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Q3 Fema

The document discusses the evolution of foreign exchange regulation in India from the Foreign Exchange Regulation Act (FERA) to the Foreign Exchange Management Act (FEMA). FERA, passed in 1973, imposed stringent controls on foreign exchange transactions and dealings. However, it did not restrict the expansion of multinational corporations effectively. FERA was replaced by FEMA in 1993 as part of economic liberalization to relax foreign exchange controls in India. FEMA's objectives are to facilitate external trade and payments and promote an orderly foreign exchange market. It assigns an important role to the Reserve Bank of India in administering foreign exchange regulations.

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31 views3 pages

Q3 Fema

The document discusses the evolution of foreign exchange regulation in India from the Foreign Exchange Regulation Act (FERA) to the Foreign Exchange Management Act (FEMA). FERA, passed in 1973, imposed stringent controls on foreign exchange transactions and dealings. However, it did not restrict the expansion of multinational corporations effectively. FERA was replaced by FEMA in 1993 as part of economic liberalization to relax foreign exchange controls in India. FEMA's objectives are to facilitate external trade and payments and promote an orderly foreign exchange market. It assigns an important role to the Reserve Bank of India in administering foreign exchange regulations.

Uploaded by

Badireddy Sadhana
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Director

Karpuram Naresh Kumar


Manisha’s Online Study Circle
“We Add Value to Your Preparation”
Unit - 1
MANISHAS IAS STUDY CIRCLE MANISHAS IAS STUDY CIRCLE MANISHAS IAS STUDY CIRCLE MANISHAS IAS STUDY CIRCLE MANISHAS IAS STUDY CIRCLE
MANISHA’S ONLINE STUDY CIRCLE

From Foreign Exchange Regulation Act (FERA) to Foreign Exchange Management


Act (FEMA):

The management of foreign exchange market becomes necessary in order to


mitigate and avoid the risks.
Central banks would work towards an orderly functioning of the transactions which
can also develop their foreign exchange market.
The Foreign Exchange Regulation Act (FERA) was passed by the Parliament in 1973
and came into force with effect from January 1, 1974.
FERA imposed stringent regulations on certain kinds of payments, the dealings in
foreign exchange and securities and the transactions which had an indirect
impact on the foreign exchange and the import and export of currency.
The purpose of the act, inter alia, was to regulate certain payments, dealings in
foreign exchange and securities, transactions indirectly affecting foreign
exchange and the import and export of currency, for the conservation of foreign
exchange resources of the country.
However, FERA did not succeed in restricting activities, especially the expansion of
TNCs (Transnational Corporations). The concessions made to FERA in 1991-1993
showed that FERA was on the verge of becoming redundant.
After the amendment of FERA in 1993, it was decided that the act would become
the FEMA. This was done in order to relax the controls on foreign exchange in India,
as a result of economic liberalization.
FEMA served to make transactions for external trade (exports and imports) easier -
transactions involving current account for external trade no longer required RBI's
permission.
The deals in Foreign Exchange were to be 'managed' instead of 'regulated'. The
switch to FEMA shows the change on the part of the government in terms of
foreign capital.
Broadly, the objectives of FEMA are:
(i) To facilitate external trade and payments; and
(ii) To promote the orderly development and maintenance of foreign
exchange market.
The Act has assigned an important role to the Reserve Bank of India (RBI) in the
administration of FEMA. The rules, regulations and norms pertain-ing to several

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MANISHA’S ONLINE STUDY CIRCLE

sections of the Act are laid down by the Reserve Bank of India, in consultation with
the Central Government.
Main Features of FEMA:
1. Activities such as payments made to any person outside India or receipts
from them, along with the deals in foreign exchange and foreign security is
restricted. It is FEMA that gives the central government the power to impose
the restrictions.

2. Restrictions are imposed on people living in India who carry out transactions
in foreign exchange, foreign security or who own or hold immovable
property abroad.

3. Without general or specific permission of the Reserve Bank of India, FEMA


restricts the transactions involving foreign exchange or foreign security and
payments from outside the country to India - the transactions should be
made only through an authorized person.

4. Deals in foreign exchange under the current account by an authorized


person can be restricted by the Central Government, based on public
interest.

5. Although selling or drawing of foreign exchange is done through an


authorized person, the RBI is empowered by this Act to subject the capital
account transactions to a number of restrictions.

6. People living in India will be per-mitted to carry out transactions in foreign


exchange, foreign security or to own or hold immovable property abroad if
the currency, security or property was owned or acquired when he/she was
living outside India, or when it was inherited to him/her by someone living
outside India.

7. Exporters are needed to furnish their export details to R I. To ensure that the
transactions are carried out properly, RBI ma ask the exporters to comply
with, its necessary requirements.

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