Foreign Exchange Regulation Act 1973 (FERA)

The Foreign Exchange Regulation Act (FERA) was legislation passed by the Indian Parliament in 1973. It came into force with effect from January 1, 1974. Purpose of the Act, Regulate certain payments The dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange The import and export of currency, for the conservation of foreign exchange resources of the country. The proper utilization thereof in the interests of the economic development of the country.

Foreign Exchange Management Act 1999 (FEMA)

The Foreign Exchange Management Act (1999) or in short FEMA has been introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA). FEMA became an act on the 1st day of June, 2000. FEMA was introduced because the FERA didnt fit in with post-liberalization policies. Objective of the Act To consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments. It was also formulated to promote the orderly development and maintenance of foreign exchange market in India. It made all offenses regarding foreign exchange civil offenses, as opposed to criminal offenses as dictated by FERA.

Forms of Foreign Capital Flowing into India

Foreign Direct Investment Inter-Government Loans Loans from International Institutions External Commercial Borrowing (ECB)

Needs for Foreign Capital

Domestic demand in India is rising, but the country does not have the matching supply, making it essential for it to rely on foreign capital The Indian economy is second only to China in terms of domestic demand, supply side constraints will make it rely on foreign capital.

Overseas borrowing by Indian companies will also improve and as expectations about the rupee's appreciation against the US dollar solidify.
The broader local asset reflation has been instrumental in raising capital for companies at a time when local bank lending has been weak.

Foreign Collaborations
Foreign Investments by Industries Foreign Investments by Countries

Types of Foreign Collaborations Financial Approvals Technical Approvals

FOREIGN CAPITAL AND COLLABORATION

Foreign direct investment is catering to the needs of the upper middle and affluent classes. Consequently, there is an utter neglect of the wage goods sector. MNCs after their entry are rapidly increasing their shareholding in Indian companies. This has resulted in a number of takeovers by the MNCs and thus, the process of Indianisation of the corporate sector has been totally reversed.

A larger inflow of foreign direct investment, will lead to building of reserves, which in turn will expand domestic money supply. At the same time, inflationary trend of prices gets strengthened in the process.
MNCs are able to manipulate the stock market to suit their goals as half of the Foreign Investment is in the nature of portfolio investment. Transfer of technology can be effected with more investment being made by technologically advanced MNCs.