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Foreign Exchange Management Act, 1999 (FEMA) was enacted on 29 December 1999 signaling the end of an era of strained FOREX reserves & replaced the notorious FERA passed in 1974. 

Facts about FERA & FEMA

What is FEMA?

It is a set of regulations that empowers the Reserve Bank of India to pass regulations and enables the Government of India to pass rules relating to foreign exchange in tune with the foreign trade policy of India.

Which Act did FEMA replace?

FEMA replaced an act called Foreign Exchange Regulation Act (FERA).

What is FERA and when was it passed?

FERA (Foreign Exchange Regulation Act) legislation was passed in 1973. It came into effect on January 1, 1974. FERA was passed to regulate the financial transactions concerning foreign exchange and securities. FERA was introduced when the Forex reserves of the country were very low.

Why was FERA replaced?

FERA did not comply with the post-liberalization policies of the Government.

What is the main change brought in FEMA compared to FERA?

It made all the criminal offences as civil offences.

Unlike other laws, which allow anything until it is expressly forbidden, the Foreign Exchange Regulation Act (FERA) of 1973 (predecessor to FEMA) made anything illegal unless it was expressly permitted. As a result, the FERA is Foreign Exchange Regulation Act for tenor and tone were drastically altered. Even minor offences were punishable by imprisonment. A person was deemed guilty under FERA unless he proved himself innocent, but a person is presumed innocent till proven guilty under other laws.

FEMA is a regulatory system that allows the Reserve Bank of India and the Central Government to pass the Foreign Exchange and Regulation Act on foreign exchange by India’s Foreign Trade Policy.

FERA’s Most Important Features:

The purpose of FERA, which applied to all Indian citizens, was to conserve the country’s foreign currency resources, among other things. The following are some of the act’s significant features:

  • The Reserve Bank of India (RBI) grants permission to any person or corporation to deal in foreign exchange.
  • The Reserve Bank of India permits dealers to transact in foreign currencies, subject to review and cancellation in the event of non-compliance.
  • Money changers are permitted to convert currencies at the rates set by the RBI.
  • Import/export restrictions on currencies
  • Persons other than authorized dealers are prohibited from engaging in financial currency transactions.
  • Issue of bearer securities is subject to several restrictions.
  • Outside India, there are restrictions on owning or acquiring immovable assets.
  • Payment restrictions when sending/receiving money from/to a non-Indian resident
  • The RBI’s authority to request information and confiscate documents whenever and wherever it is needed.

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