Difference Between Fera and Fema

FERA: Objectives and Scope

The Foreign Exchange Regulation Act (FERA) was enacted by the Indian government in 1973 with the objective of regulating foreign exchange transactions and managing the country's foreign exchange reserves. FERA aimed to ensure the stability of the Indian rupee and maintain a proper balance in the foreign trade and payments of the country. The Act was also designed to control various activities related to foreign exchange, such as transfers of currency, payments made in foreign currencies, and acquisition or holding of immovable property outside India by Indian residents.

Under the scope of FERA, the Act applied to all Indian citizens, entities, and companies residing or operating within or outside India. It regulated transactions involving foreign currency, securities, or any other form of foreign exchange. The Act also empowered the Reserve Bank of India (RBI) to administer and enforce the provisions of FERA and impose penalties for non-compliance. Furthermore, FERA provided the RBI with the authority to regulate and license foreign exchange dealers, banks, and authorized money changers to ensure compliance with the Act.

Overall, the objective and scope of FERA were focused on maintaining the stability of the Indian financial system and minimizing the risks associated with foreign exchange transactions. By regulating and monitoring these transactions, FERA aimed to protect the Indian economy from external disruptions and promote a controlled flow of foreign exchange in the country.

FEMA: Objectives and Scope

The objectives of the Foreign Exchange Management Act (FEMA) are to facilitate external trade and payments, promote orderly development and maintenance of the foreign exchange market in India, and conserve and build foreign exchange reserves. FEMA focuses on promoting financial stability, ensuring the stability of the external value of the Indian Rupee, and facilitating external trade and payments to support overall economic growth. The scope of FEMA extends to individuals, entities, and institutions, both resident and non-resident, who engage in foreign exchange transactions or hold foreign assets.

Under FEMA, the Reserve Bank of India (RBI) plays a crucial role as the main regulatory authority. The RBI is responsible for framing the rules and regulations for foreign exchange transactions, monitoring compliance, and formulating policies to maintain the stability of the foreign exchange market. In addition to the RBI, other regulatory authorities and agencies, such as the Directorate of Enforcement and the Central Government, also play important roles in enforcing FEMA provisions and regulations. The scope of FEMA is broad and covers various types of transactions, including foreign exchange dealings, cross-border investments, and acquisition of foreign assets. It aims to ensure transparency, accountability, and efficient management of foreign exchange transactions within the legal framework provided by the act.

Legal Framework: FERA and FEMA

The legal framework of FERA (Foreign Exchange Regulation Act) and FEMA (Foreign Exchange Management Act) serve as guiding principles for the regulation and management of foreign exchange transactions in India. FERA was enacted in 1973 to regulate and control foreign exchange transactions and protect the country's monetary stability. However, with changing economic conditions and the need for liberalization, FERA was repealed in 1999 and replaced by FEMA. FEMA, which came into effect in 2000, aimed to streamline and simplify foreign exchange regulations and promote economic growth.

The legal framework under FERA provided strict regulations and controls on foreign exchange transactions, including restrictions on the acquisition and possession of foreign currency, limits on transactions with non-residents, and stringent penalties for violations. FERA emphasized the need for government approval and strict documentation for all foreign exchange transactions. However, this framework was often criticized for its cumbersome procedures and excessive government control.

On the other hand, FEMA introduced a more liberalized and flexible approach towards foreign exchange transactions. It shifted the focus from control to management of foreign exchange, emphasizing greater freedom in conducting business and promoting cross-border transactions. FEMA simplified procedures for foreign exchange transactions, reduced government intervention, and allowed for greater autonomy and flexibility for individuals and businesses. This legal framework sought to align India's foreign exchange regulations with global best practices and facilitate ease of doing business in the country.

Overall, the transition from FERA to FEMA represented a paradigm shift in India's approach to foreign exchange regulations. The legal frameworks of FERA and FEMA played crucial roles in shaping the country's foreign exchange policies, with FERA providing a strict control-based approach and FEMA promoting a more liberalized and management-oriented system.

Regulatory Authorities: FERA and FEMA

The regulatory authorities play a crucial role in ensuring compliance with the provisions of both FERA and FEMA. Under FERA, the Reserve Bank of India (RBI) had extensive powers to regulate and control foreign exchange transactions. It was responsible for granting licenses and approvals for various foreign exchange activities and monitoring their compliance. The enforcement of FERA was carried out by the Directorate of Enforcement, which had the authority to investigate and initiate legal proceedings against individuals or entities found violating the provisions of the Act.

With the introduction of FEMA, the regulatory framework underwent significant changes. The RBI continued to play a key role in regulating and managing foreign exchange transactions, but its powers were rationalized and made more flexible. The enforcement of FEMA was entrusted to the Directorate of Enforcement, which now had expanded powers to investigate and penalize contraventions related to foreign exchange transactions. Additionally, the Central Government also had the authority to constitute Special Courts for the trial of offenses under FEMA, adding a strong legal dimension to its enforcement.

Applicability: FERA and FEMA

The applicability of FERA and FEMA, two important regulatory frameworks in India, extends to a wide range of individuals, entities, and transactions. FERA, or the Foreign Exchange Regulation Act, 1973, applies to both residents and non-residents who engage in foreign exchange transactions within the country. Under FERA, any person or organization dealing with foreign currency, securities, or immovable property situated outside India must comply with the provisions of the Act.

Similarly, FEMA, or the Foreign Exchange Management Act, 1999, governs the foreign exchange transactions in India. It applies to individuals, businesses, banks, and other financial institutions involved in cross-border transactions, including the import and export of goods and services, acquisition and transfer of assets, and foreign investment. FEMA plays a crucial role in managing and regulating foreign exchange in the country, aiming to maintain stability and promote economic growth.