Chapter

FEMA & FERA

• The Foreign Exchange Regulation Act (FERA)
was legislation passed by the Indian
Parliament in 1973 by the government
of Indira Gandhi and came into force with
effect from January 1, 1974.
• FERA imposed stringent regulations on
certain kinds of payments, the dealings in
foreign exchange and securities and the
transactions which had an indirect impact on
the foreign exchange and the import and
export of currency
• The bill was formulated with the aim of
regulating payments and foreign exchange.
• 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.
• FERA was repealed in 1999 by the
government of Atal Bihari Vajpayee and
replaced by the Foreign Exchange
Management Act, which liberalised foreign
exchange controls and restrictions on foreign
investment.
• FERA was introduced at a time when foreign
exchange (Forex) reserves of the country
were low, Forex being 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).
 OBJECTIVES OF FERA
• 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.
• The Foreign Exchange Management
Act (FEMA) was an act passed in the winter
session of Parliament in 1999 which
replaced Foreign Exchange Regulation Act.
• This act seeks to make offenses related to
foreign exchange civil offenses.
• The enactment of FEMA also brought with it
the Prevention of Money Laundering
Act 2002, which came into effect from 1 July
2005.
• Unlike other laws where everything is
permitted unless specifically prohibited,
under this act everything was prohibited
unless specifically permitted.
• FERA did not succeed in restricting activities,
especially the expansion of TNCs
(Transnational Corporations).
• The deals in Foreign Exchange were to be
‘managed’ instead of ‘regulated’.
• Unlike other laws where everything is
permitted unless specifically prohibited,
under this act everything was prohibited
unless specifically permitted.
• FERA did not succeed in restricting activities,
especially the expansion of TNCs
(Transnational Corporations).
• The deals in Foreign Exchange were to be
‘managed’ instead of ‘regulated’.
• Citizenship was the criteria for residential
status under FERA.
• Number of 182 days stay in India is the
criteria for residential status under FEMA.
• FERA consisted of 81 sections, and was more
complex.
• FEMA is much simple, and consist of only 49
sections.
• Terms like Capital Account Transaction,
current Account Transaction, person, service
etc. were not defined in FERA.
• Terms like Capital Account Transaction,
current account Transaction person, service
etc., have been defined in detail in FEMA.
• Any offence under FERA, was a criminal
offence , punishable with imprisonment as
per code of criminal procedure, 1973.
• Under FEMA, the offence is considered to be
a civil offence only punishable with some
amount of money as a penalty. Imprisonment
is prescribed only when one fails to pay the
penalty.
• The monetary penalty payable under
FERA, was nearly the five times the amount
involved.
• Under FEMA the quantum of penalty has
been considerably decreased to three times
the amount involved.