Foreign Exchange Management Act (FEMA):
- FEMA (1999) has been introduced as a replacement for earlier FERA (Foreign Exchange Regulatory Act). It came into effect on 1st June 2000.
- RBI has given the responsibility to implement it
- The amendments to the FEMA are advised by RBI through circulars namely AP (DIR)
- FEMA aims the managing the foreign exchange resources for the economic development of the country.
- FERA was more on regulation whereas of FEMA on monitoring
- Under FERA everything was prohibited unless specifically permitted.
- Under FEMA everything is permitted except what is prohibited.
- FEMA contains only 49 sections whereas FERA contained 81 sections.
- FEMA authorizes following categories of Banks, Financial Institutions, & Other organizations to deal in foreign exchange.
- No individual / organization is allowed to deal in foreign exchange unless it holds a valid license to do so under FEMA.
These authorized persons are classified into 4 categories, as under
It compromises of all the commercial banks & other banks. All the current and capital account transactions, according to RBI directions.
It compromises of upgraded FFMC’s (Full fledge Money Changers), Cooperative Bank, RRB’s (Regional Rural Bank) & Others. e.g. student paying fees for foreign education, foreginer paying in foreign exchange for the servie provided.
It compromises of selected financial & other institutions. Transaction incidental to the foreign exchange activites undertaken by these institution. e.g. Traveler cheques / DD
It compromises of Dept of Post, Urban Cooperative Bank & Other FFMC’s. e.g. Money changer shops under Airport