IDENTIFY ONE

REGULATIVE POLICY
IN INDIA AND DISCUSS
ABOUT THE CONCEPT
AND IMPLICATIONS,
OUTPUT AND OUTCOME
OF THE POLICY
Introduction : Why Regulative Policy?

•India being a democratic country, the main objective of

govt. is to reduce the concentration of the wealth in the
few hands.
•So to prevent these things Govt. has enacted special
legislation within which a business should operate.
• It is essential for the business houses to understand the
legal environment & work accordingly.
•Govt. makes law for the smooth functioning of the
business & to safeguard the interest of consumers,
workers.
•These legislation effect the business form starting to the
winding up of business .
Some important enactment to regulate the
industry in India are:

1) The industrial development & Regulation Act, 1952.

2) The companies Act, 1956.
3) The Indian Patent Act, 1970.
4) MRTP Act, 1969.
5) The Foreign Exchange Regulation Act, 1973.
6) The Consumer Protection act, 1986.
7) The Security & Exchange Board Of India (SEBI), 1992.
WHAT IS FOREIGN EXCHANGE??

•Foreign exchange includes the transfer of

credits to settle debts or accounts between
residents of the home country and those of
the foreign country
•These include Instruments, such as paper
currency, notes, checks, foreign bills. These
also include gold and IMF (international
monetary fund) reserves.
•This foreign currency deposits and bonds

4
held by central bank and monetary
authorities.
FOREIGN EXCHANGE REGULATION ACT,
1973
•The Foreign Exchange Regulation Act was
enacted in 1973 and it came into force on
January 1, 1974.
•The FERA had emerged as an important piece
of legislation to exercise strict control over the
working of multinational companies, foreign
collaborations, joint venture arrangements,
5 technology etc.
• Several amendments had been done in FERA
and finally it became popular only after the
amendment 1973.
OBJECTIVES OF FERA

To conservate foreign exchange resources.

To regulate dealings in foreign exchange and
securities.
To regulate foreign investment.

To regulate the appointment of foreign nationals.

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FOREIGN EXCHANGE MANAGEMENT
ACT, 1999
 The FERA was formed to serve the needs of a closed
economy having very limited and selective interaction
with other countries of the world.
 After the liberalisation and globalisation of Indian
Economy, the FERA was not fulfilling the needs of the
newly emerged economic environment both within the
country as well as at the international level.
 Consequently, the government of India decided to
abolish the existing FERA provisions with a new
legislation known as the Foreign Exchange Management
Act.
 FEMA bill was introduced in august 1998 & adopted
in 1999. it is applicable to whole of India. The Foreign
Exchange Management Act (FEMA) is a 1999
Indian Law to consolidate and amend the law relating
to foreign exchange with the objective of facilitating
external trade and payments and for promoting the
orderly development and maintenance of foreign
exchange market in India"
Main objectives
1) To amend the restrictive law relating to foreign
exchange
2) To manage current account & capital account
transaction
3) To facilitate external trade by Indian
4) To ensure free flow of capital
5) To develop & expand foreign exchange market in India
6) To redress dispute related to foreign exchange
transaction
7) To provide suitable economic environment for
globalization
 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 MA 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.
 - 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.
Main provision of FEMA

Definition of Resident - Section 2(5) Residing in India

for more than 182 days,
Any person or body corporate registered in India,
Any office in India owned by a person who is residing
outside India,
An office outside India owned by a person who is
residing in India.
1) Provision relating to export of goods & services
Section7(1) of the act says every exporter of the good
has to :
a) Furnish with RBI or with any other authority for the
purpose, a declaration has to be given describing the
full value of the goods to be exported.
b) Furnish other information to the RBI which may be
required for the purpose for ensuring the realization
of export
4) Provision relating to current & capital account
transactions :
section 5 of the act says that person can sell or draw
foreign exchange only through authorized person from the
current account.

Section 6 (1) of the act says that person can sell or draw
foreign exchange only through authorized person from the capital
account transaction where govt. may specify :
a) Any class of the account transaction which is permitted
b) The limit upto which the foreign exchange be admissible
Section 6(3) of the act provide that RBI can impose strict
regulations or prohibit any of the following transactions :
a) Transfer or issue of foreign security by Indian resident
b) Transfer or issue of foreign security by person resident outside
India
c) Any borrowing or lending of foreign exchange
d) Any borrowing or lending in Indian currency between
Indian & foreigner
e) Any export, import or holding of currency

5) Repatriation person -"repatriate to India" means

bringing into India the realized foreign exchange and –

(i) the selling of such foreign exchange to an authorized

person in India in exchange for rupees, or
(ii) the holding of realized amount in an account with an
authorized person in India to the extent notified by the
Reserve Bank, and includes use of the realized amount
for discharge of a debt or liability denominated in
foreign exchange;
6) Authorized person – Section 10-RBI is empowered
to appoint any person in writing as authorized person to
deal in foreign exchange, foreign securities, money
changer. Also it is empowered to give directions to its
authorized persons regarding the mode of performing his
duties and inspect the business of the authorized person
as well.

Provision regarding Contravention & penalties –

Section 13 & Section 14Any person who
contravene any of the provisions of
the act shall be liable to pay penality up to thrice
the
sum involved in such contravention. If it is
quantifiable, and up to Rs 2 lakh if the sum is not
quantifiable.
7) Provision relating to adjudication & appeals –
Section 16

8) Appeal to special director – Section 17

9) Appeal to appellate tribunal – Section 18

 Appeal to high court -Centre Government is empowered

to appoint authorities for conducting enquiries under the act
to impose penalties and prosecution. The authorities will
give reasonable opportunity to the accused person of being
heard before imposing any penalty and prosecution under the
act.

7) Directorate of enforcement – Section 6(A)

FERA
1. It consists of 81 sections and
was more complex
2. Terms like capital and current
account transactions were not
defined
3. Definition of Authorized
Person was a narrow one
4. There was a big difference in
the definition of “Resident”,
under FERA, and Income Tax
Act
5. Any offence under FERA was
a criminal offence, punishable
with a imprisonment
6. Aim of FERA is to prevent
misuse of Foreign Trade.
7. It did not contain any
provision on the right of
accused person to take legal
assistance
FEMA
1. It consists of 49 sections and is
simple than FERA
2. Terms like capital and current
account transactions have
been defined
3. Definition of Authorized
Person has been widened to
include banks, money changes
etc.
4. The provisions of FEMA, are
in consistent with Income Tax
Act
5. Any offence under FEMA is a
civil offence and punishable
with some amount of money
6. The aim of FEMA is
facilitating Trade.
7. It recognizes the right of
accused person to take legal 17
assistance