Foreign Exchange Management Act

The Foreign Exchange Management Act, 1999
Foreign Exchange Management Act
An Act 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.
Citation Act No. 42 of 1999
Enacted by Parliament of India
Date enacted 29 December 1999
Repealing legislation
Foreign Exchange Regulation Act
Status: In force

The (Foreign Exchange Management Act, 1999) (FEMA) is an Act of the Parliament of India "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".[1] It was passed in the winter session of Parliament in 1999, replacing the Foreign Exchange Regulation Act (FERA). This act makes offences related to foreign exchange civil offenses. It extends to the whole of India.,[2] replacing FERA, which had become incompatible with the pro- liberalization policies of the Government of India. It enabled a new foreign exchange management regime consistent with the emerging framework of the World Trade Organisation (WTO). It also paved the way for the introduction of the Prevention of Money Laundering Act, 2002, which came into effect from 1 July 2005.

Description

Unlike other laws where everything is permitted unless specifically prohibited, under the Foreign Exchange Regulation Act (FERA) of 1973 (predecessor to FEMA) everything was prohibited unless specifically permitted. Hence the tenor and tone of the Act was very drastic. It required imprisonment even for minor offences. Under FERA, a person was presumed guilty unless he proved himself innocent, whereas under other laws a person is presumed innocent unless he is proven guilty.[3]

FEMA is a regulatory mechanism that enables the Reserve Bank of India to pass regulations and the Central Government to pass rules relating to foreign exchange in tune with the Foreign Trade policy of India.

History

Foreign Exchange Regulation Act

Foreign Exchange Regulation Act
Status: Repealed

The Foreign Exchange Regulation Act (FERA) was legislation passed in India in 1973[4] that imposed strict regulations on certain kinds of payments, the dealings in foreign exchange (forex)and securities and the transactions which had an indirect impact on the foreign exchange and the import and export of currency.[5] The bill was formulated with the aim of regulating payments and foreign exchange.[5][6]

FERA came into force with effect from January 1, 1974.[7]

FERA was introduced at a time when foreign exchange (Forex) reserves of the country were low, Forex being a scarce commodity. FERA therefore proceeded on the presumption that all foreign exchange earned by Indian residents rightfully belonged to the Government of India and had to be collected and surrendered to the Reserve Bank of India (RBI). FERA primarily prohibited all transactions not permitted by RBI.[8]

Coca-Cola was India's leading soft drink until 1977 when it left India after a new government ordered the company to turn over its secret formula for Coca-Cola and dilute its stake in its Indian unit as required by the Foreign Exchange Regulation Act (FERA). In 1993, the company (along with PepsiCo) returned after the introduction of India's Liberalization policy.[9]

Switch from FERA

FERA did not succeed in restricting activities such as the expansion of Multinational Corporations. 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.


FERA was repealed in 1998 by the government of Atal Bihari Vajpayee and replaced by the Foreign Exchange Management Act, which liberalised foreign exchange controls and restrictions on foreign investment.[10][11][12]

The buying and selling of foreign currency and other debt instruments by businesses, individuals and governments happens in the foreign exchange market. Apart from being very competitive, this market is also the largest and most liquid market in the world as well as in India.It constantly undergoes changes and innovations, which can either be beneficial to a country or expose them to greater risks. The management of foreign exchange market becomes necessary in order to mitigate and avoid the risks. Central banks would work towards an orderly functioning of the transactions which can also develop their foreign exchange market. Foreign Exchange Market Whether under FERA or FEMA’s control, the need for the management of foreign exchange is important. It is necessary to keep adequate amount of foreign exchange from Import Substitution to Export Promotion.

FEMA served to make transactions for external trade and 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’. The switch to FEMA shows the change on the part of the government in terms of for the capital.[13]

Main Features

  • Activities such as payments made to any person outside India or receipts from them, along with the deals in foreign exchange and foreign security is restricted. It is FEMA that gives the central government the power to impose the restrictions.
  • Without general or specific permission of the MA restricts the transactions involving foreign exchange or foreign security and payments from outside the country to India – the transactions should be made only through an authorised person.
  • Deals in foreign exchange under the current account by an authorised person can be restricted by the Central Government, based on public interest generally.
  • Although selling or drawing of foreign exchange is done through an authorized person, the RBI is empowered by this Act to subject the capital account transactions to a number of restrictions.
  • Residents of India will be permitted to carry out transactions in foreign exchange, foreign security or to own or hold immovable property abroad if the currency, security or property was owned or acquired when he/she was living outside India, or when it was inherited by him/her from someone living outside India.


