Foreign exchange management act, 1999 (fema): basic understa

FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (FEMA): BASIC UNDERSTANDING

INTRODUCTION

A system of exchange control was first time introduced through a series of rules under the Defense of India Act, 1939 on temporary basis. The foreign crises persisted for a long time and finally it got enacted in the statute under the title “Foreign Exchange Regulation Act, 1947”.  Subsequently, this act was replaced by the Foreign Exchange Regulation Act, 1973(FERA) which was came into force with effect from January 1, 1974 and regulating foreign exchange for more than 26 years under this Act.

In 1991 Government of India initiated the policy of economic liberalization. After this foreign investment  in many sector were permitted in India. In 1997, Tarapore committee  on Capital Account Convertibility, constituted by the Reserve Bank of India, recommended change in the legislative framework governing foreign exchange transactions. Accordingly, the Foreign Exchange  Regulation Act, 1973 was repealed and replaced by the new Foreign Exchange Management Act, 1999 (FEMA) with effect from June 01, 2000. Under FEMA the emphasis was on management of foreign exchange.  

APPLICABILITY OF FEMA

The Foreign Exchange Management Act, 1999 was enacted to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and for promoting the orderly development and maintenance of foreign exchange market in India. FEMA extends to the whole of India. The Act also applies to all branches, offices and agencies outside India owned or controlled by a person resident in India and also to any contravention committed there under outside India by any person to whom this Act is applies.

OVERALL STRUCTURE

The overall structure of Foreign Exchange Management Act, 1999is covered by legislations, rules and regulations. These legislations, rules and regulations relating to Foreign Exchange Management Act, 1999, can be divided in to the followings:

·          FEMA  contains 7 chapters divided into 49 sections (Supreme Legislation)

·         5 sets of Rules made by Ministry under section 46 of FEMA (Delegated legislations)

·         23 sets of Regulations made by RBI under section 47 of FEMA (Subordinate Legislations)

·         Master Circular issued by Reserve Bank of India every year

·         Foreign Direct  Investment (FDI) policy issued by Department of Industrial Policy and Promotion (DIPP) time to time.

·         Notifications and Circulars issued by Reserve Bank of India

·         Enforcement Directorate