FOREIGN EXCHANGE MANAGEMENT ACT 2000

Foreign exchange regulation act(FERA) 1973 was reviewed in 1993,because economic liberalization in relation to foreign investment and trade made it necessary for Indian government to review the provision of FERA. The aim of review was to have a batter and closed interaction with the world economy.

the central government also decided that further review of FERA would be under taken in the light of future developments. Subsequently, it was felt that it would be better to enact a new legislation in place of FERA. Reserve bank of India was ask to undertake a fresh exercise and suggest a new legislation.

Since 1993,many important development has taken place such as growth in foreign trade, increase in foreign exchange reserve rationalizations of tariffs, current account convertibility. Liberalization in investment policy etc. taking into consideration the above facts, a bill was introduced

The Lok Sabha on august 4th,1998.the bill was referred to parliamentary standing committee. After incorporating creation modifications and suggestions of the standing committee, the central government introduced the foreign exchange management bill 1999.the bill was finally passed by Lok Sabha on December 2nd 1999.

CHARACTERSTICS
Following are the main characteristics of FEMA act 1999: 1:TITLE the act may be called the foreign exchange management act 1999. 2:DATE the FEMA came into force on June 1st 2000. However the cases under FERA can be initiated with in 2 years from repeal of FERA i.e. up to may 31st 2002.

3:APPLICATION FEMA applies to whole of India. It also applies to all branches, offices and agencies outside India owned or controlled by a person resident in India.

4: - REASON FOR APPLICATIONthe FEMA replaced due to following reason. A ) FERA was not suitable for liberalization policy. Though certain amendments were made in 1993 but they were not sufficient. B ) after 1993, many important changes took place. Foreign exchange reserve also increased.

The provisions of FERA were not favorable for these changes. C ) the objective of the FERA was to conserve foreign exchange resources which badly affected the comfortable foreign exchange reserves. So the FEMA came into the existence.

5 REGULARISATION AND MANAGEMENT OF FOREIGN EXCHANGE- The following provision have been made in FEMA for the regularization and management of foreign exchange. 1) restriction on foreign exchange transaction, 2) restriction on preservation of foreign exchange. 3) current account transaction,

5) capital account transaction. 6) export of goods and services. 7) recovery and refund of foreign exchange. 8) exemption of recovery and refund of foreign exchange in certain cases.

6)VIOLATION OF RULES AND PUNISHMENT- a person who violets any rules, provisions, directions or instructions of the act, shall be liable for punishment and fine three times of the sum violated. In case the amount is not ascertained the punishment levied shall amount to rupees 2 lawsuit can be raised up to rupees 5000 per day if violation continues.

7)CONFICATION AND DETENTION -if a person violates FEMA,his currency or money, share n securities or any other property concerning violation shall be confiscated (forfeited). Foreign money or property shall be brought in India or detained in the foreign country according to instructions.

8)JUDGEMENT AND APPEAL-the central government appoints sufficient number of judge by notification in the gazette in the prescribed manner. The judges will examine the violation in case of FEMA .

OBJECTIVE OF THE FEMA

To facilitate the external trade and payment To promote of an orderly maintenance of the foreign exchange market In India. Regulation of foreign capital in India. To remove imbalance of payment. To make strong and developed foreign exchange market.

Regulation of employment business and investment of non-residents . To regulate foreign payments. the new law is more transparent in its application. it has laid down the areas where special permission of the reserve bank/government of India is required.

SAILENT FEATURES OF THE ACT

Full freedom to a person resident in India to hold or transfer any foreign securities or immovable property situated outside India. A person resident outside India is also permitted to hold shares, securities and property acquired by him while he was resident in India.

the EEFC(exchange earners foreign currency) account holders and RFC(request for comments) account holders are permitted to freely use the funds held in EEFC\RFC accounts for payment of all permissible current account transactions . The limit for permitting overdraft against NRE(non resident external) accounts balance has been raised from 20,000 to 50,000.

PROVISION OF THE FEMA 2000

1)restriction on dealing on foreign exchange (section 3). 2)restrictions on holding foreign exchange (sec 4). 3)current account transaction (sec 5). 4)capital account transaction (sec 6)

5)export of goods and services (sec 7). 6)realization and repatriation of foreign exchange (sec 8). 7)exemptions from realization and repatriation in creation cases.

CONTRAVENTIONS AND PENALTIES UNDER FEMA 2000 (SEC 13-15)

Penalties-sec 13 If a person contravenes any provisions of this actor contraventions any role, regulations ,notifications ,directions or order issued by RBI in exercise of the powers under this act he shall be liable to:-

A:-a penalty up to three times of the some involved in such contraventions if the amount is quantifiable, or B:-a penalty up to rupees 2 lacks where the amount is not quantifiable and if the contraventions is continued further penalty up to rupees of 20% creation during the accounting year.