Overview of FEMA
The Foreign Exchange Management Act (FEMA) is an Indian law that was introduced in 1999 to replace the Foreign Exchange Regulation Act (FERA). The main objective of FEMA is to regulate foreign exchange transactions in India and facilitate external trade and payments. The Reserve Bank of India (RBI) is the primary regulatory authority under FEMA.
Objectives of FEMA
- To facilitate external trade and payments
- To promote orderly development and maintenance of the foreign exchange market in India
- To regulate the foreign exchange transactions in India
- To conserve the foreign exchange reserves of the country
- To ensure proper utilization of foreign exchange resources
- To promote and maintain the stability and efficiency of the foreign exchange market in India
Provisions of FEMA
FEMA consists of 49 sections divided into 9 chapters.
- It regulates all types of foreign exchange transactions in India
- It defines the different types of foreign exchange transactions and the persons who can engage in them
- It lays down the rules and regulations for transactions involving foreign exchange, securities, and immovable property located outside India
- It provides for penalties and fines in case of contravention of the provisions of the Act
- It gives the Reserve Bank of India the power to impose restrictions on transactions related to foreign exchange
- It requires all transactions related to foreign exchange to be reported to the RBI
Importance of FEMA
FEMA is an important law that regulates all foreign exchange transactions in India. It helps in maintaining the stability and efficiency of the foreign exchange market and ensures that foreign exchange resources are properly utilized. It provides a framework for foreign exchange transactions and helps in promoting external trade and payments. The Act also lays down penalties and fines in case of non-compliance, which acts as a deterrent to individuals and entities who engage in illegal foreign exchange transactions.
Authorities under FEMA
- Authorized Persons: RBI can authorize entities such as banks and money changers to deal in foreign exchange transactions.
- Adjudicating Authority: RBI appoints an Adjudicating Authority to adjudicate penalties and confiscations under FEMA.
- Appellate Tribunal: A designated Appellate Tribunal hears appeals against the orders of the Adjudicating Authority.
Policies under FEMA
- Foreign Trade Policy: The Foreign Trade Policy is announced by the Ministry of Commerce and Industry and lays down guidelines for international trade in goods and services.
- Liberalized Remittance Scheme: This scheme allows individuals to remit up to a certain amount per financial year for permissible current or capital account transactions.
- Foreign Direct Investment (FDI) Policy: The FDI policy sets out guidelines and procedures for foreign investment in different sectors of the Indian economy.
- External Commercial Borrowings (ECB) Policy: This policy outlines the norms for raising of external commercial borrowings by Indian entities.
