FERA AND FEMA

FOREIGN EXCHANGE REGULATION ACT

&
FOREIGN EXCHANGE MANAGEMENT ACT

PRESENTED BY: PRAKRITI KUMAR

MEHAR ANEJA
MAYANK JAIN

FERA
Foreign Exchange Regulation Act
The Foreign Exchange Regulation Act (FERA) was legislation passed by the Indian
Parliament in 1973 by the government of Indira Gandhi
It came into force with effect from January 1, 1974.
FERA imposed stringent regulations on certain kinds of payments.
It deals 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.
FERA was repealed in 1999 by the government of Atal Bihari Vajpayee.
It replaced by the Foreign Exchange Management Act,which liberalized foreign

FEMA
Foreign Exchange Management Act

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).
It had become the need of the hour since FERA had become incompatible with the proliberalization 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 Organization(WTO).
It is another matter that the enactment of FEMA also brought with it the Prevention of Money
Laundering Act 2002, which came into effect from 1 July 2005.

FEATURES OF FERA
Important features of FERA are as follows:

RBI can authorize a person / company to deal in foreign exchange.

RBI can authorize the dealers to do transact the Foreign Currencies, subject to review and RBI was
given power to revoke the authorization in case of non-compliancy
RBI would authorize the persons as Money Changers who will convert the currency of one nation
to currency of their nation at rates Determined by RBI
NO person, other than authorized dealer would enter in any transaction of the foreign currency.
For whatever purpose Foreign exchange was required, it was to be used only for that purpose. If
he feels that he cannot use the currency of that particular purpose, he would sell it to a authorized
dealer within 30 days.
No person in India, without permission from RBI shall make payments to a person resident
outside India and receive any payment from a person from outside India.
No person shall draw issue or negotiate any bill of exchange in which a right to receive payment
outside India is created.
No person shall make any credit in an account of a person resident out of India.
No person except authorized by RBI shall send foreign currency out of India.
A person who has right to receive the foreign exchange would have not to delay the receipt of the
foreign exchange

FEATURES OF FEMA
Important features of FEMA are as follows:
It is consistent with full current account convertibility and contains provisions for
progressive liberalization of capital account transactions.
It is more transparent in its application as it lays down the areas requiring specific
permissions of the Reserve Bank/Government of India on acquisition/holding of
foreign exchange.
It classified the foreign exchange transactions in two categories, viz. capital
account and current account transactions.
It provides power to the Reserve Bank for specifying, in , consultation with the
central government, the classes of capital account transactions and limits to which
exchange is admissible for such transactions.
It gives full freedom to a person resident in India, who was earlier resident outside
India, to hold/own/transfer any foreign security/immovable property situated outside
India and acquired when s/he was resident.
This act is a civil law and the contraventions of the Act provide for arrest only in
exceptional cases.
FEMA does not apply to Indian citizens resident outside India.

DIFFERENCE BETWEEN FERA

& FEMA
SR.
NO BASIS
.
1
2
3
4
5

FERA

Emphasis
On regulation of foreign exchange

FEMA
On management of foreign exchange

Foreign exchange reserves positions was not

satisfactory for that stringent controls were
required on the use of foreign exchange

With the improvement in foreign

exchange reserves such stringent
controls are not required now.

Permission

Need to take permission of RBI in connection

with remittances involving external trade

No need for seeking the permission of

RBI in connection with remittances
involving external trade except
section3 relates to dealing in foreign
exchange

Restrictions

These restrictions on drawals of foreign

exchange for the purpose current account
transactions

Section 5, it removes all the

restrictions on drawals of foreign
exchange for the papoose of current
account transactions

Situation

Violations of
Rules

Violations of FERA was treated as criminal

offense and burden of proof was on the guilty

Violations of FEMA treated as civil

offense removes the threat of
imprisonment compared their illegal
acts by paying a fine (not too high)

ADVANTAGES OF FEMA OVER

FERA,
in place since 1974, did not succeed in restricting activities
FERA
such as the expansion oftransnational corporations(TNCs). 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 ofeconomic liberalization. FEMA
served to make transactions for external trade (exportsand
imports) easier transactions involving current account for
external trade no longer required RBIs 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.

THANK YOU