By BG B-5 Batch.

Foreign Exchange Regulation Act

Introduction

The Foreign Exchange Regulation Act (FERA)  :

It was a legislation passed by the Indian Parliament in 1973 and came

into force with effect from January 1, 1974.

FERA emphasized strict exchange control over everything that was

specified, relating to foreign exchange.

Law violators were treated as criminal offenders.

Aimed at minimizing dealings in foreign exchange and foreign

securities.

To regulate certain payments.

To regulate dealings in foreign exchange and securities.

To regulate transactions, indirectly affecting foreign exchange.

To regulate the import and export of currency.

To conserve precious foreign exchange.

The proper utilization of foreign exchange so as to promote the

economic development of the country.

Objectives

Reasons

Low foreign exchange (Forex) reserves

Forex is a scarce commodity.

FERA therefore proceeded on the 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, except one’s permitted by RBI.

Example

Coca –Cola Example:

Coca-Cola was India's leading soft drink until 1977 when it left India

after a new government ordered the company to turn over its secret

formula for Coca-Cola and dilute its stake in its Indian unit as

required by the Foreign Exchange Regulation Act (FERA).

In 1993, the company (along with PepsiCo) returned after the

introduction of India's Liberalization policy.

Foreign ExchangeManagement Act

The FEMA was an act passed in the winter session of Parliament in 1999 which replaced FERA

FERA did not succeed in restricting activities. The act

would become FEMA

To relax the control on foreign exchange in India.

The deals in Foreign Exchange were to be ‘managed’ instead of ‘regulated’

The switch to FEMA shows the change on the part of the government in terms of the foreign capital.

Introduction

Main Features

FEMA gives the central government the power to impose the restrictions.

The transactions should be made only through an authorized person.

Deals in foreign exchange under the current account by an authorized person can be restricted by the central government

Deals in foreign exchange under the current account by an authorized person can be restricted by the Central Government, based on public interest.

The RBI is empowered by this Act to subject the capital account transactions to a number of restrictions.