Understand the Differences between FERA and FEMA

  • July 11, 2023
  • Dushyant Sharma
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Foreign exchange is a way of trading one currency to another. For instance: INR can be swapped into UDS. And the market that allows foreign exchange or called Foreign Exchange Market or Forex. 

This is one of the most profitable and liquidated markets in the world, where trillions of dollars flow every year. In this, banks, brokers, institutions, and individual traders are included from the whole world.

Before 1999, the FERA Act was followed for the forex markets, but because it was limiting the development of the Indian economy, the FEMA Act was launched by the Parliament of India. Below is the difference between FEMA and FERA.

What is FERA?

The FERA stands for Foreign Exchange Regulation Act. It was passed in 1973, and it into existence on January 1st, 1974. The act was passed to regulate and monitor foreign exchange duties and transactions. There are 81 sections in the FERA Act, it was introduced when the Forex reserve of the country was very low. 

Role of RBI

The Reserve Bank of India has the power to authorize a company or individual for dealing in foreign exchange. For dealers, RBI has the power to authorize them to deal in foreign currencies and revoke the authorizations in case of non-compliance.

If the money is not used for the reason, which it provides for. Then the money must sell to another dealer within 30 days. No person can make transactions without the permission of RBI with a partner, who is a non-resident of India.

The FERA faced some criticism and backlash from economic experts. Because it was hindering the growth of modernization of Indian industries. That’s why the Parliament of India introduced FEMA.

What is FEMA?

The Foreign Exchange Management Act (FEMA) was launched on 29 December 1999 by the Parliament. This act replaced the FERA Act by following the guidelines and framework of the World Trade Organisation (WTO).

Currently, there are only, 49 sections present in the FEMA Act. It provides a set of regulations to empower RBI to pass regulations and allow the Indian government to implement these rules related to foreign exchange concerning the country’s foreign trade policy.

The act empowered the RBI to place restrictions and provide regular input to RBI. Also, it allowed Indian nationals to trade in forex and own immovable property outside India. 

Difference Between FEMA and FERA

The following are the differences between FEMA and FERA: 

 

FERA

FEMA

Launched In

The Parliament of India passed the Foreign Exchange Regulation Act in 1973.

Foreign Exchange Management Act was enacted by the Parliament of India on 29 December 1999 for replacing the FERA act.

Came into Existence

FERA came into existence on January 1st, 1974.

FEMA came into force in June 2000.

Replaced

FERA was replaced in 1998 by the Vajpayee government.

FEMA replaced FERA.

Regulates

FERA rules regulated foreign payments.

FEMA focused on increasing the foreign exchange reserves of India. Focused on promoting foreign payments and foreign trade. 

Objective

FERA’s objective was the conservation of Foreign Exchange.

Foreign Exchange manage FEMA.

Authorized Person

In FERA, the definition of an Authorized person was narrow. Banks did not come under authorized person.

In FEMA, the definition of an Authorized person is wide. Banking units are authorized person.

Violation

In case of violation of any FERA rule, it is a criminal offense.

Violation of FEMA rules is a civil offense.

Legal Help

Any person who violate the FERA rules was not provided any legal help.

A person accused of FEMA violation will provide legal help.

Punishment

In FERA, there is a direct punishment, if the person is found guilty of violating FERA rules.

If someone is found guilty of violating the FEMA rules, they have to pay a fine, starting from the date of convocation, if the penalty is not paid within 90 days, otherwise the guilty will be imprisoned.

Reserve Bank of India

If there is any need to transfer the funds to external operations, the prior approval of RBI is required.

For external trade and remittances, there is no need for approval from the Reserve Bank of India.

 

Conclusion

So, these are the differences between FEMA and FERA. The FEMA was launched to manage forex trading and measure the liberalized economy. Both are important in managing the forex exchange, but FEMA has a more liberalize approach, which focuses on managing and boosting foreign exchanges.

 

People also read: What are the Objectives of FEMA?

 

 


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Dushyant Sharma
Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.

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