Foreign Exchange Regulation Act

(FERA): Explained
Published on Wednesday, February 15, 2017

Introduction
Foreign Exchange Regulation Act (FERA) was introduced at a time when foreign
exchange (Forex) reserves of the country were low. FERA proceeded on
presumption that all foreign exchange earned by Indian residents rightfully
belonged to the Government of India and had to be collected and surrendered to
the Reserve Bank of India (RBI). FERA primarily prohibited all transactions that
are not permitted by RBI. The objective of FERA was to regulate certain payment
dealings in foreign exchange and securities transactions that indirectly affects
foreign exchange of import and export of currency and to conserve precious
foreign exchange and to optimize the proper utilization of foreign exchange so
as to promote the economic development of the country.

Basic definitions of FERA

Authorized dealer- means a person for the time being authorized to
deal in foreign exchange.
Bearer certificate- means a certificate to securities of which the title to the
securities is transferable.
Coupon- means a coupon representing dividends or interest on a
security.
Currency- includes all coins, currency notes, banks notes, postal notes,
postal orders, money orders, cheques, drafts, traveller's cheques, letters of
credit, bill of exchange and promissory notes.
Foreign currency- means any currency other than Indian currency.
 Foreign exchange- means foreign currency all deposits, credits and
balance payable in any foreign currency and any drafts traveller's cheque,
letters of credit and bill of exchange drawn in the form of Indian currency
but payable in any foreign currency.
Foreign security- means any security created or issued elsewhere than
in India and any security the principal of interest on which is payable in any
foreign currency or elsewhere than in India.
Money changer- means a person for the time being authorized to deal in
foreign currency.
Overseas market- means the market in the country outside India and in
which such goods are intended to be sold.
Transfer- in relation to any security includes transfer by way of loan or
security.

Officers of Enforcement
The officers of Enforcement take different roles in foreign exchange
enforcement. They are as follows
Director of Enforcement
Additional Director of Enforcement
Deputy Director of Enforcement
Assistant Director of Enforcement
Officers of Enforcement can be appointed for the purposes of this Act.
The appointment of enforcement officer and their powers are appointed by
central government. The Central Government may appoint persons such as it
thinks fit to be officers of Enforcement. Subject to conditions and limitations as
the Central Government may impose an officer of Enforcement may exercise
powers and discharge the duties conferred on him under this Act.

Features of FERA
FERA applied to all citizens of India. The idea was to regulate the foreign
payments that deal the Foreign Exchange & securities and conservation of
Foreign exchange for the nation. RBI can authorize a person / company to deal
in foreign exchange and also can authorize the dealers to do transact the
Foreign Currencies subject to review. RBI was given power to revoke the
authorization in case of non-compliancy. RBI authorizes Money Changers who
will convert the currency of one nation to currency of other nation at rates
determined by RBI. For whatever purpose Foreign exchange is required it has to
be used only for that purpose. If he feels that he cannot use the currency for
that particular purpose he would sell it to an authorized dealer within 30 days.
Some of the rules and restrictions that are followed by RBI are as follows
Restrictions on import and export of certain currency
Restrictions on payments that is illegal
Restrictions on dealing in foreign exchange
 Payment for exported goods are done according to RBI
Restrictions on issue of bearer securities
Restriction on settlement in other country
Restriction on holding of immovable property outside India
Restrictions on the appointment of certain persons and companies as
agents for doing FOREX
Restrictions on establishment of place of business in India
Permission of Reserve Bank required for practicing profession, etc. in India
by nationals of foreign States
Restriction on acquisition, holding, etc., of immovable property in India
RBI has the Power to call for information of any person documents like
Indian currency, foreign exchange and books of account.
Power to search suspected persons and to seize documents

Conclusion
At the time of legislation of the law, India had shortage of foreign exchange
(forex). The government then tried to restrict the exchanges, or dealings of India
with foreign countries. But the rules and regulations had great impact on the
import and export of currency.
There were several issues with this act those are
Law violators were treated as criminal offenders.
Wide power in the hand of Enforcement Directorate to arrest any person
and seize any document (Corporate world found themselves at the mercy of
E.D)
Control everything that was specified related to foreign exchange and
aimed for minimizing dealings in forex and foreign securities, etc.
With liberalization there has been a move to remove the measures of FERA and
replace it with a set of foreign exchange management regulations. A draft for
the Foreign Exchange Management Bill (FEMA) was prepared by the Government
of India to replace FERA keeping in view of the Indian economy. However until
FEMA is enacted the provisions of FERA was applied. These are important basic
information about Foreign Exchange Regulation Act (FERA).

Difference between FDI and FII: All you

need to know
Published on Monday, February 13, 2017
Introduction:
Foreign Direct Investment (FDI) and Foreign Institutional Investment or,
Investors (FII) are two different forms of investment tools for investing in a
foreign country. Many of us are generally confused about FDI and FII. FDI
basically means to invest in a foreign company and to acquire controlling
ownership in that company and on the other hand FII means investing in the
foreign stock market.
FDI is given preference over FII because it helps in the economic growth of the
country.

Foreign Direct Investment (FDI):

When any foreign organisation or, institution of one nation makes an investment
in an organisation or, institution of another country then this is called as Foreign
Direct Investment. This investment can be in various sectors like electricity,
drinking water, road, factory, healthcare, properties, insurance etc. It is called
direct investment because the Investors get a substantial amount of
administrative control over the foreign company.
Those poor countries where the availability of finance or, funds for their
development and growth is quite low can avail the required financial support
from the developed countries having good financial condition.

Foreign Institutional Investment/Investors (FII):

The companies of a country that invest in the financial market i.e. the Stock
market of a foreign country are known as Foreign Institutional Investment. The
companies who invests through FII in another country needs to be registered
with the Securities and Exchange Board of that country.

Difference Between FDI and FII:

 FDI FII
Foreign Institutional Investment
1. Foreign Direct Investment.
or, Investors.
When any organisation of one When any organisation of any
nation makes an investment in country makes an investment in
2.
any organisation of another the Stock market of another
country, it is known as FDI. country, it is known as FII.
FII brings long term capital as well
3. FDI brings long term capital.
as short term capital.
Entry and exit is difficult in case
4. Entry and exit is very easy in FII.
of FDI.
In FDI transfer of funds,
technology, resources, strategies,
In FII only funds are transferred
5. new concept are done from the
from one country to another.
developed countries to the
developing one.
FDI helps in developing
infrastructure, increasing job FII does not play any role in the
6. opportunities and also plays a key economic development of the
role in the economic development country.
of the country.
Through FDI, there is
Through FII, there is no any control
7. administrative control in the
in the company.
company.
FDI includes complex procedures
Through stock markets investors
8. and also dont gives an easy way
can make money quickly under FII.
in making money quickly.
Results in increase in capital of the
9. Results in increase in GDP.
country.

FDI in different sectors:

Agriculture and animal husbandry 100%
Print media 26%
Defence 100%
Broadcasting 100%
e-Commerce 100%
Railway 100%
Private Sector Banks 74%
Public Sector Banks 20%
Insurance 49%
White Label ATM 100%
NBFC 100%

Conclusion:
Keeping above points in mind we can say that both FDI and FII are two
completely different forms of investment. Both have their pros and cons.
However FDI is preferred over FII because it not only brings capital but also
brings the latest technology, better infrastructure, better management and job
opportunities.