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FERA AND FEMA

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 FERA, 1973 (Effective from January1,1974)
2

Section 29 of this act referred directly to the operations of MNCs in

India;

As per sec 29., all non-banking foreign branches and subsidiaries with
foreign equity exceeding 40 per cent had to obtain permission to
establish new undertakings, to purchase shares in existing
companies, or to acquire wholly or partly any other company;

Guidelines to administer this section were issued in 1973 and later

amended in 1976;

All foreign companies or branches to convert as Indian companies

with minimum 60% local equity;

All foreign companies or branches to bring down foreign equity share

to 40% or less;

Three level of foreign equity (1976):

74%, 51% and 40 %

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 FERA
3

Companies allowed to retain foreign equity

holdings above 40% and up to 74% if engaged in:

- Core industries
- Predominantly export oriented production
- Activities requiring sophisticated technology or
specialized skills
- Tea plantation activity

Companies were allowed have up to 74% F.E., If, the

turn over of above all combined activities or any of
the above activities exceeded 75% of the total turn
over of the company;
The same rule applied to the companies exporting
40% of their own production.

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 Implementation of FERA
4

Substantial delays in implementation;

Large number of companies did not implement guidelines;

Govt. exempted some companies;

249 companies exempted by Govt. from 40% non-resident

interest stipulation;

132 companies were allowed with more than 40% f. equity;

116 companies were allowed with more than 51% and up

to 74% F.E.

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 Imp..
5

One company was allowed with 100% F.E.;

Companies which did not implement FERA belonged to Tea

Plantation, Manufacturing of drugs and pharma products
or were affiliated to large TNCs.

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 New Concession to FERA Companies
6

New concessions announced in Nov.,1991, Jan., 1992

and Jan., 1993;

Removed large number of restrictions on FERA

companies with more than 40% Non-resident equity;

Removed FERA controls on Indian firms establishing

J.Vs. abroad and allowed Indian firms to hold
immovable property abroad;

Companies with Foreign shareholding were allowed to

increase FE to 51% by remittances in FE in specified
high priority industries;

Sections 28 & 29 were revoked (Trademark);

Section 31 was revoked (Immovable property);

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 Concessions.
7

Restrictions regarding assets held in India by non-

residents were scrapped;
Indians were allowed to keep FC upto $500 or
equivalent Rs 15000;
Import and Export in gold and silver was exempted
under FERA;
Section 17 was deleted (use of imported gold);
Restrictions on transfer of shares by a non-resident
to another non-resident were removed;
Foreign nationals were exempted from obtaining
prior permission under FERA before taking up
employment in India.

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 Concessions.
8

It is no longer appropriate to deify foreign

exchange as something special and
maintain a burdensome and highly
regulated structure around this deity
(Excerpts from FMs speech Union Budget
1998-99)

Consequently the Govt. adopted FEMA where the

emphasis is on management rather than
regulation

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 FEMA, 1999 (Effective from 1st Jan.,
2000)
9

FEMA introduced on August4, 1998 in Parliament

and was adopted in 1999;
FEMA applies to whole of India, all branches,
offices, agencies outside India owned or
controlled by a person or firm resident in India.

Objectives:

To facilitate external trade and payments;

To promote the orderly development and

maintenance of foreign exchange market.

(The bill aims, To consolidate and amend the law relating to

foreign exchange with the objective of facilitating external
trade and payments and for promoting the orderly
development and maintenance of foreign
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 Dealing in foreign exchange
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(Sec. 3)
No person shall;

deal in foreign exchange or foreign security with any person other than an
authorized person;

Make any payment to or for the credit of any person resident outside
India in any manner;

Receive otherwise through an authorized person, any payment by order or

on behalf of any person resident outside in any manner;
Enter into any financial transaction in India as a consideration for or in
association with acquisition or creation or transfer of a right to acquire
any asset outside India by any person;
Finally if, other wise provided in this act, no person resident in India shall
acquire, hold, own posses or transfer any foreign exchange foreign
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security or any immovable property GERA
situated outside India.
 Major Provisions
11

Current Account and Capital Account

transactions

Realization and repatriation of foreign

exchange

Contraventions and penalties

Establishment of Directorate of
Enforcement

Adjudication and appeal

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Miscellaneous
 FERA & FEMA A Comparison

1. In FEMA only specified acts relating to foreign exchange are regulated

while in FERA any thing and everything that has to do any thing with
foreign exchange was controlled;

