Foreign Exchange Management Act, 1999 (FEMA) emerged as a replacement or say an improvement over the old Foreign Exchange Regulation Act, 1973 (FERA). Foreign investors, frequently hear the terms FERA and FEMA, when they deal with India. As their name specifies, FERA lays emphasis on the regulation of currencies, whereas the FEMA manages forex. There are many differences between FERA and FEMA, which are discussed in this article excerpt, but the foremost difference is, while the former requires previous approval of Reserve Bank of India (RBI), the latter does not require RBI’s approval, except when the transaction is related to foreign exchange.
Content: FERA Vs FEMA
|Basis for Comparison||FERA||FEMA|
|Meaning||An act promulgated, to regulate payments and foreign exchange in India, is FERA.||FEMA an act initiated to facilitate external trade and payments and to promote orderly management of the forex market in the country.|
|Number of sections||81||49|
|Introduced when||Foreign exchange reserves were low.||Foreign exchange position was satisfactory.|
|Approach towards forex transactions||Rigid||Flexible|
|Basis for determining residential status||Citizenship||More than 6 months stay in India|
|Violation||Criminal offence||Civil offence|
|Punishment for contravention||Imprisonment||Fine or imprisonment (if fine not paid in the stipulated time)|
Foreign Exchange Regulation Act, shortly known as FERA, was introduced in the year 1973. The act came into force, to regulate foreign payments, securities, currency import and export and purchase of fixed assets by foreigners. The act was promulgated in India when the position of foreign reserves wasn’t satisfactory. It aimed at conserving foreign exchange and its optimum utilisation in the development of the economy.
The act applies to the whole country. Therefore, all the citizens of the country, inside or outside India are covered under this act. The act extends to branches and agencies of the Indian multinationals operating outside the country, which is owned or controlled by the person who is the resident of India.
FEMA expands to Foreign Exchange Management Act, which was promulgated in the year 1999, to repeal and replace the earlier act. The act applies to the whole country and to all the branches and agencies of the body corporate operating outside India, whose owner or controller is an Indian resident and also any violation committed by the person covered under the Act, outside India.
The main objective of the act is to facilitate foreign trade and to encourage systematic development and maintenance of forex market in the country. There are total seven chapters contained in the act which are divided into 49 sections, out of which 12 sections deal with the operational part while the remaining 37 sections cover penalties, contravention, appeals, adjudication and so on.
Key Differences Between FERA and FEMA
The primary differences between FERA and FEMA are explained in the following points:
- FERA is an act which is enacted to regulate payments and foreign exchange in India, is FERA. FEMA an act initiated to facilitate external trade and payments and to promote orderly management of the forex market in the country.
- FEMA came out as an extension of the earlier foreign exchange act FERA.
- FERA is lengthier than FEMA, regarding sections.
- FERA came into force when the foreign exchange reserve position in the country wasn’t good while at the time of introduction of FEMA, the forex reserve position was satisfactory.
- The approach of FERA, towards forex transaction, is quite conservative and restrictive, but in the case of FEMA, the approach is flexible.
- Violation of FERA is a non-compoundable offence in the eyes of law. In contrast violation of FEMA is a compoundable offence and the charges can be removed.
- Citizenship of a person is the basis for determining residential status of a person in FERA, whereas in FEMA the person’s stay in India should not be less than six months.
- Contravening the provision of FERA may result in imprisonment. Conversely, the punishment for violating the provisions of FEMA is a monetary penalty, which may turn into imprisonment if the fine is not paid on time.
The economic policy of liberalisation was first time introduced in India in the year 1991 that opened gates for foreign investment in many sectors. In the year 1997, the Tarapore Committee recommended changes in the present legislation that regulate foreign exchange in the country. After which FERA was replaced by FEMA in the country.