The rapid concentration of hundreds of millions of people in urban areas has placed an extraordinary strain on the government to meet their citizen’s basic needs. Many governments are finding that their existing water, sanitation and energy infrastructures are unable to service their rapidly expanding populations. Through PPPs the advantages of the private sector – innovation, access to finance, knowledge of technologies, managerial efficiency, and entrepreneurial spirit are combined with the social responsibility, environmental awareness and local knowledge of the public sector in an effort to solve the urban problems.

We will address the absence of PPP from National Economic policy 2006. We will also analyse various PPP programs like Swachh Bharat Abhiyaan, Ganga Action Plan and Timarpur Okhla Integrated municipal waste management programme. In addition we will do a comparative study of the PPP model in India vis-à-vis USA, and finally address the challenges to PPP.

Plain packaging would standardize the appearance of cigarette packages by requiring the removal of all brand imagery, including corporate logos and trademarks. Packages would display a standard background color and manufacturers would be permitted to print only the brand name in a mandated size, font and position. Other government-mandated information, such as health warnings, would remain.

Plain packaging was implemented in Australia in 2012, and in France and the United Kingdom in 2016, and has been adopted in Ireland (awaiting commencement date). Plain packaging is under formal consideration in Norway, Hungary, Slovenia, Sweden, Finland, Canada, New Zealand, Singapore, Belgium, and South Africa.

Trade and environment" is a hot topic in political circles. The issue loomed large in the North American Free Trade Agreement (NAFTA) debate. It also emerged as a concern in efforts to bring the Uruguay Round of global trade negotiations under the General Agreement on Tariffs and Trade (GATT) to an end. It has become a central focus of discussions aimed at setting a course for future multilateral trade talks. And it is the source of numerous bilateral tensions as the United States squabbles with Norway over whaling, China and Taiwan over tiger bones and rhinoceros horns, Mexico over tuna fishing and dolphin deaths, Japan over protection of endangered sea turtles, and Brazil over rain forest preservation. It represents, furthermore, a key issue in environmental policy debates from climate change to hazardous waste exports to ozone layer depletion, as well as a central element of efforts to promote ”sustainable development” and to advance the policy agenda approved at the 1992 Earth Summit. Unfortunately, trade and environment policy encompasses not a single issue but a multiplicity of related (and unrelated) concerns that have been bundled under the "trade and environment” rubric. The debate over the NAFI'A alone raised a number of trade related environmental concerns, including: fears that expanded trade would result in pollution spillovers into the United States from increased industrial activity in Mexico; lower US environmental standards and a loss of US sovereignty as laws and regulations were "harmonized” at compromise or baseline levels; limitations on the ability of the United States to use trade measures in support of international environmental agreements; and market place disadvantages for US facilities competing against plants located in pollution haven- Mexico- resulting in job losses o downward pressure on US environmental standards. The battle lines between trade and environmental policymakers need not become entrenched. Both camps defend principles that foster long-term security and prosperity, deter irresponsible shifting of costs to other nations or generations and face a constant threat of erosion from special interests. Much of the discussion to date has focused on possible legal refinements to the GATT to build environmental sensitivity into the international trading system.

Regulations/Rules under FEMA

  • Foreign Exchange Management (Current Account Transactions) Rule, 2000
  • Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000
  • Foreign Exchange Management (Transfer or Issue of any Foreign Security) regulations, 2004
  • Foreign Exchange Management (Foreign currency accounts by a person resident in India)Regulations, 2000
  • Foreign Exchange Management (Acquisition and transfer of immovable property in India) regulations, 2000
  • Foreign Exchange Management (Establishment in India of branch or office or other place of business) regulations, 2000
  • Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000
  • Foreign Exchange Management (Export of Goods and Services) regulations, 2000
  • Foreign Exchange Management (Realisation, repatriation and surrender of Foreign Exchange)regulations, 2000
  • Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2000
  • Foreign Exchange ( Adjudication Procedure and Appeals) rules,

