Friday, February 13, 2015


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Foreign Exchange Regulation Act (FERA), 1973
Government of India (PM was Smt. Indira Gandhi) enacted Foreign Exchange Regulation Act (FERA) in 1973 , which came into force w.e.f. January 1, 1974, to regulate all Indian exchanges or dealings with foreign countries.

At the time of legislation of the law, India had acute shortage of foreign exchange (forex). The government then tried to restrict (very strictly) the exchanges, or dealings of India with foreign countries. But the rules and regulations were so stringent that it had a great impact on the import and export of currency.

There were several issues with this act, like -
  • Law violators were treated as criminal offenders (instead of civil offenders)
  • Wide power on the hand of Enforcement Directorate (E.D) to arrest any person, seize any document (Corporate world found themselves at the mercy of E.D.!)
  • Control everything that was specified, relating to foreign exchange, aimed at minimizing dealings in forex and foreign securities, etc.

Foreign Exchange Management Act (FEMA), 1999
FERA was too strict on regulating the foreign exchanges, that acted like an obstacle in foreign trade, and had become incompatible with the pro-liberalization policies of government.

Hence government of India, under PM Shri. Atal Bihari Vajpayee repealed the FERA Act, and introduced FEMA in 1999. This time, instead of "regulating" the foreign exchange, government tried to "manage" it (with simpler norms).

FEMA has brought a new management regime of foreign exchange with the new framework of the World Trade Organization (WTO). Also, it brought with it the Prevention of Money Laundering Act, 2002, w.e.f. July 1, 2005.

Difference between FERA and FEMA

To conserve forex and to prevent misuse
To facilitate foreign trade and maintain forex
Consisted of 81 sections with great complexity
Consists only 49 sections and is much simpler
Power of Search & Seize
Wide power on the hands of a police officer (not below the rank of Deputy SP)
Power curtailed to a great extent
Criminal offence, and was not compoundable (charges could not be dropped)
Civil offence, and is compoundable (charges can be dropped)
Residential status
only citizenship was the criteria to determine the residential status of a person
More than 6 month stay in India is the criteria to determine the residential status of a person

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