FERA and FEMA of India

Since time immemorial, Foreign Exchange is acknowledged as the exclusive area for corporations and banks. This is also considered the biggest market of the market. FERA is the four-letter abbreviation for Foreign Exchange Regulation Act, and it is legislation that began to exist in 1973. The purpose of the FERA Act 1973 is to regulate some foreign exchange dealings, imposing confinements on some types of payments, and monitoring the transactions that impinge the foreign exchange.

(Image will be Uploaded Soon)

FERA came into existence on 1st January 1974, and its Section 29 is directly referred to as the operations of multinational companies in India. Based on the version of the Section, every non-banking subsidiary and branch that has foreign equity that exceeds 40% needs to get permission for establishing novice undertakings to buy shares in the current companies or for acquiring other companies, partly or wholly.

The Intention of FERA

The FERA Act happened to be a program that President Franklin Roosevelt established in the year 1933. However, it was substituted by the WPA (Works Progress Administration) in 1935. Before the year 1933, many states got loans from the federal government for the smooth operation of the relief programs. Amongst them, one is known as TERA (Temporary Emergency Relief Administration), the state program of New York. Harry Hopkins, an adviser to Franklin Roosevelt, established it in 1931. 

Roosevelt asked Congress for setting up FERA, and it provides grants to a state for the same purpose. In May 1933, Hopkins was appointed to head it. The chief aim of FERA was to ease unemployment, and so, it had formed unskilled jobs in state and local government. Jobs happened to be costlier in comparison to direct cash payments, but the unemployed got hugely benefited from it psychologically. The unemployed were people who wanted some kind of task for their self-esteem. 

From the year 1933 until FERA closed in 1935, it provided localities and states $3.1 billion. Additionally, FERA proposed work to more than twenty million people besides developing many facilities on some public lands all across the nation.

What is FEMA?

The FEMA is the abbreviation for the Foreign Exchange Management Act, and it was made familiar in the year 1999. This Act worked as a substitute for FERA and came into existence on June 1, 2000. FEMA came into effect as FERA failed in meeting the needs of the policies that were being carried out after liberalization. With FEMA, people got a chance to get a prominent alteration in the system as it made every offence that pertains to foreign exchange into civil offences in place of criminal offences. 

Commonly, FEMA intends to consolidate and amend the foreign exchange law, and it works with an intention to facilitate payments as well as external trading. This Act was aimed to endorse the growth and maintenance of the market of Indian foreign exchange in an arranged manner.

Presently, FEMA is eligible to be applied all across India and even the agencies, offices, and branches that are outside India. However, it must be owned and controlled by a person who is a resident of India. FEMA gets spearheaded by its Directors. Its head office is also known as the Enforcement Directorate, and it is situated in New Delhi. 

Features of FERA and FEMA in India

The government during the FY 1997-98 budget had proposed to substitute Foreign Exchange Regulation Act 1973 by FEMA. Both Houses of Parliament had proposed FEMA in December 1999. When the president approved, FEMA 1999 came into force, and it was from June 2000. Some provisions connected to foreign exchanges have got altered as well as liberalized under FEMA, and this hugely simplified foreign trade. Govt. is hopeful that FEMA would certainly make some desired growth in the market of foreign money.

Features of FERA

• The Act of FERA is also called the FERA, 1973.

• FERA does apply to every Indian citizen who is living outside India and also to agencies and branches that are outside India of several bodies or companies corporate, incorporated, or registered in India.

• FERA does extend to the entire India.

• FERA has got authorization from the Reserve Bank of India to any company or person for dealing in foreign exchange.

• FERA is also sanctioned for the RBI dealers to make payments in foreign currencies.

• It also gives sanctions to the money changers to convert currencies according to the rates that the RBI determines.

• FERA restricts the export and import of currencies.

• It also confines people who haven’t authorized dealers from getting included in transactions that involve financial currency.

• FERA puts confinements on the matters of bearer securities.

• FERA also puts restrictions on holding or containing immovable properties that are outside India.

• FERA also confines receiving or making payment from or to the residents who are living outside India.

• The Reserve Bank of India possesses the power for requesting information and seizing records whenever and wherever possible.

Based on the guidelines mentioned above, the main rule was every branch of a foreign company that operates in India must change itself into an Indian company with nearly 60% local equity participation. Again, every foreign subsidiary must bring down the share of foreign equity to 40 percent or less than this. Originally, the effect of this Act happened to be negative on the country’s economic development as it tied the big corporate houses’ hands for expanding their business. And so, the policymakers felt that there must be some relaxation so that the economic development that is made via industrialization could fasten in a country.

Features of FEMA

FEMA comprises provisions for advanced liberalization of capital account transactions, and it has full present account convertibility. Some extraordinary features of FEMA are:

• FEMA is highly visible in its application because it does lay down the areas that need particular permissions from the Indian Govt. or the Reserve Bank on holding or the acquisition of foreign exchange.

• FEMA is classed as the foreign exchange transactions that happen in a couple of categories, like current account and capital account transactions.

• FEMA proposes entire freedom to people who are residents of India, and those people were earlier residing outside India for owning, holding, and transferring immovable property or foreign security that is located outside India. 

• The Act of FEMA is acknowledged as civil law, and this Act’s contraventions propose arrest but only in some exceptional instances.

• FEMA doesn’t apply to the citizens of India who reside outside India.

Some Unknown Facts about FERA and FEMA in India

• Under FERA, an individual is presumed guilty until and unless he proves himself to be innocent. On the other hand, under other laws, people are presumed innocent unless they are proven guilty.

• FERA was repealed in the year 1998 under the government of Atal Bihari Vajpayee. This got substituted by FEMA that liberalized foreign exchange controls besides confinements that are made on foreign investments.

• According to the rules of FEMA for NRIs, they can’t make investments in little savings or PPF (Public Provident Fund) policies of the government.

• Students who go overseas for study are considered NRIs, and they become entitled to get every facility that is available to the NRIs. They are eligible to get remittance of up to USD ten lakh per year from their NRO or NRE accounts.