Difference Between FERA and FEMA - Everything You Must Know

13 October 2023
3 min read
Difference Between FERA and FEMA - Everything You Must Know
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Post freedom movement and independence, the Indian Parliament introduced several regulation acts to synchronise all the various sectors. The Foreign Exchange System was one of the critical areas that needed vital attention from the government. To streamline the same in the country, the Foreign Exchange Regulation Act, 1973 was introduced.

But in 1999, the Foreign Exchange Regulation Act was replaced by the Foreign Exchange Management Act due to certain reasons.

Let’s dive into the debate of FERA vs FEMA here in this blog and understand how the two differ and contribute to the Indian ecosystem.

What is FERA?

FERA full form stands for Foreign Exchange Regulation Act. It was introduced with the intent to facilitate and simplify the foreign exchange system in India.

The regulatory act aimed to control foreign exchange dealings and conserve foreign exchange in the country. FERA consisted of 81 sections with primary objectives-

  • To regulate foreign exchange and securities dealings
  • To control imports and exports of currencies
  • To manage such transactions that shed indirect impact on foreign exchange

This act was later abolished and replaced by FEMA since its rigid regulations were hindering India's economic growth.

What is FEMA?

The FEMA full form stands for Foreign Exchange Management Act. It replaced FERA in 1999 to strengthen India’s foreign exchange structure and administration.

With its 49 sections, FEMA-

  • Formed organised management of the foreign exchange in India
  • Built transparent guidelines and regulations to govern the foreign exchange market
  • Facilitated external trade and payments with a clear approach
  • Introduced a precise legal structure to oversee the legal proceedings

Now that you know about the two acts, let’s dive into the major points of the difference between FERA and FEMA.

Difference Between FERA and FEMA

Below listed are the significant points highlighting the FERA and FEMA differences-

Particulars

Foreign Exchange Regulation Act (FERA)

Foreign Exchange Management Act (FEMA)

Year of Enactment

FERA was passed in the Parliament in 1973. It came into force on 1 January 1974.

FEMA was passed in the year 1999. It came into force on 1st June 2000.

No. of Sections

The Foreign Exchange Regulation Act consisted of 81 Sections.

The Foreign Exchange Management Act consists of 49 sections.

Objective

FERA intended to regulate foreign payments and conserve forex transactions.

FEMA focuses on enhancing India's foreign exchange reserves and emphasises the promotion of foreign payments and trade.

Approach to Regulations

It imposed conservative and many restrictive regulations that hampered economic growth.

FEMA has flexible regulations and is much more liberal.

Residential Status

In this act, the residential status of an individual was determined by their stay in India for a span of 6 months.

In this act, the span of stay in India to identify the residential status is 182 days.

Violation

Violations of FERA were regarded as criminal offences.

Violations of FEMA are regarded as civil offences.

Result of Violation

A violation of FERA’s provisions resulted in imprisonment.

A violation of FEMA’s provisions ordinarily results in a monetary penalty. However, if the penalty is not paid within a span of 90 days, it may result in imprisonment.

Also Read, Factors Influencing Foreign Exchange Rates

Summing Up FEMA vs FERA

FERA and FEMA both focused on enhancing the overall foreign exchange administration. However, the former was way more stringent than the latter and hence was replaced for the betterment of the economy as a whole.

Post FEMA, India has had a liberal foreign exchange framework. The act has helped define the clear objective and accomplish the aspired economic growth.

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