NGOs are an integral part of present day organizational landscape. They are perceived to be much better than government and for-profit businesses in delivering the social welfare goods and services needed by society. Policy makers in India and the world over are showing an increasing preference for NGOs to implement various social welfare programmes. The present essay examines the rationale underlying such a preference and the relevance of the advantages attributed to NGOs. The NGO organizational form differs from public bureaucracies and for-profit businesses based on the two criteria of non-governmentness and non-profitness. Various advantages like ability to attract altruistic resources, to provide for unmet and heterogenous demand for public goods, protection against contract failure, and freerider problem are attributed to these two defining features of NGOs. They are also seen as sites that facilitate socialization in democratic participation, social innovation, and responsiveness. When examined in the socio-historical backdrop of Indian NGO sector, each of these advantages while having relevance historically is being severely compromised in recent times. The shift in voluntarism from a calling to a paid employment, institutionalization of funding sources, deployment of hard contracting and other developments in the NGO sector have dampened the perceived advantages. Altruism is more likely an involuntary subsidization and NGOs are more and more becoming mass producers of welfare goods. The focus on clear, wellplanned project proposals and documents and clearly specified procedures and budgets have reduced the elbow room available to NGOs to innovate. This loss of relevance is primarily because the organic features of the organizational form which bestowed some of the advantages on NGOs are now being traded off in favour of a more standardized, formalized form that is scalable and monitorable. Yet, because of the preferences of the institutionalized funders, non-profitness continues to remain a defining feature of NGOs even though it may not be giving the organization a competitive advantage over public bureaucracies or for-profit businesses. On the contrary, the constraint on profits, has resulted in NGOs adopting practices which expose them to criticism. These practices, while being perfectly rational for other kinds of organizations, become contortions in the case of NGOs. It is therefore necessary for us to re-examine the nature of NGOs and assess the role played by the non-profit constraint and come up with appropriate mechanisms that facilitate the provision of welfare goods/services to society by these organizations.
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