Features of Fera & Fema in India

The Foreign Exchange Management Act was signed into law on June 1, 2000. As a result, the Reserve Bank of India (RBI) controls the forex market in India, and the entrance of The Foreign Exchange Management cleared the way for the passage of the Prevention of Money Laundering Act (PMLA) of 2002. The Foreign Exchange Management Act of 1999 (“FEMA”) governs foreign exchange rules in India. The Reserve Bank of India (“RBI”), which develops the laws and oversees all-important approvals, is India’s highest foreign exchange regulating authority.

FEMA applies to all portions of India, as well as any offices, offices, and set-ups outside India that are owned or run by an individual who is an Indian citizen.

History

The Foreign Exchange Regulation Act (FERA) was enacted at a period when the country’s foreign exchange (Forex) reserves were low. FERA was based on the assumption that all foreign currency generated by Indian citizens belonged to the Indian government and had to be collected and returned to the Reserve Bank of India (RBI). All transactions that are not approved by RBI are prohibited by FERA. The goal of FERA was to regulate certain payment dealings in foreign exchange and securities transactions that have an indirect impact on foreign exchange of import and export of currency, as well as to conserve valuable foreign exchange and optimize its proper use in order to promote the country’s economic development.

Foreign Exchange Regulation Act (FERA)

The FERA (Foreign Exchange Regulation Act) governs Indian legislation concerning foreign exchange. The legislation was enacted to regulate foreign investment in India. The FERA was established during India’s independence. It was originally intended to be a temporary measure to limit the flow of foreign exchange. The act was made permanent in 1957. Foreign currency investments increased in India as the country’s modernization progressed. As a result, it became necessary to safeguard it.

As a result, the Foreign Exchange Regulation Act was revised in 1973. FERA is made up of 81 different sections. Under FERA, any offence was considered a criminal offence, punishable by imprisonment under the Code of Criminal Procedure of 1973. 

Features of FERA

• Import and export restrictions on specific currencies

• Illegal payment restrictions on dealing with foreign exchange

• Payments for exported goods are made in accordance with RBI guidelines

•  Issue of bearer securities is subject to several restrictions

• Settlement restrictions in other countries

• Holding of immovable property outside of India is restricted

• Restrictions on the appointment of certain individuals and companies as FOREX agents

• In India, there are some restrictions on establishing a business

• For foreign nationals to practice their professions, etc. in India, they must obtain permission from the Reserve Bank

• Immovable property purchase, holding, and other restrictions in India

• RBI’s Power to subpoena any person’s documents, such as Indian cash, foreign exchange, and books of account, for information

• Possession of the authority to search and seize suspects

The transition from FERA to FEMA

The previous edition featured a lot of rules that were fairly stringent (for example, a person was assumed guilty unless proven otherwise.) All restrictions that were superfluous were lifted. International investment restrictions have been eased in order to promote greater foreign investment in India and, as a result, improve foreign cash flow. FERA, on the other hand, ran counter to the Indian government’s pro-liberalization goals. Finally, in 1999, the FEMA was enacted to replace the FERA, however, some FERA 1973 requirements remain in effect under FEMA 1999.

Features of FEMA

• It is consistent with full current account convertibility and includes provisions for capital account liberalization over time

• It is more open in its application because it specifies the areas in which the Reserve Bank/Government of India must grant explicit authorization for the acquisition/holding of foreign cash

• Foreign exchange transactions were divided into two categories: capital account and current account transactions

• It gives the Reserve Bank the authority to define the types of capital account transactions and the exchange limitations for such transactions in cooperation with the federal government

• It enables a person residing in India who was previously residing outside India complete freedom to possess, own and transfer any foreign security or immovable property acquired while residing in India

• This act is a civil law, and violations of it result in arrest only in extraordinary circumstances

• The FEMA does not apply to Indian citizens living abroad

FERA vs FEMA

Conclusion

In 1991, India was the first country to implement a liberalization policy, which allowed international investment in a variety of areas. The Tarapore Committee suggested modifications to the current legislation governing foreign exchange in the country in 1997. FERA was superseded by FEMA in the country after that.