IAS Gyan

Daily News Analysis

Foreign Exchange Management Act

21st December, 2021 Economy


Figure 3: No Copyright Infringement Intended


  • Bollywood actor Aishwarya Rai Bachchan appeared before the Enforcement Directorate (ED) for recording her statement in connection with a “Panama Papers” related probe.
  • It has been issued under the Foreign Exchange Management Act.

About Foreign Exchange Management Act (FEMA):

  • The Foreign Exchange Management Act (FEMA) was passed by Parliament in 1999.
  • It had replaced FERA (Foreign Exchange Regulations Act), 1973 which had become incompatible after economic reforms and pro-liberalization policies of government.
  • It aims at facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
  • It makes offenses related to foreign exchange civil offenses.
  • It enables new foreign exchange management regime consistent with emerging framework of World Trade Organisation (WTO).

About Foreign Exchange Regulation Act(FERA):

  • The Foreign Exchange Regulation Act (FERA) was legislation passed in India in 1973 that imposed strict regulations on certain kinds of payments, the dealings in foreign exchange (forex) and securities and the transactions which had an indirect impact on the foreign exchange and the import and export of currency.
  • FERA came into force with effect from January 1, 1974.
  • FERA was introduced at a time when foreign exchange (Forex) reserves of the country were low, Forex being a scarce commodity. F
  • ERA 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 not permitted by RBI.


Difference Between FERA and FEMA:

FEMA a change from FERA:

  • As is clear from the name of the Act itself, the emphasis under FEMA is on 'exchange management' whereas under FERA the emphasis was on 'exchange regulation' or exchange control.
  • Under FERA it was necessary to obtain Reserve Bank's permission, either special or general, in respect of most of the regulations there under.