Understanding FERA

FERA Overview
The Foreign Exchange Regulation Act, 1973, was a significant piece of legislation that governed foreign exchange transactions in India. It aimed to regulate payments and foreign exchange transactions to protect the country’s foreign exchange reserves.

Features and Provisions
FERA had strict provisions governing foreign exchange dealings, including stringent restrictions on foreign exchange transactions, extensive documentation requirements, and a fixed exchange rate regime. Violations of these regulations were subject to severe penalties.

Purpose and Scope
FERA primarily aimed to conserve foreign exchange reserves, control capital flows, and prevent illegal foreign exchange transactions. It was a product of a time when India was striving to conserve its limited foreign exchange resources.

Understanding FEMA

FEMA Overview
The Foreign Exchange Management Act, 1999, replaced FERA to liberalize and simplify foreign exchange regulations in India. FEMA shifted the focus from strict controls to promoting ease of doing business and encouraging foreign investment.

Features and Provisions
FEMA introduced a more flexible approach towards foreign exchange transactions, allowing for greater ease of doing business. It brought about the concept of current and capital accounts, making it easier for businesses and individuals to engage in international transactions.

Objectives and Scope
FEMA aimed to facilitate external trade and payments, promote orderly development and maintenance of foreign exchange markets, and foster foreign investment in India. It sought to align India’s foreign exchange regulations with global practices.

Difference Between FERA and FEMA

Key Differences FERA FEMA
Historical Background FERA was a product of a time when India was grappling with limited foreign exchange reserves and a need to conserve them. FEMA was introduced in 1999 when India was opening up to globalization and economic reforms.
Regulatory Framework FERA had a rigid regulatory framework with strict controls and limited foreign exchange flexibility FEMA introduced a more liberalized regime, focusing on simplifying foreign exchange transactions and encouraging foreign investment.
FDI and External Commercial Borrowings Under FERA, foreign direct investment (FDI) was highly restricted, and external commercial borrowings were subject to stringent regulations. FEMA, however, allowed for greater FDI and made it easier for businesses to raise funds through external commercial borrowings.
Penalties and Offenses FERA had stringent penalties and criminal offenses for violations. FEMA introduced a more reasonable approach, with penalties often limited to monetary fines rather than imprisonment.

Transition from FERA to FEMA

The transition from FERA to FEMA was a significant milestone in India’s economic history. It reflected the country’s shift from a highly regulated and controlled economy to a more open and investor-friendly one. This change played a pivotal role in attracting foreign investment and promoting economic growth.


The difference between FERA and FEMA lies in their historical context, regulatory framework, and objectives. FERA was a product of its time, with strict controls to conserve foreign exchange, while FEMA was introduced to encourage foreign investment and simplify foreign exchange transactions. Understanding these differences is crucial for individuals and businesses engaging in international transactions in India.

Leave a Reply