The Foreign Exchange Regulation Act (FERA) was introduced by the Indian Parliament in 1973 and became effective from 1 January 1974. It was repealed in 1998 during the Vajpayee government’s tenure. Subsequently, the Foreign Exchange Management Act (FEMA) was enacted in 1999 and came into effect on 1 June 2000. FEMA now governs foreign exchange transactions in India. This article explains FEMA and FERA differences.
Difference Between FEMA and FERA
The key distinctions between FERA vs FEMA are outlined below:
| Foreign Exchange Regulation Act (FERA) | Foreign Exchange Management Act (FEMA) |
| The Foreign Exchange Regulation Act was enacted by the Indian Parliament in 1973. | The Indian Parliament enacted the Foreign Exchange Management Act on 29 December 1999, replacing FERA. |
| FERA became effective from 1 January 1974. | FEMA came into effect from June 2000. |
| The Vajpayee government repealed FERA in 1998. | FEMA replaced and succeeded FERA. |
| FERA consisted of 81 sections. | FEMA comprises 49 sections. |
| FERA was based on the view that foreign exchange was a limited resource. | FEMA was framed on the understanding that foreign exchange is an economic asset. |
| FERA primarily regulated foreign exchange payments. | FEMA aimed to facilitate foreign trade, external payments, and strengthen foreign exchange reserves. |
| The core objective of FERA was the conservation of foreign exchange. | The primary objective of FEMA is the management of foreign exchange. |
| The scope of the term “Authorised Person” was limited. | The scope of the term “Authorised Person” was expanded. |
| Banking institutions were excluded from the definition of Authorised Person. | Banking institutions were included within the definition of Authorised Person. |
| Violations under FERA were treated as criminal offences. | Violations under FEMA are treated as civil offences. |
| Individuals accused of FERA violations were not entitled to legal assistance. | Individuals accused of FEMA violations are entitled to legal representation. |
| There was no dedicated appellate tribunal; appeals were directly filed in High Courts. | FEMA provides for a Special Director (Appeals) and a dedicated Appellate Tribunal. |
| Direct punishment was prescribed for offences under FERA. | Under FEMA, penalties are monetary, with imprisonment only if fines remain unpaid beyond 90 days from conviction. |
| Prior approval from the Reserve Bank of India was mandatory for fund transfers related to external transactions. | Prior approval from the Reserve Bank of India is generally not required for external trade and remittances. |
| FERA did not include provisions related to information technology. | FEMA includes provisions related to information technology. |
What is FERA?
FERA (Foreign Exchange Regulation Act), introduced in 1973, was designed to regulate foreign exchange dealings and securities. Its goal was to conserve India’s foreign exchange resources and use them effectively for economic development. At a time of low forex reserves, FERA aimed to protect these reserves and manage foreign exchange operations efficiently with the following objectives:
- Regulate foreign exchange and securities dealings
- Control the import and export of currencies
- Manage transactions that indirectly impact foreign exchange
As a result, FERA enforced strict restrictions and regulations on a variety of forex-related transactions, including currency conversions, transfer of funds, overseas purchase of property, and dealings with non-residents. Under FERA, RBI was authorised to track and regulate these activities. Penalties for non-compliance included asset confiscation and imprisonment. This act was later abolished and replaced with FEMA as it was perceived to impede India’s economic liberalisation.
