Difference Between FERA and FEMA

The transition from the Foreign Exchange Regulation Act (FERA) to the Foreign Exchange Management Act (FEMA) marked a significant shift in India’s foreign exchange regulations. Understanding the differences between these two pivotal acts is essential to grasp the evolution and changes in India’s financial and exchange control systems.

What is FERA?

FERA, the Foreign Exchange Regulation Act, was enacted in 1973 to regulate foreign exchange in India. It focused on managing and controlling foreign exchange and foreign payments. FERA aimed to prevent illegal foreign exchange transactions and impose stringent penalties for violations, maintaining strict controls over activities related to foreign exchange.

What is FEMA?

FEMA, the Foreign Exchange Management Act, came into effect in 1999, replacing FERA. FEMA was introduced to promote the facilitation and management of foreign exchange in India. The shift from FERA to FEMA marked a transition from a more stringent regulatory framework to a liberalised and more contemporary approach in managing foreign exchange.

Difference Between FERA and FEMA

Objective and Focus:

FERA primarily focused on regulating and controlling foreign exchange transactions with a stringent approach towards violations.
FEMA, on the other hand, aimed to simplify procedures and liberalise foreign exchange transactions, emphasising compliance and management rather than control.

Administrative Structure:

FERA operated under a rigid and control-centric administrative setup, requiring individuals and businesses to adhere to strict regulations.
FEMA brought about a more lenient and liberal administrative structure, focusing on promoting ease of transactions and compliance.

Penalties and Enforcement:

FERA imposed severe penalties and strict enforcement measures for violations, including imprisonment and hefty fines.
FEMA introduced a more lenient penalty structure and emphasised voluntary compliance rather than stringent punishment.

Scope and Coverage:

FERA had a limited scope, primarily dealing with foreign exchange transactions and payments.
FEMA expanded its scope, encompassing a broader range of external trade, payments, investments, and other related activities, promoting a more comprehensive and contemporary regulatory framework.

Adaptability and Global Integration:

FERA, due to its stringent nature, posed challenges for global integration and adaptability to changing economic scenarios.
FEMA, with its flexible approach, aimed at aligning India’s foreign exchange regulations with global standards, encouraging international trade and investment.

In conclusion, the shift from FERA to FEMA represented a significant change in India’s approach to managing foreign exchange regulations. While FERA was characterised by stringent controls and penalties, FEMA aimed at liberalising regulations, promoting compliance, and facilitating a more contemporary and adaptable framework for managing India’s foreign exchange.