Foreign Exchange Management Act

The Foreign Exchange Management Act, 1999(FEMA) is an Act of the Parliament of India “to con-solidate and amend the law relating to foreign exchangewith the objective of facilitating external trade and pay-ments and for promoting the orderly development andmaintenance of foreign exchange market in India”. It waspassed in the winter session of Parliament in 1999, re-placing the Foreign Exchange Regulation Act (FERA).This act makes offences related to foreign exchange civiloffenses. It extends to the whole of India.,[1] replacingFERA, which had become incompatible with the pro-liberalisation policies of the Government of India. It en-abled a new foreign exchange management regime con-sistent with the emerging framework of the World TradeOrganisation (WTO). It also paved the way for the in-troduction of the Prevention of Money Laundering Act2002, which came into effect from 1 July 2005.Unlike other laws where everything is permitted unlessspecifically prohibited, under this act everything was pro-hibited unless specifically permitted. Hence the tenor andtone of the Act was very drastic. It required imprison-ment even for minor offences. Under FERA a personwas presumed guilty unless he proved himself innocent,whereas under other laws a person is presumed innocentunless he is proven guilty. [2]

FEMA is a regulatory mechanism that enables the Re-serve Bank of India and the Central Government to passregulations and rules relating to foreign exchange in tunewith the Foreign Trade policy of India.

1 Switch from FERA

FERA, in place since 1974, did not succeed in restrictingactivities such as the expansion of transnational corpora-tions (TNCs). The concessions made to FERA in 1991-1993 showed that FERA was on the verge of becomingredundant.[3] After the amendment of FERA in 1993, itwas decided that the act would become the FEMA. Thiswas done in order to relax the controls on foreign ex-change in India, as a result of economic liberalization.FEMA served to make transactions for external trade(exports and imports) easier – transactions involving cur-rent account for external trade no longer required RBI’spermission. The deals in Foreign Exchange were to be‘managed’ instead of ‘regulated’. The switch to FEMAshows the change on the part of the government in termsof foreign capital.[4]

2 Need for this management

The buying and selling of foreign currency and other debtinstruments by businesses, individuals and governmentshappens in the foreign exchange market. Apart from be-ing very competitive, this market is also the largest andmost liquid market in the world as well as in India.[5] Itconstantly undergoes changes and innovations, which caneither be beneficial to a country or expose them to greaterrisks. The management of foreign exchange market be-comes necessary in order to mitigate and avoid the risks.Central banks would work towards an orderly functioningof the transactions which can also develop their foreignexchange market.[6]

Whether under FERA or FEMA’s control, the need forthe management of foreign exchange is important. It isnecessary to keep adequate amount of foreign exchangefrom Import Substitution to Export Promotion.[7]

3 Main Features

• Activities such as payments made to any person out-side India or receipts from them, along with thedeals in foreign exchange and foreign security is re-stricted. It is FEMA that gives the central govern-ment the power to impose the restrictions.

• Restrictions are imposed on residents of India whocarry out transactions in foreign exchange, foreignsecurity or who own or hold immovable propertyabroad.

• Without general or specific permission of the MArestricts the transactions involving foreign exchangeor foreign security and payments from outside thecountry to India – the transactions should be madeonly through an authorised person.

• Deals in foreign exchange under the current accountby an authorised person can be restricted by the Cen-tral Government, based on public interest generally.

• Although selling or drawing of foreign exchange isdone through an authorized person, the RBI is em-powered by this Act to subject the capital accounttransactions to a number of restrictions.

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• Residents of India will be permitted to carry outtransactions in foreign exchange, foreign securityor to own or hold immovable property abroad ifthe currency, security or property was owned or ac-quired when he/she was living outside India, or whenit was inherited by him/her from someone living out-side India.

• Exporters are needed to furnish their export detailsto RBI. To ensure that the transactions are carriedout properly, RBI may ask the exporters to complyto its necessary requirements.[8]

4 Regulations/Rules under FEMA• Foreign Exchange Management (Current AccountTransactions) Rules, 2000

• Foreign Exchange Management (Permissible Capi-tal Account Transactions) Regulations, 2000

• Foreign Exchange Management (Transfer or Issueof any Foreign Security) regulations, 2004

• Foreign Exchange Management (Foreign currencyaccounts by a person resident in India)Regulations,2000

• Foreign Exchange Management (Acquisition andtransfer of immovable property in India) regula-tions, 2000

• Foreign Exchange Management (Establishment inIndia of branch or office or other place of business)regulations, 2000

• Foreign ExchangeManagement (Manner of Receiptand Payment) Regulations, 2000

• Foreign Exchange Management (Export of Goodsand Services) regulations, 2000

• Foreign Exchange Management (Realisation,repatriation and surrender of Foreign Ex-change)regulations, 2000

• Foreign ExchangeManagement (Possession and Re-tention of Foreign Currency) Regulations, 2000

• Foreign Exchange (compounding proceedings)rules, 2000

5 Related legislation• Foreign Contribution (regulation) Act, 2010

6 See also• Law of India

7 References[1] “FEMA, 1999”. Dept of Revenue, Govt of India.

Archived from the original (PDF) on 9 September 2012.Retrieved 9 September 2012.

[2] AC Fernando. Business Environment. Pearson. p. 427.Retrieved 29 July 2014.

[3] Dutt and Sundaram. Indian Economy. p. 541.

[4] “FEMA: A Closer Look”.

[5] Raj Kumar. International Economics. p. 307.

[6] “Foreign Exchange Market” (PDF).

[7] “Foreign Exchange Management Policy in India”.

[8] Francis Cherunilam (5th edition). International Eco-nomics. p. 456. Check date values in: |date= (help)

8 External links• Reserve Bank of India FEMA website

• FEMA from the Finance Ministry

• NRIs can now open joint accounts with resident In-dian

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9 Text and image sources, contributors, and licenses

9.1 Text• Foreign Exchange Management Act Source: https://en.wikipedia.org/wiki/Foreign_Exchange_Management_Act?oldid=669873543Contributors: Edward, Centrx, Discospinster, Pearle, DreamGuy, RyanGerbil10, Josh Parris, Crzrussian, Rjwilmsi, Tim!, Ebinviswanath,TexasAndroid, RussBot, TheMadBaron, Closedmouth, SmackBot, Vvarkey, Chris the speller, ZachPruckowski, Amartyabag, Sir Nicholasde Mimsy-Porpington, Shyamsunder, Ckatz, Hetar, SkyWalker, Vince4uall, CRGreathouse, Cydebot, Voyaging, Ste4k, MikeLynch,Time3000, Lilac Soul, Oxguy3, Gbhuvanesh, Bonadea, Naveedahmedjaleel, Philip Trueman, GroveGuy, Enviroboy, Devgowri, Flyer22,Lightmouse, Denisarona, Anonymous101, Doprendek, TravisAF, Addbot, Lightbot, Yobot, Fraggle81, AnomieBOT, Materialscientist, Lu-cienBOT, Linguisticgeek, 28bot, ClueBot NG, Gareth Griffith-Jones, AgniKalpa, Suresh 5, Rajeev4uall, Hz.tiang, Nmkirpalani, Klilidiplo-mus, Riley Huntley, Tharun S Yadla, Transopac, Gmehtani, Kirt5001, AmanKiAsha, Gotskiz, Dossierr, Rkshyadav22 and Anonymous:64

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