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FEMA 2000 means Foreign exchange management Act 2000. Foreign exchange management act 2000 is very helpful law for development of foreign exchange market in India. It was passed in 1999 and came into effect from June 1, 2000 to entire country. After this foreign exchange regulation act ( FERA ) 1973 was closed . FEMA was most suitable for India corporate sector instead of FERA because almost all strict regulations of FERA were removed in FEMA .
Objectives of FEMA
1. Main objective of apply FEMA is to reduce the restriction on foreign exchange . Now , any offense in foreign exchange will be civil offense not criminal offense .
2. This law's main objective is to increase the flow of foreign exchange in India. Now , under this law , you can bring foreign currency in India without any legal barrier .
According to section 3 of FEMA 2000 ," only authorized person under the govt. terms can deal in foreign exchange in India . "
According to section 4 of FEMA 2000, " All persons which are provided authority only can hold or purchase foreign exchange in India or outside India."
According to section 5 of FEMA 2000 ," There is no restriction regarding sale or deal foreign exchange , if it is a current account transaction ."
The following transaction are deemed current account transactions under FEMA :-
a) Expenses in connection with foreign travel , education and medical care of parents , spouse and children ( Any body now can send the foreign currency in India for above expenses under current account )
Under section six ," RBI will fix the limit of foreign exchange transactions relating to capital account after discussion with Indian govt. "
According to section 7 of FEMA 2000 , " It is the duty of exporter to declare the true and correct detail of goods which , he have to sell the market outside India and must send complete report to RBI .
RBI can also make rules and regulations for realization of amount earned from foreign country.
RBI can authorize any body who can deal in money exchange or off shore transaction and foreign exchange .
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He has to follow the rules and guidelines of RBI . RBI can revoke the authorisation granted to any person at any time in public interest . If authorized person will be done contravention the rules of RBI , he will be liable to pay up to Rs. 10000 penalty and Rs. 2000 for every day during which such contravention continue . 7. Provision regarding contravention and penalties :Section 13 to 15 If any body or person contravenes the rules and regulation of FEMA 2000 or RBI direction , he will be liable to a penalty three times of sum involved in contravention . If contravention will continue , then he will pay upto Rs. 5000 per day during the time of contravention . 8. Provision regarding adjucation and appeal :According to section 18, " Central govt. can appoint adjudicating authority who can give the punishment of civil imprisonment of maximum six months if case is less than one crore . If demanded value is more than one crore then punishment of imprisonment may be of three years . the person can appeal to special director against the decisions of adjudicating officer . He can also appeal in appellate tribunal and also in high court with the sixty days of communication of order
The Foreign Exchange Management Act(FEMA) was an act passed in the winter session of Parliament in 1999 which replaced Foreign Exchange Regulation Act. This act seeks to make offenses related to foreign exchange civil offenses. It extends to the whole of India.
FEMA, which replaced Foreign Exchange Regulation Act(FERA), had become the need of the hour since FERA had become incompatible with the pro-liberalisation policies of the Government of India. FEMA has brought a new management regime of Foreign Exchange consistent with the emerging framework of the World Trade Organisation(WTO). It is another matter that the enactment of FEMA also brought with it the Prevention of Money Laundering Act2002, which came into effect from 1 July 2005. Unlike other laws where everything is permitted unless specifically prohibited, under this act everything was prohibited unless specifically permitted. Hence the tenor and tone of the Act was very drastic. It required imprisonment even for minor offences. Under FERA a person was presumed guilty unless he proved himself innocent, whereas under other lawsa person is presumed innocent unless he is proven guilty.
Contents
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1 Switch from FERA 2 Need for its management 3 Main Features 4 References 5 External links
can either be beneficial to a country or expose them to greater risks. 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. [3] Whether under FERA or FEMAs control, the need for the management of foreign exchange is important. It is necessary to keep adequate amount of foreign exchange reserves, especially when India has to go in for imports of certain goods. By maintaining sufficient reserves, Indias foreign exchange policy marked a shift from Import Substitution to Export Promotion. [4]
Main Features
- 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. - 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. - 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 authorised person. - Deals in foreign exchange under the current account by an authorised person can be restricted by the Central Government, based on public interest. - Although selling or drawing of foreign exchange is done through an authorised person, the RBI is empowered by this Act to subject the capital account transactions to a number of restrictions. - People living in India will be permitted to carry out transactions in foreign exchange, foreign security or to own or holdimmovable 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. - Exporters are needed to furnish their export details to RBI. To ensure that the transactions are carried out properly, RBI may ask the exporters to comply to its necessary requirements.
The introduction of a market-determined exchange rate regime within limits Liberalization of current account transactions leading to current account convertibility; Compositional shift in capital flows away from debt to non debt creating flows; Strict regulation of external commercial borrowings, especially short-term debt; Discouraging volatile elements of flows from non-resident Indians; full freedom for outflows associated with inflows (i.e., principal, interest, dividend, profit and sale proceeds) and gradual liberalization of other outflows; Dissociation of Government in the intermediation of flow of external assistance, as in the 1980s, receipts on capital account and external financing were confined to external assistance through multilateral and bilateral sources.
The sequence of events in the subsequent years generally followed these recommendations. In 1993, exchange rate of rupee was made market determined; close on the heels of this important step, India accepted Article VIII of the Articles of Agreement of the International Monetary Fund in August 1994 and adopted the current account convertibility. In June 2000 a legal framework, with implementation of FEMA, was put into effect to ensure convertibility on the current account. Capital Account liberalization approach Globalization of the world economy is a reality that makes opening up of the capital account and integration with global economy an unavoidable process. Today capital account liberalization is not a choice. The capital account liberalization primarily aims at liberalizing controls that hinder the international integration and diversification of domestic savings in a portfolio of home assets and foreign assets and allows agents to reap the advantages of diversification of assets in the financial and real sector. However, the benefits of capital mobility come with certain risks which should be categorized and managed through a combination of administrative measures, gradual opening up of prudential restrictions and safeguards to contain these risks. Current scenario The main objectives in managing a stock of reserves for any developing country, including India, are preserving their long-term value in terms of purchasing power over goods and services, and minimizing risk and volatility in returns. After the East Asian crises of 1997, India has followed a policy to build higher levels of Foreign Exchange Reserves that take into account not only anticipated current account deficits but also liquidity at risk arising from unanticipated capital movements. Accordingly, the primary objectives of maintaining Foreign Exchange Reserves in India are safety and liquidity; maximizing returns is considered secondary. In India, reserves are held for precautionary and transaction motives to provide confidence to the markets, those foreign obligations can always be met. The Reserve Bank of India (RBI), in consultation with the Government of India, currently manages Foreign Exchange Reserves. As the objectives of reserve management are liquidity and safety, attention is paid to the currency composition and duration of investment, so that a significant proportion can be converted into cash at short notice.