Foreign Exchange Management Act (FEMA)

Question 1

What is FERA?

Answer 1

The Foreign Exchange Regulation Act (FERA) was legislation passed by the Indian Parliament in 1973. FERA imposed stringent regulations on certain kinds of payments, the dealings in foreign exchange and securities and the transactions which had an indirect impact on the foreign exchange and the import and export of currency.

Question 2

What are the objectives of FERA?

Answer 2

• Conservation of India’s foreign exchange resources.

- Guidelines to foreign investors.

Question 3

What are the problems under FERA?

Answer 3

• Most of the foreign exchange transactions were prohibited with only specific relaxations.
• It requires imprisonment even for minor offences.
• A person was presumed guilty unless he proved himself innocent.

Question 4

What are the features of FEMA, 1998?

Answer 4

• No person can deal in foreign exchange with unauthorized persons.
• No resident of India can hold property or immovable asset outside of the country.
• RBI may prohibit certain actions.
• An Indian resident can hold property outside India only if it was acquired, held or owned by such a person who was at that residing in India.
• An exporter has to furnish to RBI a declaration containing true material particulars in relation to payment.
• If any person contravenes the provisions of FEMA, he is liable to penalty up to TWICE THE SUM involved in such contraventions.
• Central Government has the power to suspend or relax operations under any provisions of FEMA with prior approval from the parliament within specified period.

Question 5

What are the actions that RBI may prohibit?

Answer 5

• Transfer or issue of any foreign security by Indian residents.
• Any borrowing or lending in foreign exchange.
• Any borrowing in rupees between Indian resident and a resident outside India.
• Deposits between Indian residents and a resident outside India.
• Export, imports or holding of currency notes.
• Giving guarantee for debt, obligation incurred by Indian resident and owed by person residing outside India.

Question 6

Evaluation of FEMA.

Answer 6

• Strict exchange control under FERA, 1973 had to be disbanded.
• FEMA, 1998 attempted to simplify the provisions of FERA, 1973.
• Under FEMA, 1998 the major focus us on transactions involving foreign exchange and foreign securities.
• Restrictions over dealings with non - residents in India have been diluted.
• Under FEMA, 1998 only monetary penalty is levied and not imprisonment like under FERA, 1973. The only circumstances under FEMA, 1998 when imprisonment can be made is non - payment of monetary penalty.
• Under FERA, 1973 the Enforcement Directorate had all the powers whereas under FEMA, 1998, the cases will have to be referred by the Central Government as well as RBI.