Podcast
Questions and Answers
What was one of the primary reasons for the transition from FERA to FEMA?
What was one of the primary reasons for the transition from FERA to FEMA?
- FERA became ineffective and incompatible with changing economic policies. (correct)
- FEMA required more permissions for foreign transactions.
- FERA was too lenient in regulating foreign exchange.
- FERA promoted a more aggressive exchange control system.
In what year did FEMA come into effect?
In what year did FEMA come into effect?
- 2000
- 1974
- 1999 (correct)
- 1990
Which section of FEMA still requires obtaining permission from the Reserve Bank of India?
Which section of FEMA still requires obtaining permission from the Reserve Bank of India?
- Section 1
- Section 3 (correct)
- Section 5
- Section 4
What major shift does FEMA represent in the handling of foreign exchange regulations?
What major shift does FEMA represent in the handling of foreign exchange regulations?
What is primarily emphasized in the preamble of FEMA?
What is primarily emphasized in the preamble of FEMA?
How does FEMA change the way foreign exchange transactions are approached compared to FERA?
How does FEMA change the way foreign exchange transactions are approached compared to FERA?
What aspect of foreign exchange management does section 5 of FEMA address?
What aspect of foreign exchange management does section 5 of FEMA address?
What was a key characteristic of FERA that FEMA aimed to change?
What was a key characteristic of FERA that FEMA aimed to change?
Why was the need to remove restrictions on current account transactions created?
Why was the need to remove restrictions on current account transactions created?
What does the proviso in Section 5 allow the Central Government to do?
What does the proviso in Section 5 allow the Central Government to do?
What lesson was considered when adding the proviso for possible future restrictions?
What lesson was considered when adding the proviso for possible future restrictions?
How many sections are contained in FEMA compared to FERA?
How many sections are contained in FEMA compared to FERA?
What aspect of FERA has been addressed differently in FEMA?
What aspect of FERA has been addressed differently in FEMA?
What is a significant goal mentioned in the preamble to FEMA?
What is a significant goal mentioned in the preamble to FEMA?
How does FEMA compare to FERA in terms of operational sections?
How does FEMA compare to FERA in terms of operational sections?
What is indicated by the phrase 'real quality of liberalization' in the context of FEMA?
What is indicated by the phrase 'real quality of liberalization' in the context of FEMA?
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Study Notes
Transition from FERA to FEMA
- FERA (Foreign Exchange Regulation Act, 1973) became ineffective due to changes in India's economic policy in the early 1990s.
- The call for a less aggressive framework led to the establishment of FEMA (Foreign Exchange Management Act, 1999).
- FERA required significant reserve bank permissions for most transactions, making it cumbersome. FEMA streamlined this by removing most permission requirements.
- The focus shifted from "exchange control" in FERA to "exchange management" under FEMA.
Objectives of FEMA
- The preamble of FEMA aims to consolidate and amend foreign exchange laws to facilitate external trade and maintain a healthy foreign exchange market in India.
- Section 5 of FEMA eliminates restrictions on drawing foreign exchange for current account transactions, aligning with India’s Article VIII status obtained from the IMF in August 1994.
Provisions and Structure
- While FEMA promotes less restrictive current account transactions, it includes a provision allowing the Central Government to impose reasonable restrictions when necessary.
- Section 7 maintains controls specifically over exporters to protect interests during economic instabilities.
- FERA contained 81 sections, with the operational part involving 32 sections. FEMA simplifies this with only 49 sections, where 12 cover operational aspects.
Changes in Restrictions
- Restrictions on foreign currency or securities import previously under Section 13 of FERA are now included in a sub-clause 6(3)(g) of FEMA.
- The limitations on Indian residents holding immovable properties abroad from Section 25 of FERA are reflected in sub-clause 6(4) of FEMA.
- The reduction in sections indicates a potential shift towards a more liberal framework, but the true outcomes will depend on the final implementation details.
Historical Context and Learning
- The changes reflect lessons learned from economic crises, particularly from Southeast Asia during the 1997-98 financial turmoil.
- The intent behind these legislative changes stresses the importance of adapting to evolving global economic conditions and ensuring a more flexible regulatory environment.
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