FERA to FEMA:
India has enacted the Foreign Exchange Regulation Act (FERA) and the Foreign Exchange administration Act (FEMA), to govern cross-border transactions, the administration of reserve currencies, and the movement of foreign currency internationally.
Foreign Exchange Regulation Act (FERA):
- FERA came into effect in 1974 with the provisions of severe restrictions on currency exchange transactions, including bans on the possession, disposal, and usage of foreign currency.
- There was control on business dealings between Indian citizens and foreigners.
- There was provision of harsh fines and provisioning of criminal liabilities in case of violations.
- The strict and complex restrictions of FERA discouraged foreign investment and stifled economic growth.
In order to free up the market and abolish governmental control, FEMA was established in 1991.
The Foreign Exchange Management Act (FEMA):
- FEMA was an outcome of 1991-Economic Reforms and became operative and enforceable in June 2000.
- Its objectives were to simplify Foreign Exchange limitations, promote Foreign Investment, and ease Trade and payments between nations.
- The main regulatory authority for foreign exchange activities was established as the Reserve Bank of India (RBI).
- Most of the restrictions of FERA regime were done away with .
- The necessity under FERA for RBI approval of foreign exchange dealings has ultimately been eliminated by FEMA to facilitate the free flow of foreign investments.
- FERA considered violations as criminal offences with the penalty of jail, while FEMA treated breaches as civil offences with monetary fines that could lead to detention for non-payment.
Liberalized Remittance Scheme (LRS):
- Introduced on February 4, 2004, Liberalized Remittance Scheme (LRS) allows all resident individuals, including minors, to remit up to USD 2,50,000 freely per financial year.
- This amount is for any permissible current or capital account transaction or a combination of both.
The Foreign Contribution (regulation) Act, (FCRA):
Background of FCRA:
The FCRA was enacted during the Emergency in 1976 when government was apprehensive of foreign powers interfering in India’s affairs by channeling funds through NGO's.
Features of FCRA:
- It regulates the acceptance/prohibition and utilization of foreign contribution by foreign sources.
- All associations, groups, and NGOs that wish to accept foreign donations are required by law to register with the FCRA for 5 years.
- The contributions can be received for social, educational, religious, economic, and artistic goals.
- It is required to file annual returns similar to those for income tax.
- Political parties ,media, journalists ,judge ,govt servants are not allowed to receive any funds under this.
- As per amendments in FCRA in 2020, FCRA rules have become very stringent in the sense that any NGO receiving the funds, though directly not involved with political party but is found engaged in political activities like bandh, strikes will be considered at par with political party for the FCRA reference.