Foreign Contribution (regulation) Act, 2010

FCRA, 2010 has been enacted by the Parliament to consolidate the law to regulate the acceptance and utilization of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilization of foreign contribution or foreign hospitality for any activities detrimental to national interest and for matters connected therewith or incidental thereto.[14]

Applicability

As per Section 1(2) of FCRA, 2010, the provisions of the act applies to:

  • Whole of India
  • Citizens of India outside India; and
  • Associate Branches or subsidiaries, outside India, of companies or bodies corporate, registered or incorporated in India

Acts/rules/guidelines which regulate the flow of foreign contribution to India

The flow of foreign contribution to India is regulated under

  • Foreign Contribution (Regulation) Act, 2010,
  • Foreign Contribution (Regulation) Rules, 2011
  • And other notification / orders etc., issued there under from time to time.
  • FCRA, 1976 repealed after coming of FCRA, 2010


What is foreign contribution?

As per Section 2(1)(h) of FCRA, 2010, "foreign contribution" means the donation, delivery or transfer made by any foreign source, ─

(i)of any article, not being an article given to a person* as a gift for his personal use, if the market value, in India, of such article, on the date of such gift is not more than such sum as may be specified from time to time by the Central Government by rules made by it in this behalf. (This sum has been specified as Rs. 25,000/- currently);

(ii)of any currency, whether Indian or foreign;

(iii)of any security as defined in clause (h) of section 2 of the securities Contracts(Regulation) Act, 1956 and includes any foreign security as defined in clause (o) of Section 2 of the Foreign Exchange Management Act, 1999.

Explanation 1 – A donation, delivery or transfer or any article, currency or foreign security referred to in this clause by any person who has received it form any foreign source, either directly or through one or more persons, shall also be deemed to be foreign contribution with the meaning of this clause.

Explanation 2 ‒ The interest accrued on the foreign contribution deposited in any bank referred to in sub-section (1) of Section 17 or any other income derived from the foreign contribution or interest thereon shall also be deemed to be foreign contribution within the meaning of this clause.

Explanation 3 ‒ Any amount received, by a person from any foreign source outside India, by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce whether within India or outside India or any contribution received from an agent or a foreign source towards such fee or cost shall be excluded from the definition of foreign contribution within the meaning of this clause.

* In terms of FCRA, 2010 "person" includes ‒

  • (i) an individual;
  • (ii) a Hindu undivided family;
  • (iii) an association;
  • (iv) ) a company registered under section 25 of the Companies Act, 1956 (now Section 8 of Companies Act, 2013).

See also

References

Notes

  1. ↑ "THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999" (PDF).
  2. ↑ "FEMA, 1999". Dept of Revenue, Govt of India. Archived from the original (PDF) on 9 September 2012. Retrieved 9 September 2012.
  3. ↑ AC Fernando (2011). Business Environment. Pearson Education. p. 427. ISBN 9788131731581.
  4. ↑ "Foreign Exchange Regulation Act 1999 (FERA) - General Knowledge Today". www.gktoday.in. Retrieved 2016-04-01.
  5. 1 2 http://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=377
  6. ↑ "The Foreign Exchange Regulation Act, 1973". indiankanoon.org. Retrieved 2016-04-01.
  7. ↑ "The Foreign Exchange Regulation Acts (FERA) | Government Acts (Alphabetically) | Central Govt. Acts (in alphabetical order) | www.karmayog.org". www.karmayog.org. Retrieved 2016-04-01.
  8. ↑ "FERA". www.moneycontrol.com. Retrieved 2016-04-03.
  9. ↑ "FERA: The end of an era", India Today, 5 October 2013
  10. ↑ "The Crucial difference", The Economic Times, 27 November 2005
  11. ↑ "FERA: Businessman's POTA", India Today, 18 August 2003
  12. ↑ "The Crucial difference". timesofindia-economictimes. Retrieved 2016-04-01.
  13. ↑ "Main Features of the Foreign Exchange Management Act (FEMA)". YourArticleLibrary.com: The Next Generation Library. Retrieved 2016-04-03.
  14. ↑ "FCRA". fcraonline.nic.in. Retrieved 2017-04-20.
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