FEMA
India had adverse balance of payment in international trade as the imports were more than export and there was shortage of foreign exchange in India. In 1947 the Government introduced Foreign Exchange Regulation Act 1973 called FERA which was later replaced with the Foreign Exchange Management Act.
Thereafter Government of India taken initiative for processing of liberalization of Indian economy and foreign investment was permitted in numerous sectors. With this liberalization, flow of Foreign Exchange started increasing and foreign exchange reserves increased substantially. FERA was repealed and Foreign Exchange Management Act called FEMA was introduced and made effective since 1st June 2000.
The aim of FERA was to conserve Foreign Exchange resources and control transaction directly/indirectly effecting foreign exchange prevention of its leakage whereas the object of FEMA was to consolidate and amend the law relating to foreign exchange with the object of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. Object and approach of FEMA was different from FERA hence FERA was repealed and FEMA was introduced with removing several panel provisions as were in FERA.
Object of FERA was to conserve foreign exchange and to prevent misuse whereas object of FEMA is to facilitate external trade, payments and maintenance of foreign exchange market in India. Violation of FEMA provisions is covered under civil law whereas violation of FERA was criminal offense. In respect of FEMA, Reserve Bank of India is controlling authority. RBI is entrusted with sole responsibility of FEMA and the sole guardian and only custodian of foreign exchange of India.
FEMA provides free transaction of current account subject to certain restrictions that may be imposed. RBI control over capital account transactions, control over realization of export proceeds, dealing in foreign exchange through authorized person such as Authorised Dealer/Money Changer/Off-Shore Banking Unit, adjudication of offensive, appeal provisions including Special Director (Appeals) and Appellate Tribunal.
RBI exercise overall control over foreign exchange transactions however enforcement of FEMA has been entrusted to a separate “Directorate of Enforcement”.
FEMA extends to whole of the India with some extra territorial jurisdiction i.e. applies to all branches, offices and agencies outside India owned and controlled by a person resident in India.