2. The aim of FEMA is to facilitate trade as against that of FERA, which was
to prevent misuse of foreign exchange;

3. The theme of FERA was everything that is specified is under control while
the theme of the FEMA is everything other than what is expressly covered
is not controlled (lot of deregulation)

4. FEMA is a much smaller enactment only 49 sections as against 81 of

FERA;

5. In the process of simplification, many of the laid downs of the erstwhile

FERA have been withdrawn;

6. Many provisions in FERA like Indians taking employment abroad,

employment of foreign technicians in India have no place in FEMA.
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 FEMA
13

The Foreign Exchange Management

Act (FEMA) is a 1999 Indian law "to
consolidate and amend the law relating
to foreign exchange with the objective
of facilitating external trade and
payments and for promoting the
orderly development and maintenance
of foreign exchange market in India".
It is another matter that the enactment
of FEMA also brought with it the
Prevention of Money Laundering
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Under FERA a person was presumed

guilty unless he proved himself
innocent, whereas under other laws
a person is presumed innocent
unless he is proven guilty.

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 Need For Management
15

Whether under FERA or FEMAs control,

the need for the management of foreign
exchange is important. It is necessary to
keep adequate amount of foreign
exchange reserves, especially when
India has to go in for imports of certain
goods. By maintaining sufficient
reserves, Indias foreign exchange policy
marked a shift from Import Substitution
to Export Promotion
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 Main Features FEMA
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- Activities such as payments made to any

person outside India or receipts from them,
along with the deals in foreign exchange
and foreign security is restricted. It is FEMA
that gives the central government the
power to impose the restrictions.
- Restrictions are imposed on people living

in India who carry out transactions in

foreign exchange, foreign security or who
own or hold immovable property abroad.
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 Main Features
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- Without general or specific

permission of the
Reserve Bank of India, FEMA restricts
the transactions involving foreign
exchange or foreign security and
payments from outside the country
to India the transactions should be
made only through an authorised
person.
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 Main Features FEMA
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- Deals in foreign exchange under the

current account by an authorised person
can be restricted by the Central
Government, based on public interest.
- Although selling or drawing of foreign
exchange is done through an authorised
person, the RBI is empowered by this Act
to subject the capital account
transactions to a number of restrictions.

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 Main Features FEMA
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- People living in India will be permitted to carry

out transactions in foreign exchange, foreign
security or to own or hold immovable property
abroad if the currency, security or property was
owned or acquired when he/she was living
outside India, or when it was inherited to him/her
by someone living outside India.
- Exporters are needed to furnish their export
details to RBI. To ensure that the transactions are
carried out properly, RBI may ask the exporters
to comply to its necessary requirements.[7]

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FERA
The object of FERA 1973 was to
conserve foreign exchange and
prevention of leakage of it due to
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adverse position of foreign exchange
balance in India.
The violation of FERA was criminal
offence
The Offences were not compundable
under FERA
Citizenship was the criterai for
residential status under FERA
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FEMA
To consolidate and amend the law
relating to foreign exchange with the
object to facilitating external trade
and payments and for promoting the
foreign exchange market in India.
while it is civil offence under FEMA.
while it is permitted under FEMA.
while number of 182 days stay in
India is the criteria for residential
status under FEMA.
Several provisions for payments viz.
Basic Travel Quota (BTQ), business
travel, export commission, gifts,
 FERA FEMA

1973 FORMATION replaced FERA from 1st June,

21
2000

Regulation of foreign exchange So the new law is for the

management of foreign exchange
instead of regulation of foreign
exchange.

81 sections in fera The size of the bare act got

reduced to 49 sections in place of
81 sections in FERA

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 Whether provisions of FEMA are applicable outside India i.e
extra territorial jurisdiction apply

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Yes, the provisions are applicable to whole of India.

There are two exceptions:

1. These provisions are also applicable to all branches,

offices and agencies situated outside India if these are
owned or controlled by a person who is resident in India.

2. If any person to whom this law applies, commits any

contravention outside India, all the provisions, rules and
regulations under this law would be applicable to such
person even the contravention has been made outside
India.

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 Difference between Rule and regulations under FEMA

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Rules covering practical aspects are

made by Central Governnment.

Regulations for implementation of the

provisions of the act and rules are
prescribed by RBI.

Directions are also isssued time to time

by RBI which have statutory force and
can be termed asDRlaw.
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 Difference between approval and permission

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In case, an approval is required, an

action holds good. Only if it is
disapproved, it loses its force. But when
a permission is required, the decision
does not become effective till permission
is obtained.

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