Foreign exchange regulation act to Foreign exchange management act (1973) (August,1998


hence it can be conceptualized as ‘ balance sheet’ of the country with rest of the world. credit (export) and debit (import). . The BoP table has got two side viz.Balance of Payment Balance of Payment refers to the yearly financial statement of a country for the transactions in the external sector with the rest of the world.

Currency convertibility It means freedom for withdrawal of foreign exchange from authorised dealer for payment abroad.listed under the current account of the BoP. RBI has fixed ceiling on withdrawl of foreign exchange for for transactions. Full account convertibility refers to the permission to withdraw foreign exchange without ceiling for transaction. India has adopted partial capital account convertibility and liberal current account convertibility. under the capital account .

Portfolio Investment 3. Direct Investment 2. Capital account can be divided into three account: 1. Other capital Flows .The Capital account is an accounting measure ot the total domestic currency value of financial tranaction between domestic residents and the rest of the world over a period of time.

•To regulate dealings in foreign exchange and securities •To regulate the transaction indirectly affecting foreign exchange •To regulate import and export of currency and bullion •To regulate employment of foreign nationals •To regulate foreign companies •To regulate acquisition. holding etc of immovable property in India by non-residents .The principle objective of the Foreign Exchange Regulation Act (FERA) is to prevent the outflow of Indian currency.The objective of the act is as follows.

and provides for the expected move towards full account convertibility. modern avatar. it was only inevitable that the Foreign Exchange Regulation Act. Be reborn in a liberal. with the cabinet approving the draft Foreign Exchange Management Act (FEMA). among other things. The process received a push . FERA was the product of a time when oil crisis. . (FERA).Given India’s progress towards a more open economy. The draft reportedly relaxes to a degree the restrictions on all current and some capital account transactions. had depleted India’s foreign currency reserves.

Unfortunately . A simple hospitality offered by a foreign national for instance. and combined with the extremely harsh penalties for offences under the Act. had to be reported to the government. Effectively discouraged productive investment. the act went to absurd lengths in its attempt to conserve foreign exchange. as the country’s trade and investment linkage with the rest of the world increased and foreign exchange reserve mounted to near embarrassing levels. The excess became glaring post –1991. . The Act also routinely came into the way of many national business transactions.

saw the Act as a fetter on the ability of domestic enterprise to take on the challenges of a globalising world. For all the expected relaxations through. While most would welcome the distinction the bill seeks to make between compoundable and penal offence –the former with provisions for fine and the latter with provision for criminal proceedings .Business associations without exception and rightly. It is this concern primarily that the government is now seeking to address with FEMA. the draft bill is unlikely to receive more than half a cheer from Industry.

and especially if the current over arching power of the enforcement directorate remain what the are. .to cover cases already under investigation. however make the proposed act not very different from what exists.a major international hub for such actions--. It was also widely anticipated that the provision of new bill would apply retrospectively.the definition would make eminent sense. If penal offences relate essentially to money laundering activities--.It is still far from clear what would actually constitute penal offence(s) and what would be the enforcement directorate’s precise powers. A much wider definition could. incidentally.the Indian subcontinent is .

The issue needs to be debated once again. placed in situation similar to India’s in the matter of foreign exchange problems. Finally the government would do well to examine how other countries. and it is difficult to understand why government did not it appropriate for application in the present instance. . have managed with significantly more lenient legislation. this is not to be . The principle that on going cases ought to be considered in the light of the objectives and norms that obtain today is a well established one.As it stands tough.

In any case. the government guiding objective in this whole exercise should be to take the fear out of FERA. .If Indian enterprise is to mark its presence globally. it is perhaps much better to err on the side of liberty.

The main provision of the Act are as follows: Section 3: Dealing in Foreign Exchange Section 4 Holding of foreign Exchange Section 5 Current account Transaction Section 6 : Capital account Transaction Section 7: Export of Goods and Services Section 8 : Relisation of Repatriation and Foreign Exchange Section 9: Exemption from Resalisation and Repatriation .The FEMA act extends to the whole of India.

Recent Changes       Overseas Investment External commercial Borrowing( ECB) Liberalized Remittance of US $ 25000 per annum by Resident Indians. Student studying abroad are treated as NRI’s The system of self write-off and self extension of due date for export realisation for exporter was introduced. Foreign Investment liberalized. .

The Rupee Progress 1950-51 to 1960-61 : Rs 4.76 1980-81 : Rs 7.68 The rupee has not been too volatile over the years. It has fallen from Rs 4.76 in 1950-51to Rs 47.9 1987-88 : Rs12.2001-a plunge in excess of 1000%.65 2001-02 : Rs 47.84 on December 7. Now. see this in the light of the fact that the past 50 years have seen a mere two ‘devaluation“ (in June 1966 and July 1991) and . But that does’t mean it has’t depreciated to the dollar.97 1992-93 : Rs 30.

And in 1993. the RBI made the rupee fully convertible on the current account to boost foreign capital inflows.The Rupee’s Progress It is evident that the rupee has continually adjust its value. the central bank scrapped LERMs and made the rupee ‘free’ on the trade account. In 1991. the RBI partially freed the rupee through the liberalised Exchange Rate Mechanism (LERM) in 1991. Subsequently in 1993. .

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