Foreign Exchange Management Act

Why in news?

• The government has amended the Foreign Exchange Management (non-debt instruments) Rules, 2019 to enable the increase in foreign direct investment limit in the insurance sector to 74 per cent.

About FEMA:

• It aims to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India
• It was passed in the 1999, replacing the Foreign Exchange Regulation Act (FERA).
• It enabled a new foreign exchange management regime consistent with the emerging framework of the World Trade Organization (WTO)
• FEMA is a regulatory mechanism that enables the Reserve Bank of India to pass regulations and the Central Government to pass rules relating to foreign exchange in tune with the Foreign Trade policy of India.
• This act makes offences related to foreign exchange civil offenses.

Main Features of FEMA:

• It gives powers to the Central Government to regulate the flow of payments to and from a person situated outside the country.
• All financial transactions concerning foreign securities or exchange cannot be carried out without the approval of FEMA. All transactions must be carried out through “Authorized Persons.”
• In the general interest of the public, the Government of India can restrict an authorized individual from carrying out foreign exchange deals within the current account.
• Empowers RBI to place restrictions on transactions from capital Account even if it is carried out via an authorized individual.

PRACTICE QUESTION:

With reference to foreign exchange management in India, consider the following statements:

1. Foreign Exchange Management Act (FEMA) empowers Central Government to impose reasonable restrictions for current account transactions

2. Violation of FEMA rules is considered as a civil offence

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer