Foreign Exchange, since time immemorial, has been recognised as the exclusive domain for banks and corporations at large. To add to it, it is also the world’s biggest market so far. Keeping in mind the augmenting importance of this market where currency gyrations can dictate the fortunes of one and all, it was considered of paramount importance, to bring foreign exchange under the ambit of regulation.
FERA – the four-letter acronym for Foreign Exchange Regulation Act is a legislation that came into existence in 1973 with the purpose to regulate certain dealings in foreign exchange, impose restrictions on certain kinds of payments and to monitor the transactions impinging the foreign exchange and the import and export of currency.
Salient Features of FERA:
Applicable to all the citizens of India, the intent of FERA, inter alia, was to conserve the foreign exchange resources of the nation. Some of the key features of the act are as follows:
- Authorisation by RBI to any person/company to deal in foreign exchange
- Authorisation to the dealers by the Reserve Bank of India for transacting foreign currencies, subject to review and revocation of the authorisation in the case of non-compliance
- Authorisation to the money changers for conversion of currencies as per the rates determined by RBI
- Restrictions on import/export of currencies
- Restriction on persons other than the authorised dealers to enter into transactions involving the financial currency
- Restrictions on issue of bearer securities
- Restrictions on holding or acquiring immovable properties outside India
- Restrictions on making/receiving payment to/from a resident outside India
- The Power of RBI to call for information and seize documents, wherever or whenever required
FERA VS FEMA: A comparison
While FERA is an Act of the Parliament introduced in the year 1973, with an intent to manage and conserve India’s foreign reserves, the Foreign Exchange Management Act (FEMA) is an extension to the already existing law. The purpose behind the enactment of FEMA was not only to regulate and facilitate foreign exchange but also for promoting foreign trade and payments along with escalating the size of foreign exchange reserves in India. Promulgated in the year 1999, FEMA, unlike the erstwhile law, liberalised the foreign exchange controls and restrictions on foreign investments to a significant extent.
Not only this, but the latter also laid stress on systematic development and proper management of the forex market in the country. Unlike FERA, the violation of FEMA is a compoundable offence, the charges of which can be removed. Besides this, there are different retributions for contravening the provisions of FERA and FEMA.
Acquisition of property under FERA and FEMA
There is a major difference between FERA and FEMA pertaining to acquisition of property in India. While under FERA, “citizenship’ was the criteria for procuring property; under FEMA it is the “residence” which is the criteria. This implies, that under the FERA provisions, a person who is an Indian citizen could acquire property in India and a foreign citizen could not acquire property in India (except as permitted to NRI’s). However, under FEMA, an Indian resident can acquire property in India which is otherwise not permitted to the non-residents. Precisely, FEMA has emerged as a replacement or improvement over the erstwhile FERA.
Moreover, a foreign company having its branch office or another place of business in India, as per the FERA/FEMA regulations can acquire immovable property in India that is incidental or ancillary to carrying on such activity.
To conclude, anything and everything that was associated with Foreign Exchange was regulated under the Foreign Exchange Regulation Act. And though, the same was enacted with the best of intentions it hindered the growth of Indian Industries owing to its excessively stringent restrictions. However, with the introduction of FEMA, the scenario soon changed from control to management along with facilitating the development and orderly management of the foreign exchange market in India.