Page 213 - DMGT401Business Environment

Business Environment

Notes 9. "Foreign security" means any security created or issued elsewhere than in India, and any
security the principal of or interest on which is payable in any foreign currency or elsewhere
than in India;
10. "Indian currency" means currency which is expressed or drawn in Indian rupees but does
not include special bank notes and special one-rupee notes issued under section 28A of the
Reserve Bank of India Act, 1934;

9.2 Foreign Exchange Management Act (FEMA)

The Foreign Exchange Management Act (FEMA), 1999, has been enacted as part of the ongoing
liberalisation process. The Act was implemented w.e.f. June 1, 2000.
Foreign exchange control was first introduced in September, 1939 under the Defense of India
Rules. The Foreign Exchange Regulation Act was introduced in 1947, which was replaced with
the Foreign Exchange Regulation Act in 1973 and in 2000 by FEMA.

9.2.1 Differences between FERA and FEMA

The object of the FEMA Bill is to consolidate and amend the law relating to foreign exchange,
with the objective of facilitating external trade and payment and for promoting the orderly
development and maintenance of the foreign exchange market in India. The primary differences
between FERA and FEMA are:
1. The object of FERA was to conserve foreign exchange and to prevent its misuse. The object
of FEMA is to facilitate external trade and payments and maintenance of foreign exchange
market in India.
2. Violation of FERA was a criminal offence whereas violation of FEMA is a civil offence.
3. Offences under FERA were not compoundable, while offences under FEMA are
compoundable.
4. Citizenship was a criteria to determine the residential status of a person under FERA,
while stay of more than 182 days in India is the criteria to decide residential status under
FEMA.
5. Provision in respect of Basic Travel Quota (BTQ) business travel export commission, gifts,
donation, etc., have been considerably enhanced in FEMA.
6. Almost all current account transactions are free, except a few.

9.2.2 Scope of FEMA

FEMA provides:
1. Free transactions on current account subject to reasonable restrictions that may be imposed.

2. RBI controls over capital account transactions.
3. Control over realization of export proceeds.
4. Dealing in foreign exchange through authorized persons like authorized dealer/money
changer/off shore banking unit.
5. Adjudication of Offences.
6. Appeal provision including Special Director (Appeals) and Appellate Tribunal.

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