Download Testbook App

Difference
Between Economy Notes For
FERA & UPSC
FEMA
 Download Testbook App

Difference between FERA and FEMA is one of the significant topics under the subject of Indian economy
for UPSC Civil service Examination.

• FERA i.e the Foreign Exchange Regulation Act was passed by the Parliament of India and it
had regulations on the foreign exchange transactions.
• Since the provisions of the Foreign Exchange Regulation Act (FERA) was creating obstacles in
growth of the Indian economy, this act was replaced by FEMA i.e the Foreign Exchange
Management Act.

• The stringent policies of FERA were replaced by passing FEMA in 1999. However certain
provisions of FERA 1973 still existed under the FEMA of 1999.

In this article, we shall discuss the key differences between the FERA (Foreign Exchange Regulation Act)
and FEMA (Foreign Exchange Management Act) which laid regulations and restrictions on foreign
exchange transactions. This topic will be very helpful for the UPSC aspirants in their upcoming Prelims
as well as Mains examination.

Also, check the article on UPSC Economics optional syllabus and pattern from the linked article.

About FERA
The Foreign Exchange Regulation Act (FERA) of 1973 deals with the laws that were formulated to
manage the foreign exchange and investment in India. Post independence there was a tremendous growth
in industrialization in India and this led to an increase in foreign investments. In order to manage this, the
FERA was passed by the Indian Parliament.

Objectives:

Some of the major objectives of FERA are as follows,

• To regulate dealings in foreign exchange and securities

• To regulate the import and export of currencies and bullions
• To regulate the employment of foreign nationals.
• To regulate the acquisition and holding of immovable properties in India by the nonresidents of
the country.
• To regulate the transactions that affect the foreign exchanges indirectly.

Replacement Of FERA With FEMA

The provisions of FERA were not in accordance with the post-liberalization policies of the Indian
government. There were very strict laws and regulations under the Foreign Exchange Regulation Act
(FERA) of 1973. This resulted in black market in the foreign exchange which is known as hawala. There
was a growing demand to make changes to the act (FERA) in the light of economic liberalization and to
improve the forex position in the country. Thus in 1999, a new act called Foreign Exchange Management
Act (FEMA) was passed to replace the FERA of 1973.

Stay updated with the Current Affairs for UPSC here.

Page - 2
 Download Testbook App

About FEMA
The proposal to replace FERA with Foreign Exchange Management Act (FEMA) was presented by the
Vajpayee government in the budget of 1997-98 and it came into force on 1st June, 2001. The rules and
regulations related to the forex transactions in India were simplified and liberalised under the FEMA in
order to ensure better foreign cash flow in the country. Some of the salients features of this act are as
follows,

• Full freedom was given to the residents of the country to hold or transfer any foreign securities
or immovable property situated outside India. Similarly, a person who resides outside India can
also hold shares, securities and properties owned by him while he was residing in India.
• The overdraft limit against the NRI accounts was raised from Rs.20,000 to Rs.50,000.

Also read: List of Languages in the 8th Schedule here.

Key Differences Between FERA and FEMA

Let us look into the differences between FERA and FEMA in the following table,

FERA FEMA
FERA is an acronym for Foreign Exchange FEMA is an acronym for Foreign Exchange
Regulation Act. Management Act.
FERA was passed by the Parliament of India in FEMA was passed by the Parliament of India in 1999 to
1973. The act came into force from 1st replace the FERA. It came into force from 1st June,
January, 1974. 2000.
FERA was repealed by the Vajpayee
FEMA is currently active in the country.
government in 1998.
FERA was enacted to regulate the foreign FEMA was enacted to remove the stringent regulations
exchange and payments in India. Its main on foreign exchange and promote an orderly
objective was to conserve the forex management of foreign exchange and payments. Its
transactions. main objective was to manage the forex transactions.
The rules and regulations of FERA on foreign The approach of FEMA towards the foreign exchange is
exchange were conservative and restrictive. flexible.
This act came into force when the forex position This act was introduced when the strict provisions of
in the country was not good. FERA were hampering the growth of Indian economy.
Comparatively FERA is lengthier as it has 81
FEMA has 49 sections and is shorter than the FERA.
sections.
Under this act, the definition of the term Under this act, the definition of the term ‘Authorized
‘Authorized person’ was narrow. person’ is broad and it has included the banks under it.
Under this act, citizenship of an individual was Under this act, the basis for determining the residential
the basis for determining his/her residential status was that an individual should be residing in India
status. for the past 6 months.
Under FERA, no provisions were made for IT. Provisions on IT were introduced under the FEMA.

Page - 3
 Download Testbook App

Violation of the provisions of FERA was Violation of the provisions of FEMA is considered as a
considered as a criminal offence and the civil offence and the punishment for contravention was
punishment for contravention was monetary penalty. If an individual fails to pay the penalty
imprisonment. on time, he/she may be imprisoned.
Violation of FERA was a non-compoundable Violation of FEMA is a compoundable offence and the
offence i.e. the offence cannot be charges can be compromised or removed. FEMA
compromised. Moreover, the accused was not provides the accused the right to obtain legal assistance
allowed any assistance from the lawyer. from a lawyer.
A special director and a special court was introduced
The appeals were sent to the Supreme court.
under FEMA to address the appeals.
According to FERA, an individual should obtain
Under FEMA, no such pre approval or permission of RBI
permission from the RBI to carry out forex
is required to carry out forex transactions.
transactions.

Attempt the UPSC Test Series here and score better.

We hope this article on the difference between FERA and FEMA will be useful for the aspirants of various
competitive exams. For more such notes and NCERT summaries, check the Testbook App. You can also
get access to mock tests, quizzes, live coaching sessions and much more by downloading the Testbook
App now.

Page - 4