fema
DESCRIPTION
FERA and FEMATRANSCRIPT
FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)
Managerial Economics
Mentor: Sangita DuttaGuptaLG: 05
Presented by:
Priyanka Datta Raunak Nag Pooja Sharma Sukanta Dey Akash Dutta Kamalika Paul Puspendu Maity Archana Singh Nivedita Prasad
Objective
A study of FERA and FEMA
FEMA : Is it an advantage for Indian economy??
Source: http://en.wikipedia.org/wiki/Foreign_Exchange_Regulation_Act
What is FERA?
Foreign Exchange Regulation Act (FERA) was introduced by the Indira Gandhi Government in the year 1973 and came in force with effect from Jan 1 in1974
Consisted of 81 sections FERA Emphasized strictly on exchange control Control everything that was specified, relating to
foreign exchange Law violators were treated as criminal offenders Aimed at minimizing dealings in foreign
exchange and foreign securities
OBJECTIVES
To regulate certain payments To regulate dealings in foreign exchange and
securities To regulate transactions, indirectly affecting
foreign exchange To regulate the import and export of currency To conserve precious foreign exchange The proper utilization of foreign exchange so
as to promote the economic development of the country
Source: http://en.wikipedia.org/wiki/Foreign_Exchange_Management_Act
What is FEMA?
Foreign Exchange Management Act (FEMA) enacted on 29th December 1999
An act to consolidate and amend the law relating to foreign exchange
Facilitating external trade and payments Promoting the orderly development and
maintenance of Foreign Exchange market in India
OBJECTIVES
Provision regarding dealing and holding in foreign exchange
To promote foreign payments and trade in the country
To encourage the orderly maintenance and development of the foreign exchange market in India
Switch from FERA to FEMA
FERA, in place since 1975, did not succeed in restricting activities such as the expansion of transnational corporations(TNCs)
The concessions made to FERA in 1991-1993 showed that FERA was on the verge of becoming redundant
After the amendment of FERA in 1993, it was decided that the act would become the FEMA.
This was done in order to relax the controls on foreign exchange in India, as a result of economic liberalization.
FEMA served to make transactions for external trade (exports and imports) easier
Transactions involving current account for external trade no longer required RBI’s permission
The deals in Foreign Exchange were to be ‘managed’ instead of ‘regulated’
Difference
The objective of FERA was to conserve forex and to prevent its misuse
Violation was Criminal Offence and was non compoundable
Definition of authorized person was narrow
The objective of FEMA is to facilitate external trade and payments and maintenance of forex market in India
Violation is a civil offence and is compoundable
Definition of authorized person is widened
FERA FEMA
Contd…
Citizenship was a criteria to determine the residential status of a person under FERA
Terms like Capital Account Transaction, current Account Transaction, person, service etc. were not defined in FERA
while stay of more than 182 days in India is the criteria to decide residential status under FEMA
Terms like Capital Account Transaction, current account Transaction person, service etc., have been defined in detail in FEMA
FERA FEMA
Implementation of FEMA
Based on sections: Section 2:-Authorized person to deal foreign exchange
an authorized dealer, and addresses the permissible exchange allowed for a business trip, for studies and medical treatment abroad, forex for foreign travel, the use of an international credit card, and remittance facility
Section 4:- Holding of foreign exchange, securities etc
Restrains any person resident in India from acquiring, holding or transferring any foreign exchange, security or any immovable property situated outside India except as specifically provided in the Act.
Contd…
Section 5:– deals with current account transactionAny person may sell or draw foreign exchange
to or from an authorized person if such sale or drawl is a current account transaction
Section 6: Deals with capital account transactionsThis section allows a person to draw or sell
foreign exchange from or to an authorized person for a capital account transaction.
Source: http://indianexpress.com/article/business/companies/flipkart-case-ed-finds-fema-violation-r1400-cr-fine-likely/
Case Study
The Enforcement Directorate has found online retail firm Flipkart in violation of FEMA provisions.
Enforcement Directorate (ED) is likely to send a show-cause notice alleging violation of Rs 1,400 crore under Foreign Exchange Management Act (FEMA), reports Indian express.
The agency has been looking into the activities of the e-commerce site since 2012 for possible violation of foreign investment rules.
A source from the ministry told the publication that the directorate now has prima facie evidence that the company flouted the country’s FDI rules.
India does not allow FDI in multi-retail e-commerce when selling to customers.
Flipkart sold its front end retail operations WS Retail to a group of investors led by former OnMobile COO Rajiv Kuchhal in February 2013 and had adopted marketplace model in April 2013.
Is FEMA moving towards the right direction ?
Conclusion
FEMA is more simple and consists of 49 sections
Increase in Foreign Exchange Reserve
Violation was civil offence and is compoundable
Has enhanced the development of MNCs in India