FERA (Foreign Exchange Regulation Act) was enacted in 1973 to regulate foreign exchange transactions in India. However, it was replaced by FEMA (Foreign Exchange Management Act) in 1999, as FERA was deemed to be too strict and restrictive for foreign trade and investments.
The primary reason for shifting from FERA to FEMA was to liberalize and simplify foreign exchange transactions in India. FEMA provides a more flexible regulatory framework for foreign exchange transactions, and it seeks to encourage foreign investment and facilitate external trade and payments.
Under FERA, there were stringent regulations on foreign exchange transactions, and even small violations could lead to severe penalties and prosecution. This led to a lot of bureaucratic red tape and made it difficult for businesses to operate in India.
On the other hand, FEMA provides a more liberal and flexible framework for foreign exchange transactions. It seeks to promote foreign investment and facilitate external trade and payments by providing a simpler and more transparent regulatory framework.
FEMA has also enabled India to align its foreign exchange regulations with the global practices and comply with the international norms of the World Trade Organization (WTO).
