Difference between FERA and FEMA Last Updated : 23 Jul, 2025 Comments Improve Suggest changes Like Article Like Report FERA and FEMA are two sets of rules for managing money coming in and going out of a country. FERA started in 1973, was all about strict control over foreign money to protect India's savings. Then, in 1999, FEMA came along, making things simpler and more open. Understanding the differences between FERA and FEMA is like peeking into how India's economy changed over time to connect more with the rest of the world. What is FERA?FERA stands for the Foreign Exchange Regulation Act. It was an Indian law that regulated foreign exchange and payments in the country. FERA was enacted in 1973 to control certain aspects of foreign trade and payments and to conserve the foreign exchange reserves of India. FERA was primarily aimed at regulating foreign exchange transactions. It controlled the flow of foreign currency in and out of India, as well as the holding of foreign currency by residents. Key Characteristics of FERA: Stringent Controls: FERA imposed stringent controls and regulations on various aspects of foreign exchange dealings, including transactions, investments, and remittances.Enforcement Mechanisms: FERA empowered authorities to enforce its regulations through measures such as inspections, investigations, and penalties for non-compliance. Violators could face severe penalties, including fines and imprisonment.Conservation of Foreign Exchange Reserves: One of the main objectives of FERA was to conserve India's foreign exchange reserves and prevent their depletion. It aimed to achieve this by regulating foreign exchange transactions and preventing activities that could lead to excessive outflows of foreign currency.What is FEMA?FEMA stands for the Foreign Exchange Management Act. It is an Indian law enacted in 1999 to regulate foreign exchange and payments in the country. FEMA replaced the Foreign Exchange Regulation Act (FERA), which was seen as outdated and overly restrictive in the context of India's liberalizing economy. FEMA aimed to liberalize and simplify foreign exchange regulations to promote foreign investment, facilitate trade, and encourage economic growth. Key Characteristics of FEMA: Current Account Transactions: FEMA categorized foreign exchange transactions into current account transactions and capital account transactions. Current account transactions, such as trade-related payments, were made more accessible and subject to fewer restrictions.Capital Account Transactions: Capital account transactions, including investments and loans, were also liberalized under FEMA. It allowed for greater flexibility in foreign investment, both inbound and outbound.Authorized Dealers: FEMA established a system of authorized dealers, such as banks and financial institutions, to facilitate foreign exchange transactions and ensure compliance with regulations.Difference between FERA and FEMABasis FERA FEMA Objective Focused on strict regulation and control of foreign exchange transactions, aimed at conserving foreign exchange reserves and preventing their depletion. Aimed at liberalizing and simplifying foreign exchange regulations to promote foreign investment, facilitate trade, and encourage economic growth. Date of Enactment Enacted in 1973. Enacted in 1999, repealing FERA. Approach Adopted a restrictive and controlling approach to foreign exchange management, requiring government approval for many transactions. Adopted a liberal and market-oriented approach, emphasizing simplification of regulations and promoting ease of doing business. Categories of Transactions Did not distinguish between current account transactions and capital account transactions. Categorized foreign exchange transactions into current account transactions (trade-related payments) and capital account transactions (investments and loans), subjecting them to different regulatory frameworks. Authorized Dealers Did not have a formal system of authorized dealers for foreign exchange transactions. Established a system of authorized dealers, such as banks and financial institutions, to facilitate foreign exchange transactions and ensure compliance with regulations. Penalties Imposed stringent penalties, including fines and imprisonment, for violations of its provisions. Imposes penalties for non-compliance but generally has less severe penalties compared to FERA. Flexibility Offered limited flexibility in foreign exchange transactions, with many transactions requiring prior approval from government authorities. Introduced greater flexibility in foreign exchange transactions, allowing for more streamlined procedures and fewer restrictions, especially in current account transactions. ConclusionThe shift from FERA to FEMA signifies a transformation in India's foreign exchange regime, from a restrictive to a more liberal and market-friendly framework. While FERA served its purpose in a different economic context, FEMA's emphasis on simplification and liberalization has been instrumental in promoting foreign investment and facilitating trade, contributing to India's economic development and global integration. Comment More infoAdvertise with us Next Article Investment Basics : Works, Types & Examples S sadhana_0802 Follow Improve Article Tags : Finance Commerce - Difference Between Similar Reads Finance The specialised study of how an individual or a company manages its funds is known as Finance. It refers to the money required for carrying out business activities. 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