Foreign Exchange Regulation Act (FERA)

The Foreign Exchange Management Act of 1999 (FEMA) was passed by the Indian Parliament with the goal of “consolidating and amending the law regarding foreign interaction to encourage trade flows and payouts and try to promote the organized creation and maintenance of the foreign exchange market in India.” The Foreign Exchange Regulation Act was repealed on December 29, 1999, and replaced by the Act FEMA( Foreign Exchange Management Act). FERA was Foreign Exchange Regulation Act for better regulation for the people. Offences involving foreign exchange are now considered civil offences under this act. It covers the entire country, and it replaces FERA, which became inconsistent with the Indian government’s pro-liberalization goals. It allowed for creating a new foreign exchange management program that adhered to the World Trade Organization’s evolving framework (WTO).

Description:

Unlike other laws, which allow anything until it is expressly forbidden, the Foreign Exchange Regulation Act (FERA) of 1973 (predecessor to FEMA) made anything illegal unless it was expressly permitted. As a result, the FERA is Foreign Exchange Regulation Act for tenor and tone were drastically altered. Even minor offences were punishable by imprisonment. A person was deemed guilty under FERA unless he proved himself innocent, but a person is presumed innocent till proven guilty under other laws.

FEMA is a regulatory system that allows the Reserve Bank of India and the Central Government to pass the Foreign Exchange and Regulation Act on foreign exchange by India’s Foreign Trade Policy.

FERA’s Most Important Features:

The purpose of FERA, which applied to all Indian citizens, was to conserve the country’s foreign currency resources, among other things. The following are some of the act’s significant features:

• The Reserve Bank of India (RBI) grants permission to any person or corporation to deal in foreign exchange.
• The Reserve Bank of India permits dealers to transact in foreign currencies, subject to review and cancellation in the event of non-compliance.
• Money changers are permitted to convert currencies at the rates set by the RBI.
• Import/export restrictions on currencies
• Persons other than authorized dealers are prohibited from engaging in financial currency transactions.
• Issue of bearer securities is subject to several restrictions.
• Outside India, there are restrictions on owning or acquiring immovable assets.
• Payment restrictions when sending/receiving money from/to a non-Indian resident
• The RBI’s authority to request information and confiscate documents whenever and wherever it is needed.

The main criterion was that all foreign firms operating in India should convert themselves into Indian corporations with at least 60% local equity participation, according to these rules. Furthermore, all international subsidiaries shall reduce their foreign stock stake to 40% or less. The actual impact of this act was completely negative on the country’s economic development, as it restricted the ability of large corporations to expand their operations. As a result, policymakers felt that the act should be relaxed to accelerate the country’s economic development through industrialization.

A comparison of FERA and FEMA

The Foreign Exchange Management Act (FEMA) expands the Foreign Exchange Regulation Act (FERA), which was enacted in 1973 to manage and conserve India’s foreign reserves. FEMA was enacted not only to control and facilitate foreign exchange but also to promote foreign trade and payments, as well as to increase the size of India’s foreign exchange reserves. Unlike the previous law, FEMA was enacted in 1999 and significantly liberalized foreign exchange controls and limits on foreign investments.

Not only that, but the latter also emphasized the country’s currency market’s orderly development and effective management. In contrast to Foreign Exchange and Regulation Act, a violation of FEMA is a compoundable offence with charges that can be dismissed. Aside from that, there are a variety of penalties for violating the provisions of FERA and FEMA.

Property acquisition under FERA and FEMA

When it comes to property acquisition in India, there is a significant difference between FERA and FEMA. While “citizenship” was the criterion for obtaining property under FERA, “residence” is the criterion under FEMA. This means that under the FERA regulations, an Indian citizen may acquire property in India, while a foreign citizen may not (save in the case of NRIs). However, under FEMA, an Indian resident can buy property in India that non-residents cannot buy. FEMA, in particular, has emerged as a replacement or improvement to the previous FERA.

Furthermore, under the FERA/FEMA laws, a foreign corporation with a branch office or another place of business in India can buy immovable property in India that is incidental or auxiliary to carrying on such activity.

Conclusion:

To summarise, the Foreign Exchange Regulation Act governed everything related to foreign exchange. Even though it was enacted with the greatest intentions, the unnecessarily rigorous limitations it imposed hampered the expansion of Indian industries. However, with the implementation of FEMA, the situation quickly shifted from control to management, allowing for the development and orderly regulation of India’s foreign exchange market.