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Foreign Exchange Regulation Act

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  • 1. By BG B-5 Batch. Foreign Exchange Regulation Act
  • 2. Introduction  The Foreign Exchange Regulation Act (FERA) :  It was a legislation passed by the Indian Parliament in 1973 and came into force with effect from January 1, 1974.  FERA emphasized strict exchange control over everything that was specified, relating to foreign exchange.  Law violators were treated as criminal offenders.  Aimed at minimizing dealings in foreign exchange and foreign securities.
  • 3.  To regulate certain payments.  To regulate dealings in foreign exchange and securities.  To regulate transactions, indirectly affecting foreign exchange.  To regulate the import and export of currency.  To conserve precious foreign exchange.  The proper utilization of foreign exchange so as to promote the economic development of the country. Objectives
  • 4. Reasons  Low foreign exchange (Forex) reserves  Forex is a scarce commodity.  FERA therefore proceeded on the presumption that all foreign exchange earned by Indian residents rightfully belonged to the Government of India and had to be collected and surrendered to the Reserve bank of India (RBI).  FERA primarily prohibited all transactions, except one’s permitted by RBI.
  • 5. Example Coca –Cola Example:  Coca-Cola was India's leading soft drink until 1977 when it left India after a new government ordered the company to turn over its secret formula for Coca-Cola and dilute its stake in its Indian unit as required by the Foreign Exchange Regulation Act (FERA).  In 1993, the company (along with PepsiCo) returned after the introduction of India's Liberalization policy.
  • 6. Foreign Exchange Management Act
  • 7.  The FEMA was an act passed in the winter session of Parliament in 1999 which replaced FERA  FERA did not succeed in restricting activities. The act would become FEMA  To relax the control on foreign exchange in India.  The deals in Foreign Exchange were to be ‘managed’ instead of ‘regulated’  The switch to FEMA shows the change on the part of the government in terms of the foreign capital. Introduction
  • 8. Main Features  FEMA gives the central government the power to impose the restrictions.  The transactions should be made only through an authorized person.  Deals in foreign exchange under the current account by an authorized person can be restricted by the central government  Deals in foreign exchange under the current account by an authorized person can be restricted by the Central Government, based on public interest.  The RBI is empowered by this Act to subject the capital account transactions to a number of restrictions.