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From FERA To FEMA: Unraveling India’s Forex Journey

Following the post-freedom movement and India’s independence, the Indian Parliament introduced regulatory acts to streamline various sectors, including the critical Foreign Exchange System. The Foreign Exchange Regulation Act, of 1973 (FERA) was initially enacted to simplify and regulate the foreign exchange system.

FERA aimed to control foreign exchange dealings, manage imports and exports of currencies, and oversee transactions impacting foreign exchange. With 81 sections, it played a crucial role. However, its rigid regulations hindered economic growth, leading to its replacement by the Foreign Exchange Management Act (FEMA) in 1999.

What is FERA? 

FERA, or the Foreign Exchange Regulation Act, focused on facilitating and simplifying India’s foreign exchange system. It controlled foreign exchange dealings, currency imports and exports, and transactions influencing foreign exchange. However, due to its stringent regulations, FERA was replaced by FEMA.

What is FEMA? 

FEMA, or the Foreign Exchange Management Act, replaced FERA in 1999 to strengthen India’s foreign exchange structure. With 49 sections, FEMA aimed to organize foreign exchange management, introduce transparent guidelines, facilitate external trade and payments, and establish a clear legal structure for oversight.

Read: A Forex Investor’s Handbook

Difference between FERA and FEMA 

The Foreign Exchange Regulation Act (FERA) and the Foreign Exchange Management Act (FEMA) mark distinct phases in India’s regulatory landscape. Enacted in 1973, FERA aimed to streamline and control foreign exchange dealings, conserving forex transactions through its 81 sections. However, its conservative and restrictive regulations, coupled with criminal penalties for violations, led to its replacement.

In 1999, FEMA emerged, signaling a shift towards a more liberal and flexible regulatory framework. With 49 sections, FEMA sought to enhance India’s forex reserves, promote foreign payments and trade, and introduce transparent guidelines. Unlike FERA’s rigid approach, FEMA treats violations as civil offenses, generally resulting in monetary penalties, with imprisonment being a consequence for non-payment within a specified period.

The evolution from FERA to FEMA illustrates a transition from stringent regulations to a more adaptable and growth-oriented foreign exchange management framework, aligning with India’s economic aspirations.

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Summing Up

FERA and FEMA shared the goal of enhancing foreign exchange administration, but FEMA’s more liberal approach aimed at fostering economic growth. Post-FEMA, India experienced a more flexible foreign exchange framework, contributing to defined objectives and economic growth.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
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