FOREIGN EXCHANGE REGULATION ACT

PRESENTED BY

DEEPAK . V DENNY

CHERIAN

FOREIGN EXCHANGE REGULATION ACT (FERA)

The Foreign Exchange Regulation Act--one of the key pieces of legislation regulating international trade in the 1970s--helped shape the climate of the global economy today. It was passed in India, and it redefined how the country would interact economically with other regions of the globe.

EVOLUTION OF FERA

Foreign exchange rules were introduced by British government under the Defense of India rules in 1939.

Independent India used the legislative provisions of foreign exchange control to enact their own Foreign Exchange Regulation Act in 1947.

OBJECTIVES OF FERA 1947

• Control the activities of multinational companies.

• Conservation and proper utilization of foreign exchange resources of the country.

• To control and regulate the flow of foreign capital, technology and managerial enterprises.

• To control and regulate foreign collaborations.

FERA-1947 was amended in 1957,1965 and more significantly in 1973 and then in 1993

PROVISIONS OF FERA ACT 1973

All branches of foreign companies except airlines and shipping company seeking approval under FERA will have to convert themselves into Indian companies.

A Minimum of 74% foreign shareholding will be allowed to companies manufacturing certain items listed in Industrial policy of 1973, companies using sophisticated technology, tea plantations, companies producing predominantly export oriented goods.

A foreign shareholding exceeding 74% may be allowed in case a company is 100% export oriented.

A foreign shareholding of 40 % will be allowed for companies engaged in manufacturing items other than those listed in Industrial policy of 1973.

The case of foreign share holding in case of banking companies will be governed by the guide lines issued by the RBI and the Banking Department.

Foreign shareholding in case of airlines and shipping companies (excluded from the section 29 of the act) will be considered and can be treated on reciprocal basis.

CONCLUSION

FERA was revised further in 1976 with the objective of increasing Indian participation in some kinds of export-oriented companies.

FERA was replaced by the Foreign Exchange Management Act (FEMA), which was passed in the winter session of Parliament in 1999.

FEMA was introduced because the FERA didn’t fit in with post-liberalization policies. A significant change that the FEMA brought with it, was that it made all offenses regarding foreign exchange civil offenses, as opposed to criminal offenses as dictated by FERA.

The main objective behind the Foreign Exchange Management Act (1999) is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external