Difference Between FERA and FEMA
Foreign Exchange Management Act, 1999 (FEMA) emerged as a replacement or say an
improvement over the old Foreign Exchange Regulation Act, 1973 (FERA). Foreign investors,
frequently hear the terms FERA and FEMA, when they deal with India. As their name specifies,
FERA lays emphasis on the regulation of currencies, whereas the FEMA manages foreign
exchange, i.e. forex.
The first and foremost difference between FERA and FEMA is that the former requires previous
approval of Reserve Bank of India (RBI), whereas the latter does not require RBI’s approval,
except when the transaction is related to foreign exchange. Check out this article to know more
differences between the two acts.
Content: FERA Vs FEMA
1. Comparison Chart
2. About
3. Key Differences
4. Conclusion
Comparison Chart
Basis for
FERA FEMA
Comparison
FEMA an act initiated to facilitate external
An act promulgated, to regulate
trade and payments and to promote orderly
Meaning payments and foreign exchange
management of the forex market in the
in India, is FERA.
country.
Enactment Old New
Number of sections 81 49
Foreign exchange reserves
Introduced when Foreign exchange position was satisfactory.
were low.
Approach towards
Rigid Flexible
forex transactions
Basis for
determining Citizenship More than 6 months stay in India
residential status
Violation Criminal offence Civil offence
Punishment for Fine or imprisonment (if fine not paid in the
Imprisonment
contravention stipulated time)
About FERA
Foreign Exchange Regulation Act, shortly known as FERA, was introduced in the year 1973.
The act came into force, to regulate foreign payments, securities, currency import and export and
purchase of fixed assets by foreigners. The act was promulgated in India when the position of
foreign reserves wasn’t satisfactory. It aimed at conserving foreign exchange and its optimum
utilisation in the development of the economy.
The act applies to the whole country. Therefore, all the citizens of the country, inside or outside
India are covered under this act. The act extends to branches and agencies of the Indian
multinationals operating outside the country, which is owned or controlled by the person who is
the resident of India.
About FEMA
FEMA expands to Foreign Exchange Management Act, which was promulgated in the year
1999, to repeal and replace the earlier act. The act applies to the whole country and to all the
branches and agencies of the body corporate operating outside India, whose owner or controller
is an Indian resident and also any violation committed by the person covered under the Act,
outside India.
The main objective of the act is to facilitate foreign trade and to encourage systematic
development and maintenance of forex market in the country. There are total seven chapters
contained in the act which are divided into 49 sections, out of which 12 sections deal with the
operational part while the remaining 37 sections cover penalties, contravention, appeals,
adjudication and so on.
Key Differences Between FERA and FEMA
The primary differences between FERA and FEMA are explained in the following points:
1. FERA is an act which is enacted to regulate payments and foreign exchange in India, is
FERA. FEMA an act initiated to facilitate external trade and payments and to promote
orderly management of the forex market in the country.
2. FEMA came out as an extension of the earlier foreign exchange act FERA.
3. FERA is lengthier than FEMA, regarding sections.
4. FERA came into force when the foreign exchange reserve position in the country wasn’t
good while at the time of introduction of FEMA, the forex reserve position was
satisfactory.
5. The approach of FERA, towards forex transaction, is quite conservative and restrictive,
but in the case of FEMA, the approach is flexible.
6. Violation of FERA is a non-compoundable offence in the eyes of law. In contrast
violation of FEMA is a compoundable offence and the charges can be removed.
7. Citizenship of a person is the basis for determining residential status of a person in
FERA, whereas in FEMA the person’s stay in India should not be less than six months.
8. Contravening the provision of FERA may result in imprisonment. Conversely, the
punishment for violating the provisions of FEMA is a monetary penalty, which may turn
into imprisonment if the fine is not paid on time.
Conclusion
The economic policy of liberalisation was first time introduced in India in the year 1991 that
opened gates for foreign investment in many sectors. In the year 1997, the Tarapore Committee
recommended changes in the present legislation that regulate foreign exchange in the country.
