exemption, ranging from business associations to charitable organisations and
social clubs. But behind this wide canvas under the definition of non-profit sector, lie five
critical features that all these entities share. To be considered part of the non-profit sector,
therefore, an entity must be:5
organisational, i.e., an institution with some meaningful structure and
permanence;
non-governmental, i.e. not part of the apparatus of government;
non-profit-distributing, i.e., not permitted to distribute profits to its owners or
directors. They are required to be ploughed back in the organisation;
self-governing, i.e., not controlled by some entity outside the organisation; and
supportive of some public purpose.
2.8.3 While all organisations that meet these five criteria are part of the generic non-profit
sector, they may formally be placed into two distinct categories. The first category consists
of pure member-centric Bodies. While serving some public purpose, they primarily exist
for taking care of the interests, needs and desires of their own members. The examples
are social / welfare clubs, business associations, labour unions, Professional Bodies and
political parties. The second category consists of public-serving organisations which are
formed to serve the needs of the general public. The examples are charitable grant-making
institutions, religious formations, and a wide range of educational, scientific and other
related service organisations whose activities may range from running orphanages and
old age homes to managing advocacy groups on current issues.
2.8.4 This distinction between the above two sets of organisation is recognized formally
by law in most of the countries and they are guided by different taxation provisions. In
the USA, public-serving organisations fall into a special legal category Section 501(c)
(3) of the US Tax Code that makes them eligible not only for exemption from federal
income taxation and most State and local taxation, but also for tax-deductible gifts
from individuals and corporations. Under the Indian Income Tax Act too, there exist
similar provisions for public service centric voluntary sector in the form of Sections
10 and 11 of the Act.

Evolution and Growth

2.9 Civil Society as a Major Economic Force

2.9.1 With liberalisation of the economy and globalisation, there has been a phenomenal
growth in the number of non-governmental organisations across the world in the last
few decades. Experts say that India has more than two million NGOs, Russia four lakhs
and in Kenya some 240 NGOs are formed each year. The United States has an estimated
two million non-profit organisations which employ more than eleven million workers
about eight per cent of the nations total workforce6. They are further supported by a large
number of unpaid volunteers (about six millions) who have strong individual initiative and
commitment to social responsibility. The presence of NGOs ensures depth and resilience in
civil society. It gives expression to citizens voices. It enables them to take responsibility for
how their society is performing and allows them to talk to their government in organised
ways. In India too, this sector is emerging at a fast pace.
2.9.2 Since non-profit sector organisations in India do not have any apex organisation
(a Federation or a Union) for collection and dissemination of information, it is quite difficult
to assess the scale of their operations in terms of their number or the range of their activities.
As already stated, there are more than two million such organisations registered under the
Societies / Trusts Acts in the country. This includes a wide diversity of local youth clubs,
mahila mandals, private schools, old age homes and hospitals. How many of these are actually
functional is hard to estimate. In recent years, even government organisations like DRDA
and District Health Society have been registered as Societies. From the data maintained by
the Central Social Welfare Board (CSWB), KVIC, CAPART and Ministry of Social Justice
and Empowerment, it appears that they have been funding an estimated 10,000 different
voluntary organisations in the country. A government survey in 1994 (Economic Census,
1994), estimated that sixty per cent of these organisations were concentrated in the four
States of West Bengal, Tamil Nadu, Maharashtra and Uttar Pradesh7.
2.9.3 It is equally difficult to estimate the quantum of resources being used by this sector.
As on 31.3.2006, 32,144 Associations were registered under the Foreign Contribution
(Regulation) Act, 1976, out of which, 18,570 organisations reported receipt of foreign
contribution amounting to Rs. 7,877.57 crores during the year 2005-06 (source: Annual
Report 2005-06, Ministry of Home Affairs, Government of India). Different Ministries
and Departments of the Union and State Governments have floated a vast number of
schemes which fund voluntary work (Report of the Steering Committee on Voluntary
Sector for the 10th Five Year Plan prepared by the Planning Commission, in January 2002).
The non-governmental sector receives a large sum from these government departments
and agencies including large development projects funded by bilateral and multilateral
agencies (estimated to be Rs. 7,000 crores in the year 2000-01). In addition, India has

12

13
Neither Market nor State The Dutch nonprofit sector in a comparative perspective Ary Burger, Paul Dekker

Voice of America news 25th May, 2007

http:/www.pria.org/showarticles.php?article_id=6&allow=1

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Social Capital A Shared Destiny

Evolution and Growth

had a long tradition of volunteering and personal giving. The non-governmental sector
receives substantially from this source also. A survey by PRIA in 2001-02 on philanthropy
indicated that the total annual outlay of this vast and diverse civil society sector in India
could add up to more than Rs.20,000 crores per year.

