FERA (Foreign Exchange Regulation Act) was passed in 1947 which was amended in 1973. The new FERA came into force from 1.1.1974. The objective was the conservation of India’s Foreign Exchange reserves, judicious use of foreign exchange, using mainly in these sector which require foreign technology.
Transactions in foreign exchange were absolutely prohibited excepting in certain selected sectors. Every foreign company had to maintain Indian share of 26 percent.
FERA was repealed in 1998 and Foreign Exchange Management Act (FEMA) was enacted. No unauthorised person would be allowed to deal in foreign exchange. The authorised person could sell; draw foreign exchange from any authorised person on current Account transaction, subject to approval of R.B.I.
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RBI has exclusive authority to regulate supply; use of foreign exchange, R.B.I, if thinks fit at the compelling situation can prohibit use of foreign exchange for any specific purpose. R.B.I.’s decision on borrowing, lending, issue, deposit, export of foreign exchange is final.
RBI is also supposed to regulate transfer of immovable party outside India, other than a lease not exceeding five years by an Indian and likewise acquisition or transfer of immovable property in India, other than a lease not exceeding Five years, by a person outside India.
RBI will also regulate offer of a guarantee or surety in the matter of debt, obligation or other liability incurred by an Indian and owed to a person resident living outside India.
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Under FEMA, exporter will furnish to RBI a declaration containing true and correct material information about full value of export for the purpose of realisation of export proceeds.
Exporter of Services shall furnish to RBI a declaration incorporating true and correct information about the value of exports. FEMA also gives certain clauses about penalty to be imposed in the methods of appeal and adjudication.
FERA Vs. FEMA:
FERA — Exchange Regulation
FEMA — Exchange Management
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FERA — requires RBI’s permission
FEMA — Excepting on dealing in Foreign Exchanges no permission is necessary, from RBI.
FEMA — Came out a time when India’s foreign exchange position was satisfactory.
For Fema India Government gave notice to IMF, in which the stated no restrictions will be imposed on remittances of foreign exchange at least in the current A/c transaction.
FERA — Gives wide power to Enforcement directorate to arrest any person, seize any document
FEMA — Violation will not bring any criminal proceedings. It is a civil offence. FEMA removes threat of imprisonment. According to many analysts FEMA removes dragoman measures of FERA. It is a step towards capital Account Convertibility.
Government has tried to remove restrictions of foreign exchange moment in the country. It assures interest of international investors will be protected. FEMA is a civil law, FERA makes the accused responsible but FEMA makes enforcement agency responsible.
The fact is that FEMA is an improvement over FERA. The FEMA makes the approach more flexible. India’s foreign exchange reserves have also increased in a significant manner.
It has crossed the mark of 100 billion. One RBI study shows major sources of reserve accretion is due to favourable current account situation, non-debt creating capital flows and valuation gains. FIIs have shown interest in port folio investment in a big way.
FEMA has been helpful in removing hazards of foreign exchange management, was also instrumental, in many cases, in accumulation of reserves.
The FEMA aims to consolidate and amend laws of the Foreign Exchange which would promote orderly development and maintenance of foreign exchange market. In this objective, it has been more or less successful.