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FERA and FEMA

06-OCT-2014 16:19

    FOREIGN EXCHANGE REGULATION ACT (FERA), 1973

    FERA stands for Foreign Exchange Regulation Act. It was promulgated in the year 1973. It came into effect on January 1, 1974. Sec. 29 of FERA referred directly to the operations of Multi-national Companies in India. According to the Section, all non - banking foreign branches & subsidiaries with foreign equity exceeding 40% had to attain permission to institute new undertakings, to obtain partly/wholly any other company or to purchase shares in existing companies.

    As per these guidelines, the principal rule was that all branches of foreign companies in India should convert themselves into Indian companies with at least 60 % local equity participation.

    FOREIGN EXCHANGE MANAGEMENT ACT (FEMA), 1999

    FEMA stands for Foreign Exchange Management Bill. It was introduced by the Indian Government in  the Parliament of India on August 4, 1998. The Bill aims "to unite & modify the law relating to foreign exchange with the purpose of facilitate external trade &payments and for endorsing the orderly development & maintenance of India’s foreign exchange market.

    FEMA: A MAJOR DEPARTURE FROM FERA

    As is evident from the name of the Act, the prominence under FEMA is on 'exchange management' while under FERA the impetus was on ‘exchange control’ or 'exchange regulation'. Under Foreign Exchange Regulation Act it was essential to acquire the permission of Reserve Bank, either general or special, in respect of most of the regulations there under. Foreign Exchange Management Bill has brought about a drastic change in this regard & except for Section 3 which relates to dealing in foreign exchange, etc., no other provisions of FEMA specify obtaining the permission of Reserve Bank.

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    DISCLAIMER: JPL and its affiliates shall have no liability for any views, thoughts and comments expressed on this article.

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