Unit IV Regulation of Foreign Exchange in India - PowerPoint Presentation

1. Unit IV Regulation of Foreign Exchange in IndiaDr. Pravin Kumar AgrawalAssistant ProfessorDepartment of Business ManagementCSJMU

2. Foreign Exchange Regulation Act (FERA) Foreign Exchange Management Act (FEMA)

3. Foreign Exchange RegulationsThe Foreign Exchange Regulations are framed by the Directorate of Foreign Trade and the Reserve Bank of India (RBI). Foreign Exchange Regulations introduced compliances in Foreign Exchange to check the increased flow of both the inbound and outbound funds.

4. FERAThe foreign exchange Regulation Act of 1973 enacted in 1973 with 81 section and it came into force from 1st January 1974 FERA 1973 Act was introduced at a time when foreign exchange Reserve of the country was very low The main objective of FERA was to regulate, control and to ensure proper utilisation of foreign exchange so as to promote the economic development of the country Violation is criminal offence There was a demand for substantial modification in FERA going to economic liberalisation and improving foreign exchange reserve position which leads to new act foreign exchange management Act 1999

5. FEMAFEMA came into act on first day of June 2000 with 49 sections. FEMA is applicable to all parts of India and also applicable to all branches, offices and Agencies outside India owned or controlled by a person who is resident of India Objective of FEMA areto facilitate external trade and payments to promote the orderly development and maintenance of foreign exchange market consolidate and amend the law relating to foreign exchange market in India

6. Objectives of FERATo prevent the outflow of Indian currency To regulate dealings in foreign exchange and securities To regulate the transaction indirectly affecting foreign exchange To regulate import and export of currency and bullionTo regulate employment of foreign nationals To regulate foreign companies To regulate acquisition, holding etc of immovable property in India by nonresidents To regulate certain payments .To regulate dealings in foreign exchange and securities. To regulate the transactions indirectly affecting foreign exchange.

7. Section 1 - Short title, extent, application and commencement(1) This Act may be called the Foreign Exchange Regulation Act, 1973. (2) It extends to the whole of India. (3) It applies also to all citizens of India, outside India and to branches and agencies outside India of companies or bodies corporate, registered or incorporated in India. (4) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint in this behalf:

8. Section 2 - Definitions(f) “Currency" includes all coins, currency notes, postal orders, money orders, cheques, drafts, traveller's cheques, letters of credit, bills of exchange and promissory notes; (g) “Foreign currency" means any currency other than Indian currency; (i)“Foreign security" means any security created or issued elsewhere than in India, and any security the principal of or interest on which is payable in any foreign currency or elsewhere than in India;

9. Section 6 - Authorised dealers in foreign exchange(1) The Reserve Bank may, on an application made to it in this behalf, authorise any person to deal in foreign exchange. (2) An authorisation under this section shall be in writing and- (i) may authorise dealings in all foreign currencies or may be restricted to authorising dealings in specified foreign currencies only;

10. Section 8 - Restrictions on dealing in foreign exchange(1) Except with the previous general or special permission of the Reserve Bank, no person other than an authorised dealer shall in India, and no person resident in India other than an authorised dealer shall outside India, purchase or otherwise acquire or borrow from, or sell, or otherwise transfer or lend to or exchange with, any person not being an authorised dealer, any foreign exchange.

11. Section 9 - Restrictions on paymentsNo person in, or resident in, India shall- (a) Make any payment to or for the credit of any person resident outside India; (b) Receive, otherwise than through an authorized dealer, any payment by order or on behalf of any person resident outside India;

12. Section 13 - Restrictions on import and export of certain currency and bullionThe Central Government may, by notification in the Official Gazette, order that, subject to such exemption, if any as may be specified in the notification, no person shall, except with the general or special permission of the Reserve Bank and on payment of the fee, if any, prescribed, bring or send into India any foreign exchange or any Indian currency.

13. Section 18 - Payment for exported goods(1)(a) The Central Government may, by notification in the Official Gazette, prohibit the taking or sending out by land, sea or air (hereafter in this section referred to as export) of all goods or of any goods or class of goods specified in the notification from India directly or indirectly to any place so specified unless the exporter furnishes to the prescribed authority a declaration in the prescribed form supported by such evidence as may be prescribed.

14. Section 25 - Restriction on holding of immovable property outside India (1) No person resident in India shall, except with the1 [general or special permission of the Reserve] Bank, acquire or hold or transfer or dispose of by sale, mortgage, lease, gift, settlement or otherwise, any immovable property situate outside India: Provided that nothing in this sub-section shall apply to the acquisition or transfer of any such immovable property by way of lease for a period not exceeding five years.

