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FERA: Foreign Exchange Management Act

The Foreign Exchange Regulation Act (FERA) was legislation passed in India in 1973 that imposed strict regulations on certain kinds of payments, the dealings in foreign exchange (forex) and securities and the transactions which had an indirect impact on the foreign exchange and the import and export of currency. The bill was formulated with the aim of regulating payments and foreign exchange.

Evolution

FERA was passed by the Indian Parliament in 1973 by the government of Indira Gandhi and came into force with effect from January 1, 1974.

FERA was introduced at a time when foreign exchange (Forex) reserves of the country were low, Forex being a scarce commodity. FERA therefore proceeded on the presumption that all foreign exchange earned by Indian residents rightfully belonged to the Government of India and had to be collected and surrendered to the Reserve Bank of India (RBI). FERA primarily prohibited all transactions not permitted by RBI.
Coca-Cola was India's leading soft drink until 1977 when it left India after a new government ordered the company to turn over its secret formula for Coca-Cola and dilute its stake in its Indian unit as required by the Foreign Exchange Regulation Act (FERA). In 1993, the company (along with PepsiCo) returned after the introduction of India's Liberalization policy.

FERA was repealed in 1998 by the government of Atal Bihari Vajpayee and replaced by the Foreign Exchange Management Act, which liberalised foreign exchange controls and restrictions on foreign investment.

Features:-

  1. RBI can authorize a person / company to deal in foreign exchange.

  2. RBI can authorize the dealers to do transact the Foreign Currencies, subject to review and RBI was given power to revoke the authorization in case of non-compliancy

  3. RBI would authorize the persons as Money Changers who will convert the currency of one nation to currency of their nation at rates “Determined by RBI”

  4. NO person, other than “authorized dealer” would enter in any transaction of the foreign currency.

  5. For whatever purpose Foreign exchange was required, it was to be used only for that purpose. If he feels that he cannot use the currency of that particular purpose, he would sell it to a authorized dealer within 30 days.

  6. No person in India, without “permission from RBI” shall make payments to a person resident outside India and receive any payment from a person from outside India.

  7. No person shall draw issue or negotiate any bill of exchange in which a right to receive payment outside India is created.

  8. No person shall make any credit in an account of a person resident out of India.

  9. No person except authorized by RBI shall send foreign currency out of India.

  10. A person who has right to receive the foreign exchange would have not to delay the receipt of the foreign exchange.

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