The Foreign Contribution Act was passed to ensure foreign interests did not influence Indian elections. It also requires associations to register with the government before accepting any foreign donations.
All non-governmental organizations are required to renew their registrations every five years.
"The Indian government is using the Foreign Contribution Act to make advocacy groups toe the line," Meenakshi Ganguly, South Asia director at Human Rights Watch, said in a statement Thursday. "Nonprofit and advocacy groups say officials harass them with constant queries and threaten investigations in apparently deliberate efforts to curtail dissent."
The international rights watchdog group called on the Indian government to investigate allegations of misuse of the act.
"The government praises India's robust civil society as a sign of the strength of the country's democracy while at the same time using the Foreign Contribution Act to quash criticism it doesn't like," Ganguly said.
HRW said the act had been used against groups protesting nuclear plants and large infrastructure projects. One group that lost the ability to receive foreign funds, the Indian Social Action Forum, represented more than 700 non-governmental organizations.
In India's Universal Periodic Review by the United Nations in 2012, both the U.N. Human Rights Council and the United States raised concerns about the way the law was being applied to advocacy groups.