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FERA was an act passed in 1973 that imposed strict regulations on foreign exchange, securities and transactions that indirectly affected the foreign exchange and import and export of the country. FERA’s full form is Foreign Exchange Regulation Ac under FERA. Everything was prohibited unless specifically permitted. This was replaced by the FEMA Act in 1999.
Why was FERA replaced by FEMA Act?
FERA was the first Act introduced by the Government of India to lay down certain ground rules regarding foreign exchange and foreign security. The main objective of FERA was to reserve foreign assets as much as possible. However, it was soon replaced by FEMA as the former could not survive the post-liberation policies. In 1991, India introduced New Economic policies which focused on globalisation and exchange. Hence this reserve focused Act was changed to exchange focused Act.
FEMA Act
Foreign Exchange Management Act(FEMA) was passed in 1999, replaced the FERA act and imposed strict regulations on foreign exchange dealings while promoting the orderly development and maintenance of the foreign exchange market in India.
Differences between FERA and FEMA Act
FERA mainly focuses on the protection of the available foreign reserves, while FEMA focuses on the development and maintenance of foreign exchange resources. FERA mainly “controlled” foreign exchange transactions while FEMA “manages” foreign exchange transactions. Under the FERA act, foreign exchange transactions were criminalised, but FEMA laid down penalties and made them civil offences. FERA did not allow for any compounding, while compounding is allowed in FEMA Act. FERA comes under section 81, while FEMA comes under section 49.
Main features of the FEMA Act
- Any deals and payments made to a person inside India are restricted. Any receipts and foreign deals are also not allowed. FEMA gives the central government the authority to restrict these exchanges for foreign security.
- Free transactions are subjected to reasonable restrictions.
- No transactions are allowed without the general or specific permission of FEMA. Only authorised people are allowed to make these transactions.
- Foreign deals made by authorised personnel can also be restricted in the view of public interest by the central government.
- Under this Act, authorised transactions are subjected to several restrictions. These restrictions are laid down by the RBI.
- Indian residents can carry out foreign transactions to own or hold immovable property such as land or house if the property, currency or security was owned or acquired when the person was living outside India or was inherited from the person living outside India.
Objectives of FEMA
It mainly concentrated on the promotion of export and decreasing imports. Finding the balance between import and export and maintaining this balance. Developing foreign trade under legal circumstances was one of the main focuses. Creating a free market of foreign exchange was the other objective. FEMA tries to promote external payment.
Who is it applicable to?
It applies to the whole of India. Branch, office or agencies controlled by a resident of India are also subjected to this Act.
Government Departments under FEMA
The Reserve Bank of India forms the regulatory frame of FEMA. The Directorate of Enforcement is responsible for investigation and law enforcement on cases. The foreign investment promotion board helps in the promotion of foreign trade.
Structure of FEMA
FEMA has 7 chapters under section 49. Five sets of rules are made by the Minister of finance under Section 46. RBI implements 23 sets of regulations on foreign trade under 47.
Conclusion
FERA and FEMA Acts are the acts introduced by the legislation of India. FERA was introduced in the year 1973, and FEMA replaced FERA in the year 1999 as it could not keep up with the changing policies. FEMA mainly focuses on improving foreign trade and developing foreign exchange resources. Foreign trades and exchanges can only be made by those authorised, and they can also be subjected to regulations under public interest.
