Difference between FERA and FEMA

Following the independence process, the Indian Parliament passed a number of regulation acts to bring all the different industries into line. One of the most important areas that required the government's immediate action was the Foreign Exchange System. To effectively and efficiently simplify the procedure throughput the nation, the Foreign Exchange Regulation Act of 1973 was enforced and brough into action.

For an array of reasons, the Foreign Exchange Regulation Act was bought into action in the year 1999.

What is Foreign Exchange Regulation Act (FERA)?

In the year 1973, the FERA laid down certain rules and regulations that was however intended to mostly regulate the investment as well as foreign exchange in the country of India. India saw rapid industrialization after gaining independence, which attracted more international capital. To address this, the Parliament of India approved the FERA.

The following are a few of FERA's main goals:

• to control transactions involving securities and foreign exchange
• to control the import and export of bullions and currencies
• to control the hiring procedure of the foreign workers.
• to control the purchasing and ownership of real estate in India by foreign nationals.
• to control the transactions that have an indirect impact on foreign exchanges.

FERA and FEMA: Difference

• FEMA is focused on facilitating external commerce and payments and fostering the orderly growth of the forex market, whereas FERA was designed to provide strict, regulatory, and prohibitive control over foreign exchange.
• While scope of FEMA is narrow, liberalizing many areas as well as easing limitations, FERA has a greater scope and also significant regulations on all of the operations in connection with foreign exchange.
• FEMA is considered a civil law, and the punishments are considered civil offenses, whereas FERA is considered as criminal law, and non-compliance was punished as criminal offenses.
• Under FEMA, the enforcement role is more balanced and compliance is prioritized above punishment whereas the Reserve Bank of India and the Enforcement Directorate had broad authority under FERA.
• FEMA introduces simplified procedures and is more in accordance with international norms and World Trade Organization principles than FERA, which required onerous legal procedures as well as bureaucratic red tape.

Foreign Exchange Regulation Act (FERA): Achievements

• Decrease in foreign companies’ stock holdings and growth of their business in India: The sole benefit of this decade law was that it stopped many corporations from making millions of dollars in profits. In fact, it encouraged them to diversify into other industries. Exports were increasing.
• Control of Foreign Exchange: Given that the RBI only intended to boost foreign participation in the FERA when it was combined with high technology, exports, etc. Prior to FERA, foreign firm investments in India were not regulated by law. everyone to maintain authority over the particular business dealings with Indian companies.

What is Foreign Exchange Management Act (FEMA)?

In the 1997-1998 budget, the Vajpayee government planned to replace the FERA Act with the Foreign Exchange Management Act (FEMA), which became operative on 1st June 2001. Under the FEMA, the forex rules and regulations in India were mostly liberalized as well as it was made simpler to improve foreign capital flow.

Some of the following FEMA's main goals are:

• In order to encourage the orderly expansion and maintenance of the Indian foreign exchange market, as well as to enable international trade and payments, the Foreign Exchange Management Act (1999) was formed. 
• FEMA covers the entire country of India. 
• All branches, offices, and agencies that an Indian resident outside of India owns or controls are also covered by the Act.

Disadvantages of FERA

FERA's collapse was caused by a number of factors, but analysts largely viewed it as a harsh law because of its anti-foreign investment policies and non-liberalization objectives.

• The FERA Act of 1973 disregarded and skipped over a number of infractions, the majority of which were crimes with mens rea as a primary feature. The Act gave the ED the authority to make arrests even in the absence of a warrant.
• The Government introduced the LPG Policy in 1991. The acronym LPG represents globalization, privatization, and liberalization. where India's influx of foreign exchange rose. Because the previous Act's goal was to govern foreign currency, it imposed numerous restrictions on the flow of foreign exchange and foreign investment.
• Foreign exchange management replaced the original concept of foreign exchange conservation.
• The focus changed to strengthening India's foreign exchange markets and facilitating trade and payments as a result of the growing inflow of foreign investments.

Why FEMA replaced FERA?

• The RBI's consent or previous approval is required for most regulations under the FERA framework. The RBI periodically sent notifications granting generic permissions. Certain people applied for special permits, and those people received them whereas the RBI's approval was lowered for FEMA, with the exception of Section 3, which dealt with foreign exchange. However, previous RBI approval was not necessary for the majority of requirements.
• The idea of exchange control is included in FERA, where exchange management is a concept that FEMA has.
• Facilitating external commerce and payments as well as supporting the growth and upkeep of India's foreign exchange market are the goals of the Act under the Foreign Exchange Management Act whereas the RBI has granted its permission for current account transactions under Section 5 of the FEMA. In this context, "external trade" refers to the import and export of goods and services, and remittances involving external commerce are not subject to RBI approval.

Essential Features of FEMA

• It includes provisions for capital account transaction liberalization and current account convertibility.
• It outlines the areas in which the government and RBI require prior consent before purchasing or retaining foreign exchange.
• Separating foreign exchange operations into capital and current categories
• Citizens of India who reside outside of India are not covered by FEMA.
• It grants the resident of India who was previously a resident of another country full authority over immovable property and foreign investments.
• Since it is a civil law, breaking the law may, in certain circumstances, result in arrest.

Conclusion

The government's first attempt to boost foreign exchange and transactions was the FERA, albeit with some limitations. FERA has been replaced with FEMA since the Act was unable to withstand the post-liberalization policies. The criminal offenses under FERA were converted to civil offenses under FEMA.

The goal of both FERA and FEMA was to improve foreign exchange administration as a whole. To the benefit of the economy as a whole, the former was substituted because it was far stricter than the latter. India has enjoyed a permissive framework for foreign exchange since the FEMA. The act has aided in defining the precise goal and achieving the desired economic growth.