Know About FERA and FEMA

India has stringent rules governing foreign exchange to control money flow and protect its economy. The Foreign Exchange Regulation Act and the Foreign Exchange Management Act are the two main laws that control foreign exchange transactions in India. These regulations guarantee the preservation of the nation’s foreign exchange reserves and the oversight of all cross-border transactions. So, let’s explore FEMA and FERA full form, and their differences in detail.

What is FERA?

In order to control foreign exchange operations and protect the nation’s foreign exchange reserves, the Foreign Exchange Regulation Act (FERA) was passed law in India in 1973. The main goal of FERA, which was enacted during a period of low foreign exchange reserves in India, was to stop the improper use of foreign currency and illicit activities utilizing it. FERA enforced strict regulations on a variety of forex-related transactions, such as:

1. Converting currencies
2. Transfers of funds
3. Purchasing overseas property
4. Deals involving people who are not residents

The act also gave the Reserve Bank of India (RBI) the authority to keep an eye on these activities, regulate them, and, in the event that non-compliance occurs, confiscate assets in addition to harsh penalties and jail. For numerous decades, FERA significantly influenced India’s foreign exchange environment, earning it a reputation for its stringent enforcement methods. Nonetheless, the act faced criticism due to its intricate processes, severe penalties, and perceived impediment to the liberalization of the economy

What is FEMA?

FEMA full form is Foreign Exchange Management Act is also known as FEMA. In order to improve India’s foreign exchange management and structure, it superseded FERA in 1999. FEMA has around 49 sections, and their main aim is to: –

• Established a structured system for managing India’s foreign exchange
• Develop clear policies and rules to control the foreign exchange market
• Facilitated payments and trade with other countries using a defined strategy
• Establish a clear legal framework to manage the legal processes

What is the Difference Between FEMA and FERA?

Aspect	FERA	FEMA
Full Form	Foreign Exchange Regulation Act	Foreign Exchange Management Act
Enactment Year	Enacted in 1973	Enacted in 1999
Objective	Control and regulate foreign exchange	Manage and facilitate foreign exchange
Regulatory Authority	Central Government	Reserve Bank of India (RBI)
Focus	Regulation	Management
Penalties	Strict penalties and criminal charges for violations	Emphasis on compliance and civil penalties
Liberalization	Restrictive in nature, aimed at protecting the Indian economy	A more liberal approach, encouraging foreign investment and trade
Provisions	Stringent controls on foreign exchange transactions, licenses required for various activities	Simplified procedures, fewer restrictions, emphasis on reporting and compliance
Enforcement	Rigid enforcement, emphasis on punishment for violations	More flexible enforcement, focus on education, and compliance

 

What is the Importance of FERA and FEMA?

Two important laws that control foreign exchange transactions in India are the Foreign Exchange Regulation Act and FEMA. Let’s talk about their importance in detail: –

• Foreign Exchange Regulation (FERA) Prior to FEMAFERA was passed into law in 1973 to control foreign exchange dealings in India. Its goal was to preserve and oversee the nation’s foreign exchange reserves, which are essential for the stability of the economy. Moreover, under FERA, strict guidelines were put in place for all foreign exchange operations, including investments and remittances.
• FEMA: Foreign Exchange Management Modernization
  When FEMA took the role of FERA in 1999, India’s foreign currency management strategy underwent a dramatic upheaval. In order to facilitate easier cross-border trade and investment, FEMA liberalized many areas of foreign exchange transactions and brought them into line with global economic trends.
• FERA’s Significance in Maintaining Economic Stability
  During its existence, FERA was essential in protecting India’s foreign exchange reserves. FERA sought to preserve economic stability and avoid an unwarranted depletion of reserves by regulating the flow of foreign exchange. Its strict laws, however, occasionally made it more difficult to do business and attract international investment
• FEMA’s Significance: Promoting Economic Development
  The advent of FEMA completely changed the foreign currency management scene in India. The simplification of processes and the liberalization of laws improved the climate for foreign investment and commerce. Moreover, FEMA promoted opportunities for international investors to investigate India, hence fostering economic expansion and advancement.
• Harmonizing FERA and FEMA: Regulatory Framework Evolution
  Despite representing distinct periods of foreign currency regulation, FERA and FEMA are significant because of how India’s regulatory structure has developed. FEMA responded to shifting global dynamics by fostering economic growth and liberalization, while FERA established the framework for handling foreign exchange in a regulated environment.

The Bottom Line

Two important acts that have regulated foreign exchange transactions in India are FERA and FEMA. FEMA seeks to streamline and liberalize the process, whereas FERA was primarily concerned with regulating and controlling these kinds of transactions. The way India’s economy has developed and how it has integrated into the world market has been greatly influenced by these actions. Therefore, in order to prevent any legal repercussions, it is imperative that individuals and enterprises dealing with foreign currencies comprehend these regulations and abide by their terms.

Frequently Asked Questions

What is the difference between FERA and FEMA?

The main difference lies in their objectives, with FERA focusing on control and regulation of foreign exchange transactions, while FEMA focuses on management and facilitation.

Can residents of India invest in foreign securities under FEMA?

Yes, residents of India can invest in foreign securities subject to certain conditions and limits prescribed by RBI.

Is there a separate court system for handling violations under FEMA?

No, FEMA follows the regular judicial system in India.

What is the punishment for violating FERA?

Under FERA, violations could attract imprisonment for up to seven years and hefty fines.