Exchange Control By Acts

FERA Act (Foreign Exchange Regulation Act):

The first controlling measure was FERA(Foreign Exchange Regulation Act) was made by Government of India in 1947 to control and manage the Foreign exchange capital formation in India. This even facilitates the foreign countries to invest in India.

1. It Prohibited all the transactions in foreign exchange and with non residents (even in rupees), except in cases for which relations were made.

2. Further guidelines issued by the Government ensured that branches and subsidiaries of foreign companies have minimum equity participation on 26%.

3. Regulating certain payments, dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange and the import and export of currency, for the conservation of the foreign exchange resources of the country and the proper utilization thereof in the interests of the economic development of the country.

4. FERA Companies were released from the obligation of seeking permission from the RBI before raising working capital or accepting deposits. These companies could also use their trademarks in Inida and carryout any commercial activity.

5. Restrictions on assets held in India by Non-Resident Indian(NRIs) was removed.

FEMA Act (Foreign Exchange management Act):
FERA from its own existing form became, therefore, increasingly incompatible with the change in economic policy in the early 1990s. While the need for sustained development of foreign exchange was got aware very much, there was an outcry for a less aggressive and more matured leglaization, couched in milder language. Thus, the Foreign Exchange Management Act, 1999 (FEMA) came into being.

1. It replaced FERA in 2002.

2. The main reason was to relax control on foreign exchange is that India has made its currency, the Rupee, convertible on current account.

3. This was ti facilitate the external trade and payment and promote the gentle development of
the Foreign exchange market in India.

4. FEMA could be done only with persons authorized by RBI.

5. No person can acquire. hold , own, possess or transfer any foreign exchange, foreign security or immovable property outside India, except in cases where the Act provides for this.

6. Current account transactions are freely allowed, however in the public interest, the Central government, in reasonable resistance on current account transactions.

7. Foreign Exchange can be drwan for all current account transactions, except those are prohibited while on the capital account forex outflow only for transactions that are permitted.

8. Regulations will be framed by the RBI laying down the restrictions, and so on, that will govern the 10 types of capital transactions. Namely.,

i) Transfer of foreign securities

ii) Securities in India

iii) Borrowings and lending in foreign exchange/rupees

iv) Deposits between residents and non-residents, export/import/holding of currency or currency notes

v) Acquisition or transfer of immovable properties in India or outside India and giving of guarantee es and securities in respect of debts or obligations, etc, in India or outside India in the case of a resident or non-resident