FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)
With the Globalization and consequent liberalization of the External Sector of the economy, the need was felt to enact a law in the place of the then existing FERA law, which would facilitate the smooth transaction of development. The Foreign Exchange Management Act 1999 was first introduced in the form of a Bill in the Parliament on 27th July 1998 to replace the existing FERA. However, on account of dissolution of the parliament, the same was reintroduced in 1999 and got presidential assent on 29.12.99 and was notified in the official Gazette to be effected from 01.06.2000.
The object of the law was to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. The Act seeks to ‘manage’ foreign exchange rather than ‘restrict’ dealings in foreign exchange and ‘facilitate foreign trade’. This paradigm shift is visible, due to some of the developments which have taken place since 1993, such as increase in our foreign exchange reserves, growth in foreign trade, rationalization of tariffs, demolition of obnoxious trade barriers and tariff walls, partial current account convertibility, liberalization of Indian investments abroad, increased access to external commercial borrowings by Indian corporate bodies and participation of foreign institutional investors in our stock markets. Apart from the above objective, the Act also seeks to promote the orderly development and maintenance of foreign exchange market in India.
The FEMA act aims to ‘Manage’ foreign exchange rather than to ‘restrict’ or ‘regulate’ foreign Exchange under FERA, seeks to facilitate external trade and payments promote orderly development and maintenance of the forex market in India.
FEMA has only 49 sections as against 81 sections, which were there in the FERA, when it was first enacted....