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Introduction:
An Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
- The Foreign Exchange Management Bill (FEMA) was introduced by the Government of India in Parliament on August 4, 1998.
- The Bill aims “to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
- Among the various objectives of the Foreign Exchange Management Act (FEMA), an important one is to revise and unite all the laws that relate to foreign exchange.
- Further FEMA targets to promote foreign payments and trade in the country. Another important motive of the Foreign Exchange Management Act (FEMA) is to encourage the maintenance and improvement of the foreign exchange market in India.
India’s foreign investment regulations:
- India regulates foreign investments primarily through FEMA. The preamble to FEMA clearly provides two specific macro-prudential objectives — facilitating external trade and payments; and promoting orderly development and maintenance of foreign exchange markets in India.
- Accordingly, it empowers the central government and the RBI, acting in consultation with each other, to regulate capital account transactions. These regulations determine who can invest through the FDI route, in which sector and how much.
- It gives powers to the Central Government to regulate the flow of payments to and from a person situated outside the country.
- All financial transactions concerning foreign securities or exchange cannot be carried out without the approval of FEMA. All transactions must be carried out through “Authorised Persons.”
- In the general interest of the public, the Government of India can restrict an authorized individual from carrying out foreign exchange deals within the current account.
- Empowers RBI to place restrictions on transactions from capital Account even if it is carried out via an authorized individual.
- As per this act, Indians residing in India, have the permission to conduct a foreign exchange, foreign security transactions or the right to hold or own immovable property in a foreign country in case security, property, or currency was acquired, or owned when the individual was based outside of the country, or when they inherit the property from individual staying outside the country.
Features of the FEMA:
The following are some of the important features of Foreign Exchange Management Act:
- It is consistent with full current account convertibility and contains provisions for progressive liberalisation of capital account transactions.
- It is more transparent in its application as it lays down the areas requiring specific permissions of the Reserve Bank/Government of India on acquisition/holding of foreign exchange.
- It classified the foreign exchange transactions in two categories, viz. capital account and current account transactions.
- It provides power to the Reserve Bank for specifying, in , consultation with the central government, the classes of capital account transactions and limits to which exchange is admissible for such transactions.
- It gives full freedom to a person resident in India, who was earlier resident outside India, to hold/own/transfer any foreign security/immovable property situated outside India and acquired when s/he was resident.
- This act is a civil law and the contraventions of the Act provide for arrest only in exceptional cases.
- FEMA does not apply to Indian citizen’s resident outside India.
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