15. Section 25 - Restriction on holding of immovable property outside India (2) Any person resident in India and holding any immovable property outside India at the commencement of this Act shall before the expiry of a period of three months from such commencement or such further period as the Reserve Bank may allow in this behalf, declare such holding to the Reserve Bank in such form and containing such particulars as may be specified by the Reserve Bank.

16. Section 30 - Prior permission of Reserve Bank required for taking up employment, etc., in India by nationals of foreign States(1) No national of a foreign State shall, without the previous permission of the Reserve Bank, practise any profession or carry on any occupation, trade or business in India in a case where such national desires to acquire any foreign exchange (such foreign exchange being intended for remittance outside India) out of any moneys received by him in India by reason of the practising of such profession or the carrying on of such occupation, trade or business, as the case may be.]

17. Section 31 - Restriction on acquisition, holding, etc., of immovable property in India (1) No person who is not a citizen of India and no company (other than a banking company) which is not incorporated under any law in force in India shall, except with the previous general or special permission of the Reserve Bank, acquire or hold or transfer or dispose of by sale, mortgage, lease, gift, settlement or otherwise an immovable property situate in India: Provided that nothing in this sub-section shall apply to the acquisition or transfer of any such immovable property by way of lease for a period not exceeding five years.

18. Section 34 - Power to search suspected persons and to seize documents (1) If any officer of Enforcement authorised in this behalf by the Central Government, by general or special order, has reason to believe that any person has secreted about his person or in anything under his possession, ownership or control any documents which will be useful for, or relevant to, any investigation or proceeding under this Act, he may search that person or such thing and seize such documents.

19. Section 35 - Power to Arrest If any officer of Enforcement authorised in this behalf by the Central Government, by general or special orders has reason to believe that any person in India or within the Indian customs waters has been guilty of an offence punishable under this Act, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest. Every person arrested under shall without unnecessary delay, be taken to a magistrate.

20. Section 37 - Power to search premises If any officer of Enforcement, not below the rank of an Assistant Director of Enforcement, has reason to believe that any documents which, in hi s opinion, will be useful for, or relevant to any investigation or proceeding under this Act, are secreted in any place, he may authorise any officer of Enforcement to search for and seize or may himself search for and seize such documents.

21. THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999

22. THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999The Central Government of India formulated an act to encourage external payments and across the border trades in India known as the Foreign Exchange Management Act. FEMA (Foreign Exchange Management Act) was introduced in the year 1999 to replace an earlier act FERA (Foreign Exchange Regulation Act). FEMA was formulated to fill all the loopholes and drawback of FERA and hence several economic reforms were introduced under the FEMA act. FEMA was basically introduced to de-regularize and have a liberal economy in India.

23. THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999 FEMA’s head office, also referred to as Enforcement Directorate is located in New Delhi and spearheaded by its Directors. 

24. Objectives of FEMATo facilitate external trade and payments and to assist orderly development and maintenance of the Indian forex market.FEMA outlines the formalities and procedures for the dealings of all foreign exchange transactions in India. These foreign exchange transactions have been classified into two categories — Capital Account Transactions and Current Account Transactions.

25. Objective of the FEMATo facilitate the external trade and payment To promote of an orderly maintenance of the foreign exchange market In India. Regulation of foreign capital in India.To remove imbalance of payment. To make strong and developed foreign exchange market. Regulation of employment business and investment of non-residents . To regulate foreign payments.The new law is more transparent in its application. it has laid down the areas where special permission of the reserve bank/government of India is required.

26. Current Account transactions are those transactions that involve inflow and outflow of money to and from the country/countries during a year, due to the trading/rendering of commodity, service, and income.As mentioned above the balance of payment comprises current and capital accounts, the remainder of the Balance of Payment is Capital Account, which consists the movement of capital in the economy due to capital receipts and expenditure. Capital account recognises domestic investment in foreign assets and foreign investment in domestic.

27. Features of the FEMAa. It is consistent with full current account convertibility and contains provisions for progressive liberalisation of capital account transactions.b. 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.c. It classified the foreign exchange transactions in two categories, viz. capital account and current account transactions.d. 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.

28. Features of the FEMAe. 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 she/he was resident.f. This act is a civil law and the contraventions of the Act provide for arrest only in exceptional cases.g. FEMA does not apply to Indian citizen’s resident outside India.

