FERA Act & FEMA Act - 10mins Seminar Notes

by Magme Guru on February 20, 2020 in BANKING, SEMINAR

FERA Act & FEMA Act - 10mins Seminar Notes

FERA:

Main objective was to conserve the foreign exchange resources of the nation.

FERA - the four-letter acronym for Foreign Exchange Regulation Act is a legislation that came into existence in 1973 with the purpose to regulate certain dealings in foreign exchange, impose restrictions on certain kinds of payments and to monitor the transactions impinging the foreign exchange and the import and export of currency.

Foreign Exchange Reserves:

Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence the foreign exchange rate of its currency, and to maintain confidence in financial markets.

India's total foreign exchange (Forex) reserves stand at around US$471 billion as on February 2020. India ranks 6^th among the countries with highest foreign exchange reserves.

Salient Features of FERA ACT:

Authorisation by RBI to any person/company to deal in foreign exchange
Authorisation to the dealers by the Reserve Bank of India for transacting foreign currencies, subject to review and revocation of the authorisation in the case of non-compliance
Authorisation to the money changers for conversion of currencies as per the rates determined by RBI
Restrictions on import/export of currencies
Restriction on persons other than the authorised dealers to enter into transactions involving the financial currency
Restrictions on issue of bearer securities
Restrictions on holding or acquiring immovable properties outside India
Restrictions on making/receiving payment to/from a resident outside India
The Power of RBI to call for information and seize documents, wherever or whenever required.

FEMA:

Foreign Exchange Management Act -The main objective of FEMA is to facilitate external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. FEMA deals with provisions relating to procedures, formalities, dealings, etc. of foreign exchange transactions in India.

It has been introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA). FEMA came into act on the 1st day of June, 2000.

Salient Features of FEMA ACT:

FEMA gives power to the central government for imposing restriction on activities like making payments to a person situated outside of the country or receiving money through them. Apart from this, foreign exchange as well as foreign security deals is also restricted by FEMA.
Transactions revolving around foreign security or foreign exchange as well as payments made from any foreign country to India cannot be made without specific or general permission of FEMA. All transactions must be carried out via an individual who has received authorization for the same.
The central government can restrict an authorized individual to carry out foreign exchange deals within the current account, on the basis of general interest of the public.

Acquisition of property under FERA and FEMA

There is a major difference between FERA and FEMA pertaining to acquisition of property in India. While under FERA, “citizenship’ was the criteria for procuring property; under FEMA it is the “residence” which is the criteria.

This implies, that under the FERA provisions, a person who is an Indian citizen could acquire property in India and a foreign citizen could not acquire property in India (except as permitted to NRI’s). However, under FEMA, an Indian resident can acquire property in India which is otherwise not permitted to the non-residents.

Precisely, FEMA has emerged as a replacement or improvement over the erstwhile FERA. Moreover, a foreign company having its branch office or another place of business in India, as per the FERA/FEMA regulations can acquire immovable property in India that is incidental or ancillary to carrying on such activity.

To conclude, anything and everything that was associated with Foreign Exchange was regulated under the Foreign Exchange Regulation Act. And though, the same was enacted with the best of intentions it hindered the growth of Indian Industries owing to its excessively stringent restrictions.

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