Foreign Exchange Regulation

Introduction
 The Foreign Exchange Management Act (1999) or in short FEMA has been
introduced as a replacement for earlier Foreign Exchange Regulation Act
(FERA). FEMA came into act on the 1st day of June, 2000.
The main objective behind the Foreign Exchange Management Act (1999) is to
consolidate and amend the law relating to foreign exchange with objective of
facilitating external trade and payments and for promoting the orderly
development and maintenance of foreign exchange market in India.
FEMA is applicable to the all parts of India. The act is also applicable to all
branches, offices and agencies outside India owned or controlled by a person
who is resident of India.
FEMA head-office also known as Enforcement Directorate is situated in New
Delhi and is headed by a Director. The Directorate is further divided into 5
zonal offices at Delhi, Bombay, Calcutta, Madras and Jalandhar and each
office is headed by a Deputy Directors. Each zone is further divided into 7 sub-
zonal offices headed by the Assistant Directors and 5 field units headed by the
Chief Enforcement Officers
Introduction to FERA
Foreign Exchange transaction were regulated in India by
the Foreign Exchange Regulation Act (FERA) 1973.
this act also sought to regulate certain aspects of the
conduct of business outside the country by Indian
Companies and in India by foreign companies.
The FERA was widely describes as a sever and
objectionable law. Following the economic
liberalization ushered in 1991, some amendment to the
FERA were effected in 1993.
Objectives of FERA
The principle objective of the FERA act was to prevent the
excessive outflow of Indian Currency and to see that the
foreign exchange legitimately to India should be received
To regulate certain payments.
To regulate the dealings in foreign exchange and
securities
To regulate import and export of currency and bullion
To regulate foreign companies
To regulate acquisition, holding etc of immovable
property in INDIA by non-residents
Provisions of FEMA
Dealing in Foreign Exchange etc
Section 3 of FEMA imposes restrictions on dealing in
Foreign exchange and foreign security and payments to and
receipts from any person outside India. Accordingly, excepts as
provided in terms of the Act, or with the general or special
permission of the RBI, no person shall
a. Deal in any foreign exchange or foreign security with any person
other than an authorized person
b. Make any payment to or the credit of any person resident outside
India in any manner
c. Enter in to any financial transaction in India as a consideration
for or in association with acquisition or creation or transfer of
right to acquire, any assets outside India by an person
d. Receive otherwise through an authorized person, any payment
by order or on behalf of any person resident outside India in any
manner
Holding of Foreign exchange etc
No person resident in India shall acquire, hold, own,
possess or transfer any foreign exchange, foreign
security or any immovable property situated outside
India.
Current a/c transaction
FEMA permits dealing in foreign exchange through
authorized persons for current a/c transactions.
However, the Central Govt can impose reasonable
restrictions in public interest.
Capital a/c transactions
Any person my sell or draw foreign exchange to or
from an authorized person for a capital account
transaction permitted by the RBI in consultation with
the central government. The RBI in consultation with
Central Govt specify any class or classes of capital
account transaction which are permissible and limit up
to which foreign exchange shall be allowable for such
transaction
Exports of Goods and Services
Every exporter of goods shall-
Furnish to the Reserve bank or to such other authority a
declaration as specified, containing true and correct
material particulars, including the amount representing
the full export value.
Realization and Repatriation of Foreign
Exchange
Where any amount of foreign exchange is due or has
accrued to any person, he shall take all reasonable
steps to realize and repatriate It to Indian with in the
time and in the manner prescribed by the RBI. Several
exemption are, however, granted to this clause.
Contravention and Penalties
Penalty for any kind of contravention under this act is
liable to a penalty up to thrice the amount involved
where it is quantifiable or up to Rs. 2lacs where it is
not quantifiable, further penalty which may extend to
five thousand for every day the first day during which
the contravention continues
Difference b/w FERA & FEMA
FERA
 FERA cosisted of 81 sections and
was more complex
 Terms like Capital a/c transaction
and Current a/c were not defined in
FERA
 Definition of ‘Authorized Person’
in FERA was narrow one.
 Anything and everything that has to
do with foreign exchange was
controlled
 Its aim was to prevent misuse
 Its main objective was conservation
and proper utilization of the foreign
exchange resources
FEMA
 FEMA is much simple, and cosists of
only 49 sections
 Terms like Capital a/c transaction
and Current a/c transaction have been
defined in detail in FEMA
 The definition of ‘Authorized Person’
has been widened to include banks,
money exchanges, off shore banking
units etc
 Only the specified acts relating to
foreign exchange are regulated
 It aims to facilitate trade
 Its main objective is to facilitate trade
& develop foreign exchange mkt.