Foreign Exchange Management Act

The Foreign Exchange Management Act, 1999
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 2000
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". 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., replacing FERA, which had become incompatible with the pro-liberalisation 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.

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.

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.

FERA, in place since 1974, 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, as a result of. 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.

...
Wikipedia