Difference Between FERA and FEMA - Everything You Must Know

Post-independence, the Indian Parliament introduced several regulatory acts to streamline different sectors, including foreign exchange. The Foreign Exchange Regulation Act (FERA), 1973, was enacted to regulate foreign exchange transactions in India. However, due to its rigid framework, FERA was replaced by the Foreign Exchange Management Act (FEMA), 1999. This blog explores the key differences between FERA vs FEMA, shedding light on their impact on India’s economic landscape.

What is FERA?

FERA, or the Foreign Exchange Regulation Act, was introduced to control foreign exchange dealings and conserve foreign reserves. The act comprised 81 sections and was implemented to:

• Regulate foreign exchange and securities transactions
• Control the import and export of currencies
• Manage transactions that indirectly impacted foreign exchange

Despite its objective, FERA’s stringent regulations hindered economic growth, leading to its replacement by FEMA.

What is FEMA?

FEMA, or the Foreign Exchange Management Act, was enacted in 1999 to enhance India’s foreign exchange management. Unlike FERA, FEMA consists of 49 sections and aims to:

• Establish a transparent foreign exchange management system
• Facilitate smooth external trade and payments
• Provide a well-defined legal framework for regulatory processes

FEMA introduced liberalized regulations, making it more adaptive to India’s growing economy.

Key Differences Between FERA and FEMA

The table below highlights the major differences between FERA and FEMA:

Impact of FEMA on the Indian Economy

With the implementation of FEMA, India’s foreign exchange policies became more liberal, attracting global investors and boosting trade. The act reduced bureaucratic hurdles, promoting ease of doing business. Key benefits of FEMA include:

• Increased Foreign Direct Investment (FDI) and trade opportunities
• Strengthened India’s forex reserves and economic stability
• Simplified foreign transaction procedures, fostering global business partnerships

While both FERA and FEMA aimed at regulating foreign exchange, FERA’s rigid policies restricted economic growth, whereas FEMA introduced a more progressive approach. With FEMA in place, India has witnessed significant economic growth, improved foreign trade policies, and enhanced forex management.

Understanding the difference between FERA and FEMA is crucial for businesses and individuals engaged in foreign transactions, ensuring compliance with current regulations while leveraging India’s liberalized forex policies.

FAQs

1. Why was FERA replaced with FEMA?

FERA’s restrictive policies hindered economic growth. FEMA was introduced to liberalize foreign exchange regulations and promote global trade.

2. What happens if someone violates FEMA regulations?

Violations of FEMA are considered civil offenses, leading to monetary penalties. However, non-payment of fines within 90 days may result in imprisonment.

3. How does FEMA benefit businesses?

FEMA facilitates smooth international transactions, reduces compliance burdens, and promotes FDI, enhancing India’s economic competitiveness.

By understanding the key differences between FERA and FEMA, businesses and individuals can navigate India’s foreign exchange regulations effectively. Stay updated with the latest forex policies to ensure seamless financial transactions!