(d) Professional Self-Regulatory Bodies

2.9.4 Such a vast network of socio-economic institutions has the potential to play an
important role in many key governmental policy objectives:
(i)

it can help to scale up productivity and competitiveness.

(ii) it can contribute to inclusive wealth creation.

(iii) enhance the people centricity of the government.
2.10 Voluntary Sector Its Classification
2.10.1 The third sector / civil society organisations promote cooperation between two
or more individuals through mutual cohesion, common approach and networking.
Democracies inherently encourage such cooperative behaviour. The Indian Constitution
too explicitly recognizes right to freedom of speech and expression and to form associations
or unions as one of the core rights of its citizens under Article 19(1) and hence encourages
formation of civil society groups and community organisations.
2.10.2 In the current model of economic growth, the voluntary/ civil society sector has been
recognized as a key player in achieving equitable, sustainable and inclusive development
goals. Both the State as well as the market-led models of development have been found to
be inadequate and there is an increasing realisation that active involvement of the voluntary
sector is needed in the process of nation building. They are now viewed as partners in
progress. Civil society organisations function outside the conventional space of both State
and Market, but they have the potential to negotiate, persuade and pressurise both these
institutions to make them more responsive to the needs and rights of the citizens.
2.10.3 Based on the law under which they operate and the kind of activities they take up,
civil society groups in our country can be classified into following broad categories:(a)

Registered Societies formed for specific purposes

(b) Charitable Organisations and Trusts

(c)

Local Stakeholders Groups, Microcredit and Thrift Enterprises, SHGs

(e)

Cooperatives

(f )

Bodies without having any formal organisational structure

(g)

Government promoted Third Sector Organisations

2.11 Legal Standing of Social Capital / Civil Society Institutions in other Countries
2.11.1 Social capital / third sector organisations have different legal standings across the
world.
2.11.1.1 Under the US laws, the formation of non-profit organisations/ charities is considered
a basic right that does not depend on governmental approval. Organisations are therefore
not obliged to register with any governmental authority in order to claim non-profit status
and the tax privileges to which it entitles them. The approximately 750,000 organisations
that comprise this core, public-benefit service portion of the American non-profit sector had
operating expenditures in 1996 of approximately $433 billion. If this set of organisations
were a nation, its economy would be larger than all but about ten national economies
larger than those of Australia, India, Mexico and the Netherlands. What is more, if we were
to add the volunteer labour that these organisations utilise, the total economic activity these
organisations represent in the US would rise by another $80-$100 billion.8
2.11.1.2 Laws in the UK too provide a conducive environment to the social capital /
third sector organisations. In England and Wales, registration of charities is compulsory
unless specifically exempt or excepted from registration. Exempt charities are those that
Parliament has specifically decided to exempt. They do not need to be supervised by the
Charity Commissioner because other arrangements already exist to supervise and regulate
them. Examples include universities, maintained schools, museums and galleries. A charity
is also exempted from registration if it does not have (a) a permanent endowment; (b) use
or occupation of any land (including buildings); or (c) an annual income from all sources
of more than a thousand pounds.
2.11.1.3 Registration means that while the organisation remains on the Public Register of
Charities, it will be legally presumed to be a charity and must be accepted as a charity by
agencies such as the Inland Revenue.
2.12 From small library clubs and schools in the villages, to charity homes and educational
institutions in the smaller towns, to large non-governmental outfits operating in the metropolises

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Lester M.Salamon Non-profit organizations Americas invisible sector (Centre for civil society studies, John Hopkins University)

Social Capital A Shared Destiny

Evolution and Growth

had a long tradition of volunteering and personal giving. The non-governmental sector
receives substantially from this source also. A survey by PRIA in 2001-02 on philanthropy
indicated that the total annual outlay of this vast and diverse civil society sector in India
could add up to more than Rs.20,000 crores per year.

(d) Professional Self-Regulatory Bodies

2.9.4 Such a vast network of socio-economic institutions has the potential to play an
important role in many key governmental policy objectives:
(i)

it can help to scale up productivity and competitiveness.

(ii) it can contribute to inclusive wealth creation.

