AN OUTLINE OF FOREIGN
EXCHANGE MANAGEMENT ACT, 1999
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Introduction
As per
Article 246 of the Constitution of India, the Parliament has exclusive power to
make laws with respect to any of the matters enumerated in the Union List. The
Foreign Exchange Management Act, 1999 can be traced to various entries in the
Union List. Entry 16 of the Union List deals with Foreign jurisdiction. Entry
36 of the Union List deals with Currency, coinage and legal tender; foreign
exchange. Entry 37 of the Union List deals with Foreign loans and Entry 41 of
the Union List deals with Trade and commerce with foreign countries; import and
export across customs frontiers; definition of customs frontiers.
With
the opening up of Indian economy because of ‘Liberalization, Privatisation and
Globalization’, a need was felt to amend and revamp the old laws relating to
foreign exchange. Therefore the concessions made to FERA in 1991-1993 showed
that Foreign Exchange Regulation Act, 1973 (FERA) was on the verge of becoming
redundant. After the amendment of FERA in 1993, it was decided that the act
would become the Foreign Exchange Management Act, 1999 (FEMA). . This was done
in order to relax the controls on foreign exchange in India, as a result of
FEMA, deals in Foreign Exchange were to
be ‘managed’ instead of ‘regulated’.
FERA was repealed in 1999 by the
government of Atal Bihari Vajpayee and replaced by the Foreign Exchange
Management Act, which liberalised foreign exchange controls and restrictions on
foreign investment.
COCA – COLA AND FERA
Coca-Cola
entered India in 1967. At that time, Coca-Cola was India’s leading soft
drink and when new Government ordered the Company to dilute its 60% stake
and reveal its secret formula, Coca-Cola had to leave India.
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Comparison chart of FERA and FEMA
Basis
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FERA
|
FEMA
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Meaning
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An act
promulgated, to regulate payments and foreign exchange in India, is FERA.
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FEMA an
act initiated to facilitate external trade and payments and to promote
orderly management of the forex market in the country.
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Enactment
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Old
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New
|
sections
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81
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49
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Approach
towards foreign transactions
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Rigid
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Flexible
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Violation
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Criminal Offence
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Civil offence
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Punishment
for contravention
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Imprisonment
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Imprisonment
or fine (if fine is not paid in stipulated time)
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Key Points
1) Foreign
Exchange Management Act, 1999 came into force with effect from 1st
day of June, 2000.
2) It
extends to whole of India
3) Following
are the objectives of FEMA,1999
ü
To facilitate external trade and payments
ü
To promote orderly development and maintenance
of foreign exchange market in India
4) Reserve
Bank of India is the overall controlling authority of FEMA.
5) In
addition to RBI, Directorate of Enforcement has also been formed for the
implementation of FEMA.
6)
There are 49 Sections in Foreign Exchange
Management Act, 1999 divided into 7 chapters.
Chapter I – Preliminary (1-2)
Chapter II – Regulation and Management of
Foreign Exchange (3-9)
Chapter III – Authorised Persons (10-12)
Chapter IV – Contraventions and Penalties
(13-15)
Chapter V - Adjudication and Appeal (16-35)
Chapter VI – Directorate of Enforcement (36-38)
Chapter VII – Miscellaneous (39-49)
7)
Section 46 of FEMA authorizes Central Government to make Rules. Section 47 of FEMA authorizes RBI to make Regulations.
THANK YOU
CS NEERAJ VASUDEVAN
