Know about FERA
and FEMA – Banking Awareness
Here is the most
important terms used in both Banking and Economics, FERA and FEMA. Most of you might be well aware of these terms and
their functioning.
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 foreign exchange, i.e. forex. Government hopes that the FEMA will make
favourable development in the foreign money market.
Foreign Exchange
Regulation Act (FERA), 1973
Government of India (PM was Smt. Indira
Gandhi) enacted Foreign Exchange Regulation Act (FERA) in 1973 ,
which came into force w.e.f. January 1, 1974, to regulate all
Indian exchanges or dealings with foreign countries.
At the time of legislation of the law, India had
acute shortage of foreign exchange (forex). The
government then tried to restrict (very strictly) the exchanges, or dealings of
India with foreign countries. But the rules and regulations were
so stringent that it had a great impact on the import and export of
currency.
There were several issues with
this act, like -
- Law violators were treated as criminal
offenders (instead of civil offenders)
- Wide power on
the hand of Enforcement Directorate (E.D) to arrestany
person, seize any document (Corporate world found themselves at the mercy of E.D.!)
- Control everything that was
specified, relating to foreign exchange,aimed at minimizing dealings
in forex and foreign securities, etc.
Foreign Exchange
Management Act (FEMA), 1999
FERA was too strict on regulating
the foreign exchanges, that acted like an obstacle in foreign
trade, and had become incompatible with the pro-liberalization policies
of government.
Hence government
of India, under PM Shri. Atal Bihari Vajpayee repealed
the FERA Act, and introduced FEMA in 1999.
This time, instead of "regulating" the foreign
exchange, government tried to "manage" it (with
simpler norms).
FEMA has brought a new management
regime of foreign exchange with the new framework of
the World Trade Organization (WTO). Also, it brought with it
the Prevention of Money Laundering Act, 2002, w.e.f. July
1, 2005.
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.
