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FEMA (Foreign Exchange Management Act,1999)

FOREIGN EXCHANGE MANAGEMENT¼T The Foreign Exchange Management Act, 1999 (FEMA) has been in force with effect from 1.6.2000, thus replacing the old Foreign Exchange Regulation Act (FERA) 1973. Strict Forex restrictions hailing from closed door economy era became outdated the day India embraced globalization. Therefor India removed draconian provisions of FERA and put in place a forward-looking legislation covering foreign exchange matters in form of FEMA.There is sea change in the outlook of FEMA in comparison with FERA but reasonable restrictions with regard to foreign exchange transactions with a view to facilitate them in a regulated manner find a place in FEMA, 1999 and connected rules and regulations.The preamble to FEMA lays down that purpose of the Act is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.Rationale for strict regulations under FERA 1973After Independence India was left with little Forex reserves and during the oil ±crisis of seventies ballooning oil import bills further drained foreign exchange reserves. Unsatisfactory reserves made it imperative to put in place stringent controls to conserve foreign exchange and to utilize it in the best interest of the country. This was the sole objective for which FERA was legislated by Indian parliament and by handing over central government complete monopoly over foreign exchange flow was achieved.The act allowed government to artificially manage foreign exchange rate, regulate foreign business in India, restrict foreign investments by Indian residents and reduce imports of non-essential items.FEMA and FERA-A Comparison the aim of

for contravention of provisions under the FEMA arrest and imprisonment would not be resorted whereas it was the norm under the previous act. As external trade i. The overriding objective of FERA was to regulate and minimize dealings in foreign exchange and foreign securities while FEMA on the other hand aims to aid in creation of a liberal foreign exchange market in India.The emphasis of FEMA is on Reserve Bank of India laying down the regulations rather than granting permissions on case-to-case basis. the person is presumed innocent in the eyes of the law. FEMA vested unrestrained . To facilitate external trade is concerned.The main change that has been brought is that FEMA is a civil law. despite the government commitment to push for exports. This transition has taken away the concept of "exchange control" and brought in the era of "exchange management". import / export of goods & services involve transactions on current account. whereas the FERA was a criminal law. there is no need for seeking RBI permissions in connection with remittances involving external trade. This is a marked deviation from FERA that under section 6 restricted imports and regulated exports. This difference in terminology reflects seriousness of government towards deregulation of foreign exchange and promotion of free flow of international trade. Under 1973 act. In simple word. Drastic tenor of FERA can be gauged from the fact that it provided for imprisonment for violation of even very minor offenses. relating to foreign exchange whereas FEMA lay down that µeverything other than what is expressly covered is not controlled'. section 5 of the Act removes restrictions on withdrawal of foreign exchange for the purpose of current account transactions. In simple words. In view of this change. a person was presumed guilty unless he proved himself innocent whereas under FEMA a person is presumed innocent unless he is proven guilty. the title of the legislation has rightly been changed from µForeign Exchange Regulation Act' to µForeign Exchange Management Act'. earlier onus of proving innocence lay with the individual held guilty by enforcement authorities whereas now the onus of proving a person guilty lies with the enforcement authorities and until the authorities are unable to do so.e.FERA was to control everything that was specified.

There are 49 sections in all in FEMA of which 12 sections cover operational part and the rest contravention. As far as exchange rate stability is concerned. Whereas compared to the Asian tigers. etc.Conclusion in comparison with African and Latin American countries. authority and powers of Enforcement Directorate. enforcement directorate. etc. . that is on the front of economic development.FEMA is a much simpler and smaller legislation in comparison to the previous act. FERA contained 81 sections (some were deleted in the 1993 amendment of the Act) of which 32 sections related to operational part and the rest covered penal provisions. appeals. Even the word "offence" is conspicuous by its absence in the substantive provisions of FEMA and has been replaced by the word "contravention" Contravention under FEMA now attract only monetary fines and that to have been reduced to three times the amount involved as compared to five times under the FERA. adjudication.In FEMA powers of the directorate have been slashed down to considerably. Most distinguishing features of FEMA is that there is a provision for compounding of penalty as contained in Section 15 of FEMA. penalties. This could not have been imagined earlier under FERA. India has done poorly.powers to the office of Directorate of Enforcement . However. India has managed well. we have done reasonably well.

d) The definitions of residents and non-residents take into account the duration of their stay in India. as in the case of Income Tax Act. The Central Bank of India issued several regulations relating to FEMA. For the implementation of various provisions of FEMA. 1999 (FEMA) seeks to bring the law on the subject up to date keeping in view the changed environment.The Foreign Exchange Management Act. b) The nature of current account and capital account transactions has been clearly defined. c) The new enactment is positive in the sense that all current account transactions not otherwise restricted can be freely carried on. the Central Government has issued notifications notifying various rules formed under the Act. This Act ³aims at consolidating and amending the law relating to Foreign Exchange with the objective of facilitating external trade and payments are for promoting the orderly development and maintenance of foreign exchange markets in India´. FEATURES:The important features noticed in the new Act as compared with the previous one are: a) The seriousness of non-compliance with the regulation is diluted. Tag this Review . It is legal and no criminal consequence. most of them relating to capital account transactions.

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