Difference between FERA and FEMA
What is FERA?
FERA stands for Foreign Exchange Regulation Act. It was an act passed by the Indian government in 1973 to regulate foreign exchange transactions and preserve the stability of the country’s foreign exchange market.
Examples of FERA
1. Restriction on the transfer of foreign currency outside India without prior approval.
2. Limitations on holding foreign currency by individuals.
3. Regulations on foreign investment in Indian businesses, etc.
Uses of FERA
1. Controlling the inflow and outflow of foreign currency in India.
2. Safeguarding the exchange rate stability and protecting the country’s foreign exchange reserves.
3. Monitoring foreign investments to ensure they comply with the set regulations and do not pose a threat to national interests.
What is FEMA?
FEMA stands for Foreign Exchange Management Act. It is a legislative framework that replaced FERA in 1999. FEMA focuses on promoting and facilitating external trade, payments, and transactions, while also providing guidelines for foreign exchange management in India.
Examples of FEMA
1. Liberalization of current account transactions, such as trade, remittances, and business transactions, with fewer restrictions.
2. Allowing non-residents to invest in Indian businesses without prior approvals.
3. Permission to hold foreign currency accounts by individuals, etc.
Uses of FEMA
1. Simplifying and streamlining foreign exchange transactions.
2. Encouraging foreign investments in India.
3. Promoting economic growth and development by easing restrictions on international transactions.
Differences between FERA and FEMA
| Difference Area | FERA | FEMA |
|---|---|---|
| Year of Implementation | 1973 | 1999 |
| Objective | Regulating foreign exchange transactions | Facilitating and promoting external trade and transactions |
| Approach | Restrictive and controlling | Liberalized and facilitating |
| Prior Approval | Required for several transactions | Less requirement for approval |
| Foreign Currency Holding | Restricted | Allowed, subject to certain limits |
| Foreign Investment | Stringent regulations | Encouraged and simplified |
| Enforcement | Judicial and regulatory authorities | Specialized authorities like Directorate of Enforcement |
| Penalties | Strict penalties for non-compliance | More flexible penalties |
| Scope | Primarily focused on foreign exchange regulations | Wider scope covering various aspects of foreign exchange management |
| Global Context | FERA was unique to India | FEMA aligns with international practices |
Conclusion:
In conclusion, FERA and FEMA are two acts that regulate foreign exchange transactions in India. While FERA was restrictive and controlling, FEMA takes a liberalized and facilitating approach to promote external trade and transactions. The implementation of FEMA in 1999 brought several changes to simplify foreign exchange management and encourage foreign investments. It aligns with international practices and has a wider scope compared to FERA.
People Also Ask:
- Q: What were the main objectives of FERA?
A: The main objectives of FERA were to regulate foreign exchange transactions, safeguard exchange rate stability, and monitor foreign investments in India. - Q: How does FEMA differ from FERA?
A: FEMA was implemented in 1999 and focuses on promoting and facilitating external trade and transactions. It has a liberalized approach, allows more foreign currency holding, and encourages foreign investments compared to the stringent regulations of FERA. - Q: What are the penalties for non-compliance with FEMA?
A: FEMA has more flexible penalties compared to FERA. Non-compliance may result in monetary penalties, seizure of assets, or imprisonment depending on the severity of the violation. - Q: Can individuals hold foreign currency under FEMA?
A: Yes, individuals are allowed to hold foreign currency subject to certain limits and regulations specified by FEMA. - Q: Did FEMA bring any major changes compared to FERA?
A: Yes, FEMA brought significant changes by simplifying foreign exchange management, liberalizing current account transactions, and encouraging foreign investments without prior approvals.
