Difference Between FERA and FEMA | FERA vs FEMA

By Shivank Goel|Updated : January 9th, 2023

The major Difference Between FERA and FEMA is that FERA stands for Foreign Exchange Regulation Act and FEMA stands for Foreign Exchange Management Act. These are important to understand by all UPSC aspirants as questions from this topic might come in the Indian Economy section of the exam. The Foreign Exchange Regulation Act, or FERA, was passed in 1973 in India. It sought to impose stringent regulations on some types of payments, especially in the forex and securities department, including the transactions having an indirect impact on the forex and the import and export of currency.

Difference Between FERA and FEMA PDF

The Foreign Exchange Management Act, or FEMA, was passed in 1999 in India. It sought "to consolidate and amend the law relating to foreign exchange to facilitate external trade and payments and promote the orderly development and maintenance of foreign exchange market in India." In this article, let us learn the difference between FERA and FEMA based on factors such as the number of sections, year of enactment, objectives, etc.

Table of Content

Difference Between FERA and FEMA

The main difference between FERA and FEMA is that while the latter promotes the orderly management of foreign exchange and its associated dealings in India, the former is an act ushering a regulated foreign trade and associated payments in India.

FERA vs FEMA

FERA act was propagated to regulate expenses and foreign exchange in India; on the contrary, the FEMA act publicized orderly management of foreign exchange in India.

Difference Between FERA and FEMA

FERA

FEMA

FERA full form is Foreign Exchange Regulation Act.

The full form of FEMA is Foreign Exchange Management Act.

The Foreign Exchange Regulation Act was passed in 1973 by the Parliament of India.

The Parliament passed the Foreign Exchange Management or FEMA Act on December 29, 1999.

It replaced FERA.

It was on January 1, 1974, that FERA came into force.

June 2000 saw FEMA replacing FERA.

The Vajpayee government of 1998 repealed FERA.

This act was enacted to replace FERA.

81 sections were included in it.

It is equipped with 49 sections.

The main idea behind the enactment of FERA was that foreign exchange was a scarce resource.

The main idea behind FEMA was the consideration of forex as an asset.

Conservation of foreign exchange was the main objective of FERA.

Management of forex is the main objective of FEMA.

It had a vague description of an "Authorized person."

The idea of the "Authorized Person" was more defined.

Banks were not included within the ambit of an "Authorized person."

Banks were included within the definition of "Authorized person."

Violation of the rules laid down by FERA was considered a criminal offense.

Violation of rules laid down by FEMA is now considered a civil offense.

No legal help was provided to a person violating the rules.

Legal aid can be obtained by people violating the rules.

In case of a violation, there was no scope for tribunals as appeals were sent directly to the state High Courts.

Special Directors (Appeals) and Special Tribunals can be provided in case of any violation of rules.

Direct punishment was often provided to individuals/companies violating the rules laid down by FERA.

An individual or a company guilty of flouting the FEMA rules must pay the penalty. The guilty party is imprisoned if the same is not paid within 90 days (starting from the day of conviction).

Prior approval from the Reserve Bank of India was required to transfer funds for external operations.

No approval from the RBI is required to transfer funds for external operations.

It was not within the ambit of FERA.

FEMA enjoys the provision of IT.

These are major differences between FERA and FEMA. Let us briefly learn about each of these acts in the section below.

FERA and FEMA

The major similarity between FERA and FEMA is that the Reserve Bank of India and the central government remain regulatory bodies. But, the implementation of FEMA brought in many modifications in the Foreign Exchange dealings, compared to FERA. The meaning of the FERA and FEMA acts are mentioned below.

What is FEMA?

The Foreign Exchange Management Act (FEMA full form) was enacted on 29 December 1999 by an act of Parliament. This act replaced FERA by following all the guidelines and frameworks of the World Trade Organization.

  • There are only 49 sections present in the FEMA act.
  • FEMA provides a set of regulations to empower RBI to pass regulations and allows the Indian Government to implement rules relating to foreign exchange concerning the country's foreign trade policy

What is FERA?

Foreign Exchange Regulation Act (FERA full form) was passed in 1973 and came into effect on 01 January 1974. This act was passed to regulate and monitor foreign securities and exchange transactions.

  • There were 81 sections in the FERA act.
  • FERA was introduced when the country's Forex reserves were very low to regulate foreign payments.

Summary:

Key Difference Between FERA and FEMA

The key Difference Between FERA and FEMA is that FERA was passed in 1973 by the Parliament of India to conserve foreign exchange, whereas the Parliament passed FEMA on December 29, 1999, for the management of forex.

Important Notes for UPSC
Difference Between National Anthem and National SongDifference Between Bhakti and Sufi Movements
Difference Between Tropical Evergreen and Deciduous ForestDifference Between Delhi and New Delhi
Difference Between Supreme Court and High CourtDifference Between Cabinet and Council of Ministers

Comments

write a comment

FAQs on Difference Between FERA and FEMA

  • The key difference between FERA and FEMA is that while the latter is an act promoting the orderly management of foreign exchange and its associated dealings in India, the former is an act ushering a regulated foreign exchange and associated payments in India.

  • FERA full form is Foreign Exchange Regulations Act, whereas the full form of FEMA is Foreign Exchange Management Act. The latter is a replacement for FERA, which was enacted in 1973.

  • The Difference Between FERA and FEMA in terms of their objectives is that FERA was introduced in 1973 when the Indian economy suffered from its all-time low foreign exchange reserves.

    • That is why the act is introduced, giving power to the government to regulate the import and export of foreign exchange and securities done by Indian residents living in India or abroad.
    • But later, the act required some changes to align with the RBI policies and WTO.
    • That is why this act was repealed in 1998, and FEMA was introduced as its replacement in 1999.
  • FERA controlled all forex transactions that directly or indirectly affected India's forex reserves, which contained the import and export of cash. However, the objective of FERA did not entirely have the expected result, and the Indian economy persisted, which is why FEMA replaced it.

  • The FERA rules handled foreign payments. The emphasis was on raising the foreign exchange reserves of India, facilitating trade and optimum foreign exchange payments. FERA had 81 Sections. If there was a breach of FERA regulations, then it was regarded as a criminal offense.

  • FERA requires previous approval of the Reserve Bank of India (RBI), whereas the FEMA does not require RBI's approval, except when the transaction is associated with foreign exchange.

  • With the shift to a market-based system for selecting the external value of the Indian rupee, the foreign exchange market in India gained prominence in the early reform period. FERA Act forms have been suspended from 1st June 2000, when FEMA replaced FERA 1973.

  • There is a difference between FERA and FEMA based on the number of sections in both these acts. In FEMA, there are only 49 sections as compared to 81 sections in FERA. The Foreign Exchange Management Act was introduced to facilitate foreign trade and payments in a better way.

Follow us for latest updates