FEMA

Foreign Exchange Management Act, 1999

Presented by:
Aditi Singh
MBA
230101010039
 Foreign Exchange
• It is a system or process of converting one
national currency into another, and of
transferring money from one country to
another.
• FOREIGN CURRENCY to RUPEE, 08/11/23
- 1 US Dollar = 83.27 Indian Rupee
- 1 Pound sterling GBP = 102.03 Indian Rupee
- 1 Euro = 88.82 Indian Rupee
- 1 Japanese Yen = 0.55 Indian Rupee
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 Balance of Payment
• Balance of Payment refers to the yearly
financial statement of a country for the
transactions in the external sector with
the rest of the world. The BoP Table has
two sides viz, credit (export) and debit
(import), hence it can be conceptualized
as balance sheet of the country with rest
of the world.

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 Brief History
• During the British Raj foreign currency
inflows and outflows controls , (Balance of
Payments) lied with His Majesty.
• Even after the legislation (Indian
Independence Act of 1947) came into force
from 18th July 1947, with
regulating/controlling bodies like RBI and
British Indian Government, the BOP was still
with his Majesty.
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 Brief History
• Post Independence BOP responsibility fell on
leaders of independent India.
• Imports of food, clothing etc. grew faster
than exports and there was great dominance
of multinational companies in India which
led to adverse balance of payment and the
need was for a more strict regulation of
foreign exchange.

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Foreign Exchange Regulation Act
• To further strengthen the control and
regulate, the then congress government
enacted a new law Foreign Exchange
Regulation Act, 1973 with 81 section and it
came into force from 1st January, 1974
• The main objective of FERA was to regulate,
control and to ensure proper utilization of
foreign exchange so as to promote the
economic development of the country.
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Foreign Exchange Regulation Act
• To FERA was a draconian law, where any
violation was a criminal offence.
• There was a demand for substantial
modification in FERA owing to economic
liberalization and improving foreign
exchange reserve positions, which lead to
new act, Foreign Exchange Management Act,
1999.

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Foreign Exchange Management Act
• The Foreign Exchange Management Act,
1999 (FEMA), is an Act of the Parliament of
India "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” which came into
force on 1st June,2000.
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Objectives of FEMA

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 Features

• Activities such as payment made to any person outside

India or receipts from them , along with the deals in foreign
exchange and foreign security is restricted. It is FEMA that
gives the Central Government the power to impose the
restrictions.
• Restrictions are imposed on residents of India who carry
out transactions in foreign exchange, foreign security or
who own or hold immovable property aboard.
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 Features
• Without general or specific permission of the Monetary
Authority restricts the transactions involving foreign
exchange or foreign security and payment from outside the
country to India the transaction should be made only
through an authorized person.
• Although selling or drawing of foreign exchange is done
through an authorized person, the RBI is empowered by
this Act to subject the capital account transaction to a
number of restrictions.
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 Features

• Residents India will be permitted to carry out transactions

in foreign exchange, foreign security or to own or hold
immovable property aboard if the currency, security or
property was owned or acquired when he/she was living
outside India, or when it was inherited by him/her from
someone living outside India.

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Applicability of FEMA

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Mechanism

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Capital Account

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Current Account

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 Structure of FEMA

• The Head office of the Foreign Exchange Management Act,

also popularly called the Enforcement Directorate, is located in
New Delhi and is headed by IRS officer Rahul Navin, Director.
• The Deputy Director heads five zonal offices. These offices are
located in Delhi, Chennai, Mumbai, Jalandhar, and Kolkata
• Every five zonal offices are further subdivided into seven sub-
zonal offices, and Assistant Directors head these
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 Penalties Under FEMA

• If any person will break the rules, provisions, order, or

notification issued under the FEMA act, they will be liable
to pay a penalty of thrice the amount included in such
contravention or up to Rs. 2 lakhs.
• In case of the continuation of the contravention, then they
are liable to pay the penalty with each extended day,
amount Rs. 5 thousand for every single day.

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 Need

• The buying and selling of foreign currency and other debt

instrument by business, individuals and government happens
in the foreign exchange market.
• Largest and most liquid market in the world as well as in India.
• The management of foreign exchange market becomes
necessary in order to mitigate and the avoid the risks
• Central banks would work towards and orderly functioning of
the transaction which can also develop their foreign exchange
market.
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