Foreign Exchange Management Act (FEMA 1998)

Acute Shortage of FE Reserves after independence. FERA was enacted in 1947 and further amended in 1973.

Objectives of FERA- 1973

Total FE Reserves $1bn
Conservation of Indias precious FE reserves. Regulate flow of Foreign Capital through Foreign Investors in Indias core sector.

Operation of FERA
All transactions in Foreign Exchange and all transactions with non residents were prohibited except where specific relaxations were made. All subsidiaries of Foreign Companies (except Air Lines & Shipping companies) to have minimum Indian Equity participation of 26 cent.

Fera led to harassment of bonafide persons and prosecution of companies for violations on narrow technical grounds. It FERA was replaced by FEMA in 1998.

Salient Features of FEMA

No person to deal with any unauthorised person for transactions in Foreign Exchange. Any person may sell or draw FE from any authorized person if such a sale is a current Account Transaction.

 RBI may prohibit, restrict or regulate the following Transfer or issue of any foreign security by an Indian resident or NRI. Any borrowing or lending in FE. Any borrowing or lending in rupees between Indian Resident & NRI

 Deposits between persons resident in India and persons resident outside India. Export, Import or holding of currency. Transfer of immovable property outside India, Acquisition or transfer of immovable property in India, by a person resident outside India (if the lease is 75 years) Giving a guarantee or surety in respect of any debt by a person resident in Indian and owed to a person resident outside India.

 Prohibit, restrict or regulate any office, business by a person residing outside India. Every exporter to furnish RBI a declaration containing details of exports made and export proceeds received. All Indians to take reasonable steps to realise and repatriate the amount of FE to India.

Contraventions & Penalties

Penalty up to twice the sum involved in such violations. No imprisonment as in FERA RBI is involved in the imposition of Penalties

 Directorate of enforcement to enforce the provisions of the Act. Section 40 of the Act gives power to central Govt. to suspend or relax the operation of all or any of the provisions of the Act.

Conclusion
Punishments have been made more realistic and less harsh