Foreign exchange regulations and formalities

Question 1

EXCHANGE CONTROL

Answer 1

• Regulations relating to foreign exchange are known as Exchange Control Regulations.
• Exchange control means regulating the demand and supply of foreign exchange with the objective of rationalizing the use, to meet the priorities laid down in the policy, from time to time.
• Investment abroad, lending and borrowing money and purchase of plant and machinery fall in capital account.

Question 2

FOREIGN EXCHANGE MANAGEMENT ACT

FEMA

Answer 2

• The Foreign Regulations Act, 1973 (FERA 1973), as amended by the
  foreign exchange Regulation (Amendment) Act, 1973, which formed the statutory basis for exchange control in India, stands repealed from June 1, 2000.
  -the FEMA 1999 forms the statutory basis for exchange control
  and management in India. Government of India has notified that FEMA shall come into force from 1-6-2006.
  -The objective of FERA was to conserve foreign exchange and put them to judicious utilisation.
  The focus of FEMA is to facilitate external trade and payments and to promote and maintain an orderly growth of foreign exchange
  market, in India.

Question 3

MAIN PROVISIONS OF FEMA

Answer 3

• The amount representing the full value of goods should be realised and paid to the authorised dealer on the due date for payment or within period of six months from the date of shipment, whichever is earlier.
• Under the liberated exchange rate management system, exporters are permitted to maintain foreign currency balances in separate foreign currency accounts known as ‘Exchange Earners Foreign Currency’
• FEMA is a civil law unlike FERA.