(iii) enhance the people centricity of the government.
2.10 Voluntary Sector Its Classification
2.10.1 The third sector / civil society organisations promote cooperation between two
or more individuals through mutual cohesion, common approach and networking.
Democracies inherently encourage such cooperative behaviour. The Indian Constitution
too explicitly recognizes right to freedom of speech and expression and to form associations
or unions as one of the core rights of its citizens under Article 19(1) and hence encourages
formation of civil society groups and community organisations.
2.10.2 In the current model of economic growth, the voluntary/ civil society sector has been
recognized as a key player in achieving equitable, sustainable and inclusive development
goals. Both the State as well as the market-led models of development have been found to
be inadequate and there is an increasing realisation that active involvement of the voluntary
sector is needed in the process of nation building. They are now viewed as partners in
progress. Civil society organisations function outside the conventional space of both State
and Market, but they have the potential to negotiate, persuade and pressurise both these
institutions to make them more responsive to the needs and rights of the citizens.
2.10.3 Based on the law under which they operate and the kind of activities they take up,
civil society groups in our country can be classified into following broad categories:(a)

Registered Societies formed for specific purposes

(b) Charitable Organisations and Trusts

(c)

Local Stakeholders Groups, Microcredit and Thrift Enterprises, SHGs

(e)

Cooperatives

(f )

Bodies without having any formal organisational structure

(g)

Government promoted Third Sector Organisations

2.11 Legal Standing of Social Capital / Civil Society Institutions in other Countries
2.11.1 Social capital / third sector organisations have different legal standings across the
world.
2.11.1.1 Under the US laws, the formation of non-profit organisations/ charities is considered
a basic right that does not depend on governmental approval. Organisations are therefore
not obliged to register with any governmental authority in order to claim non-profit status
and the tax privileges to which it entitles them. The approximately 750,000 organisations
that comprise this core, public-benefit service portion of the American non-profit sector had
operating expenditures in 1996 of approximately $433 billion. If this set of organisations
were a nation, its economy would be larger than all but about ten national economies
larger than those of Australia, India, Mexico and the Netherlands. What is more, if we were
to add the volunteer labour that these organisations utilise, the total economic activity these
organisations represent in the US would rise by another $80-$100 billion.8
2.11.1.2 Laws in the UK too provide a conducive environment to the social capital /
third sector organisations. In England and Wales, registration of charities is compulsory
unless specifically exempt or excepted from registration. Exempt charities are those that
Parliament has specifically decided to exempt. They do not need to be supervised by the
Charity Commissioner because other arrangements already exist to supervise and regulate
them. Examples include universities, maintained schools, museums and galleries. A charity
is also exempted from registration if it does not have (a) a permanent endowment; (b) use
or occupation of any land (including buildings); or (c) an annual income from all sources
of more than a thousand pounds.
2.11.1.3 Registration means that while the organisation remains on the Public Register of
Charities, it will be legally presumed to be a charity and must be accepted as a charity by
agencies such as the Inland Revenue.
2.12 From small library clubs and schools in the villages, to charity homes and educational
institutions in the smaller towns, to large non-governmental outfits operating in the metropolises

14

15
8

Lester M.Salamon Non-profit organizations Americas invisible sector (Centre for civil society studies, John Hopkins University)

Social Capital A Shared Destiny

and to high budget corporate foundations, the civil society sector has taken long strides in the
past six decades. It has significantly supplemented governments efforts in areas like elementary
education, expansion of rural technology, primary health care and issues of urban growth.
As a consequence of the growth of economy and globalisation, the third sector in the
country seems to be in a rapid expansion mode, trying to contribute positively to many
more issues of public concern such as supply of drinking water, soil conservation, child
care, gender equality, skill training, entrepreneurship development, micro-finance etc. What
these organisations need for their further growth is an environment of support.

SOCIETIES, TRUSTS / CHARITABLE INSTITUTIONS,

WAQFS AND ENDOWMENTS

3.1 Legal and Institutional Framework

3.1.1 Legal Context
3.1.1.1 The law concerning Societies, Trusts, Waqfs and other endowments in India can
be placed in three broad groupings:
(i)

Societies registered under the Societies Registration Act, 1860 and various
States amendments on it after 1947;

(ii) Those engaged in pure religious and charitable work registered under the
Religious Endowments Act, 1863; the Charitable and Religious Trusts Act,
1920; the Waqf Act, 1995 and similar other State Acts;
(iii) Trusts and charitable institutions registered under the Indian Trusts Act, 1882;
Charitable Endowments Act, 1890; the Bombay Public Trusts Act, 1950; and
similar other State Acts.
The main features of these enactments are indicated in the Table at Annexure III (1).
3.1.1.2 In addition to meeting the requirements of legislation as listed in the Table at
Annexure III (1), charitable organisations are also required to follow the provisions of law
as applicable to their functional areas. For example, those working in the health sector need
to follow the laws applicable to that sector. Similarly, organisations working on environment
protection will have to abide by the Water (Prevention and Control of Pollution) Act, 1974,
the Air (Prevention and Control of Pollution) Act, 1981 and the Forest (Conservation)
Act, 1980 etc.
3.1.1.3 Societies
3.1.1.3.1 Modelled on the English Literary and Scientific Institutions Act, 1854, the Societies
Registration Act was enacted in India in 1860. Towards the middle of the 19th century
coinciding with the 1857 event, a number of organisations and groups were established
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