FERA was an act to regulate:
certain payments, transactions indirectly
affecting foreign exchange,
the import and export of currency,
the conservation of the foreign exchange
resources of the country and their proper
utilization thereof in the development of the
To prevent the outflow of the Indian
To see that the foreign exchange
legitimately due to India should be
To regulate the transactions indirectly
affecting foreign exchange
To regulate holding of immovable
property outside India
To regulate employment of foreign
Regulation of dealings in Foreign
Exchange: Take permission from the
Reserve Bank for Foreign Exchange
Restrictions on Payments: No body shall
-make any payment to or for any person
-receive any payment on behalf of
anybody outside India
Restrictions regarding assets held by Non
residents and Import and Export of certain
currency and Bullion.
Restriction on Establishment of place of
business in India.
Prior permission of Reserve Bank required
for taking up employment in India by
Nationals of foreign state.
Restrictions on appointment of certain
persons and companies as agents or
technical or management advisors in
Insights into FERA:
FERA applies to the whole of India, to citizens of
India outside India and to branches and
agencies outside India registered in India .
Came into force with effect from January 1,
Was enacted by Parliament in the Twenty-fourth
Year of the Republic of India.
Reflections on FERA:
1) No legal forum or a court for a person to
recover money due to him from outside
India on account of sale, etc.
Must have the recourse to International
Commercial Arbitration, only if enormous
amounts are involved.
Of late, demand is that FERA should be
abolished. Corporates find themselves
confronted by serious allegations of
violation of the Act.
2) Impression created by the Government Agencies :
Foreign Exchange is very precious and must be
protected at all cost.
So, FERA contains stringent provisions.
FERA violators are treated as criminals.
eg: an entrepreneur arrested for being in possession
of Rs. 450 in foreign exchange , though was left over
from a journey abroad, sanctioned by the
3) As India has app 30 billion dollar foreign
exchange reserve position and there is no
scarcity of the foreign exchange, the act
should be done away with.
Some experts observed that the Act is
outdated and either needs to re-written or
over-hauled. It should be liberated.
4) There is no harmony between FERA
and Direct tax laws, eg: basic definition of
resident are dichotomous and totally
From FERA to FEMA
FERA had outlived its utility on account of
significant developments as follows:
Reasons to repeal the FERA:
Substantial increase in the foreign exchange
Growth in Liberalization of Indian
Rationalization of tariffs
Increased access to external commercial
borrowings by Indian corporates
Participation of foreign investors in the Stock
Section 11: Restrictions regarding assets
held by non-residents: blocking bank
accounts and securities for people who
had migrated abroad.
Section 13: Restriction on Import and
export of certain currency bullion: Gold
and Silver through Exim Policy and foreign
exchange and Indian Currency under
Section 17: Power to regulate uses , etc,
of imported silver and gold- deleted as has
been covered in Section 13
Section 25: Restrictions on holding of
immovable outside India: has enabled RBI
to grant permission to holding of property
outside India under certain conditions.
On August 4, 1998, the finance minister
introduced FEMA in the Lok Sabha.
To consolidate and
amend the law
relating to foreign
exchange to facilitate
external trade and
To promote the
and maintenance of
the foreign exchange
market in India.
Some basic terms:
Authorized Person means any
authorized dealer, money changer, or any
other person for the time being authorized
under Section 10(1) to deal in foreign
exchange or foreign securities.
Types of transactions:
Transaction means a
transaction which alters
the assets or liabilities,
liabilities, outside India
of persons resident in
India or vice versa.
(borrowing, lending &
investment – FDI , FII,
ECBs , NRI deposits ,
Transaction has been
defined as a transaction
other than capital
Means that all
transactions that do not
alter assets or liabilities
outside India of residents
or assets or liabilities in
India of non-residents
Currency includes all currency notes,
postal notes, postal orders, money orders,
cheques, drafts, travellers cheques, letters
of credit, bills of exchange and promissory
notes, credit cards or such other similar
instruments, as may be notified by the
Section 3: Dealings in Foreign
No person shall
deal in and transfer foreign exchange
make or receive payment
for anybody outside India without
permission from the Reserve Bank.
Section 4: Holding of Foreign
Exchange: No resident in India shall
acquire or transfer foreign exchange or
any immovable property outside India
without permission from the Reserve
Section 5: Current Account
transactions: any person may sell or
draw foreign exchange to or from an
authorized person if such a sale or drawal
is a current account transaction.
Section 6: Capital Account Transaction:
Any person may sell or draw foreign
exchange to or from an authorized person
is a capital account transaction. Only
limited Capital Account Convertibility
Section 7: Export of Goods and
Services : Every exporter of goods or
services shall furnish to the Reserve Bank
details regarding the export value of such
goods or services.
Section 8: Realisation and Repatriation
of Foreign Exchange: Where any amount of
foreign exchange is due or accrued to any
person resident in India, such a person shall
take steps to realise and repatriate to India, such
for foreign exchange within a specified period of