The Foreign Exchange

The Foreign
MaEnxacgheament
nge Act,
19M99anagement Act,
1999
(FEMA)
Introduction :
• Foreign Exchange control was first introduced in September,
1939 under Defence of India Rules. Foreign Exchange
Regulation Act was first introduced in 1947. This was later
replaced with ‘The Foreign Exchange Regulation Act (FERA),
1973. FERA was very strict and even has a provision for
imprisonment. FERA was not suitable in the new and liberal
economy, thus it was replaced by Foreign Exchange
Management Act (FEMA) 1999, which came into effect from
1st June 2000. RBI plays a key role in the management of
foreign exchange.
Meaning:

FEMA stands for Foreign Exchange Management Act.

It is a soft, liberal & simplified law that aims at boosting
foreign trade and investment more in tune with Country’s
new economic environment of globalization of Indian
economy.
FEMA (1999)
• Statutory Basis for Exchange Control.
• The Foreign Exchange Regulation Act, 1973 (FERA 1973), as
amended by the Foreign Exchange Management
(Amendment) Act, 1999. from the statutory basis for Exchange
Control in India.
• FEMA has been introduced as a replacement of FERA.
• FEMA facilitating external trade & payments.
• Consolidate & amend the law relating to foreign exchange.
• Promoting the orderly development & maintenance of foreign
exchange market in India.
• 49 Section in the Act.
Objective of the Act:
• The main objectives of FEMA is to utilize foreign exchange
resource of the country effectively.
• It is facilitates external trade, payment, orderly development
& maintenance of foreign exchange in India.
• It Is applicable to all parts of India.
• It is also applicable to all branches, offices & agencies outside
India owned or controlled by a person who is a resident of
India.
• It’s head office is known as Enforcement Directorate is
situated in New Delhi & headed by a Director.
• It is very important to an foreign trade & to maintain a good
relation with other countries.
FEMA Act : (applicable to)
The FEMA, is applicable:
• To the whole of India.
• Any Branch, office & agency, which is situated outside India,
but is owned or controlled by a person resident in India.
Broadly speaking FEMA, covers three different types of
categories are:
a) Person.
b) Person Resident in India.
c) Person Resident outside India.
Export:
• Goods & services from India to outside.
FEMA Act : (applicable to)
Foreign Currency:
• Other than Indian Currency.
Foreign Exchange:
• Means foreign currency.
Foreign Security:
• Security expressed in foreign currency.
Import:
• Goods & services from outside to India.
Security:
• Share, Stock etc. as defined in the Public Debt Act of 1994.
Service:
• Banking, Financing, Insurance etc..
FEMA Act : (applicable to)
Transfer:
• sale, Purchase, Exchange etc..
Non-Resident Indian (NRI):
• Citizen of India residing outside.
Overseas Corporate Body (OCB):
• A company, firm, etc… Owned at least 60% by NRIs.
Major Provisions of FEMA(1999)
Major Provisions of FEMA(1999)
• Free transactions on current account subject to reasonable
restrictions that may be imposed.
• RBI controls over capital account transactions.
• Control over realisation of export proceeds.
• Dealing in foreign exchange through authorised persons like
authorised dealer/money changer etc..
• Appeal provision including special Director (Appeals).
• Directorate of enforcement.
• Any person may sell or draw foreign exchange, without prior
permission & can later on inform RBI. This makes it a more
positive feature.
Major Provisions of FEMA(1999)
• Under this act ENFORCEMENT DIRECTORATE will be more
investigative in nature.
• FEMA recognized the possibility of even the Capital Account
convertibility i.e. it classifies foreign exchange transaction &
current account transactions.
• The violation of FEMA is a civil offence.
• FEMA is more concerned with the management instead FERA
(Foreign Exchange Regulation Act) was more concerned about
exchange regulation or control.
• FEMA is a regulatory mechanism that enables the RBI and
Central Government to pass regulations and rules relating to
foreign exchange in tune with the Foreign Trade Policy of
India.
Conclusion:

• FEMA permits only authorised person to deal in foreign

exchange or foreign security.
i.e. : Authorised dealers, Money changer, off-Shore
Banking units , or any other person authorised by RBI.
• Thus FEMA prohibits any person who deal in or transfer
any foreign exchange or foreign security to any person
not being an authorized person.
• FEMA strongly enforces foreign exchange laws
effectively.
THANK you…