29. FEMA: A Major Departure from FERAAs is clear from the name of the Act itself, the emphasis under FEMA is on 'exchange management' whereas under FERA the emphasis was on 'exchange regulation' or exchange control. Under FERA it was necessary to obtain Reserve Bank's permission, either special or general, in respect of most of the regulations there under. FEMA has brought about a sea change in this regard and except for Section 3 which relates to dealing in foreign exchange, etc., no other provisions of FEMA stipulate obtaining Reserve Bank's permission.

30. Short title, extent, application and commencement(1) This Act may be called the Foreign Exchange Management Act, 1999. (2) It extends to the whole of India. (3) It shall also apply to all branches, offices and agencies outside India owned or controlled by a person resident in India and also to any contravention there under committed outside India by any person to whom this Act applies. (4) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint:

31. 3. Dealing in foreign exchange, etc.Save as otherwise provided in this Act, rules or regulations made thereunder , or with the general or special permission of the Reserve Bank, no person shall-1. deal in or transfer any foreign exchange or foreign security to any person not being an authorized person;2. make any payment to or for the credit of any person resident outside India in any manner;3. receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner;

32. 4. Holding of foreign exchange, etc.Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.

33. 5. Current account transactionsAny person may sell or draw foreign exchange to or from an authorized person if such sale or drawal is a current account transaction:Provided that the Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed.

34. 6. Capital account transactions(1) Subject to the provisions of sub-section (2), any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction.(2) The Reserve Bank may, in consultation with the Central Government, specify-1. any class or classes of capital account transactions which are permissible;2. the limit up to which foreign exchange shall be admissible for such transactions:

35. 7. Export of goods and services(1) Every exporter of goods shall; -1. furnish to the Reserve Bank or to such other authority a declaration in such form and in such manner as may be specified, containing true and correct material particulars, including the amount representing the full export value or, if the full export value of the goods is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions, expects to receive on the sale of the goods in a market outside India;2. furnish to the Reserve Bank such other information as may be required by the Reserve Bank for the purpose of ensuring the realization of the export proceeds by such exporter.(2) The Reserve Bank may, for the purpose of ensuring that the full export value of the goods or such reduced value of the goods as the Reserve Bank determines, having regard to the prevailing market conditions, is received without any delay, direct any exporter to comply with such requirements as it deems fit.(3) Every exporter of services shall furnish to the Reserve Bank or to such other authorities a declaration in such form and in such manner as may be specified, containing the true and correct material particulars in relation to payment for such services.

36. 12. Power of Reserve Bank to inspect authorized person(1) The Reserve Bank may, at any time, cause an inspection to be made, by any officer of the Reserve Bank specially authorized in writing by the Reserve Bank in this behalf, of the business of any authorized person as may appear to it to be necessary or expedient for the purpose of-1. verifying the correctness of any statement, information or particulars furnished to the Reserve Bank;2. obtaining any information or particulars which such authorized person has failed to furnish on being called upon to do so;3. securing compliance with the provisions of this Act or of any rules, regulations, directions or orders made thereunder .(2) It shall be the duty of every authorized person, and where such person is a company or a firm, every director, partner or other officer of such company or firm, as the case may be, to produce to any officer making an inspection under sub-section (1), such books, accounts and other documents in his custody or power and to furnish any statement or information relating to the affairs of such person, company or firm as the said officer may require within such time and in such manner as the said officer may direct.

37. 13. Penalties(1) If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.

38. 18. Establishment of Appellate TribunalThe Central Government shall, by notification, establish an Appellate Tribunal to be known as the Appellate Tribunal for Foreign Exchange to hear appeals against the orders of the Adjudicating Authorities and the Special Director (Appeals) under this Act.

39. 36. Directorate of Enforcement(1) The Central Government shall establish a Directorate of Enforcement with a Director and such other officers or class of officers as it thinks fit, who shall be called officers of Enforcement, for the purposes of this Act.

40. 41. Power of Central Government to give directionsFor the purposes of this Act, the Central Government may, from time to time, give to the Reserve Bank such general or special directions as it thinks fit and the Reserve Bank shall, in the discharge of its functions under this Act, comply with any such directions.

41. Similarities between FERA and FEMAThe RBI and central government would continue to be the regulatory bodies. The Directorate of Enforcement continues to be the agency for enforcement of the provisions of the law such as conducting search and seizure.

42. Referenceshttps://enforcementdirectorate.gov.in/foreign_exchange_regulation_act_1973.pdf?p1=1188261538006400044