If we look at India’s import export figures for 2020-21, then imports cost us 394 billion US dollars and we got 292 billion US dollars from exports, which means we lost 98 billion US dollars. The figures we have seen are for one year. Before 1990, these figures were even more dire, due to which we had to replace the “FEMA” law with the “FEMA” law.
We are talking here “Foreign Exchange Management Act – 1999” which was implemented in 2000. The basic purpose of this law was to plan foreign circulation and to make rules of this law in accordance with the free market system. Basically, our more money is spent on oil products and precious metals for this and to develop more exports are necessary which is not happening till date.
We will try to know here “Foreign Exchange Management Act-1999 about this law, what does it work and who has its control. And what are the advantages and disadvantages of this law on the economy of India. Will try to know about how it was made and what is its history.
The Foreign Exchange Management Act 1999 –
The Foreign Exchange Regulation Act was created by repealing this law, which was known as “FERA”. FEMA The purpose of making this law was that in 1990, India had made changes in the economic, policy and made the economy open to the international market, as a result of this “FERA” this law was very strict to regulate foreign exchange which was made liberal. .
Before FEMA is enacting this law, if anyone violated the rules under this law, then there were criminal provisions under FERA, due to which foreign investment was prevented from coming to India. After the implementation of this law, foreign investment in India has increased and a lot of changes have been made in this law which remains an open economy.
According to the framework of the economic policy given by the World Trade Organization, changes were made in this law and the earlier purpose of securing foreign exchange for India was changed and the rules were simplified so that foreign investment could be made easier. . Earlier, very strict rules were made for keeping a foreign exchange in India.
History of Foreign Exchange Management Act –
Foreign Exchange Regulation Act This law was implemented in India in 1974, at that time the position of India’s foreign exchange was very bad because foreign exchange was needed by India to import most of the oil products into India, and the proof of India’s exports was low. Having always created a problem of foreign exchange, hence this law was brought in “FERA”.
Its regulation was made very strict by the Reserve Bank, due to which large international companies like Coca-Cola and PepsiCo at that time closed their plants in India. Which later in 1990 after the change of economic policies, they again started their production in India. Due to these strict rules, foreign exchange in India was stopped to a great extent.
If we want foreign exchange then we should export to those countries which we did not because developed countries make themselves self-reliant by investing more on research and development. India’s problem has always been that we depend on America and Europe countries for technology production, due to which our exports have always been less than imports. For this, this FEMA law was brought later, which would change this situation.
Reserve Bank of India and Foreign Exchange Management / RBI & FEMA ACT 1999 –
FEMA This law was made in 1999 and in 2000 the whole of India, whose control and compliance was given to the Reserve Bank of India according to the law made in Parliament, FEMA. The FERA law that was made earlier was also controlled by the Reserve Bank of India, but that law was very strict.
The Reserve Bank of India was responsible for making rules and regulations for the implementation of the FEMA Act, which in consultation with the Central Government and implements them. The Reserve Bank of India controls the entire currency of India, so the responsibility of managing the foreign exchange was also entrusted to the Central Bank of this country according to this law.
In view of the changes taking place in the policies of the government from time to time and changes in the international market, the Reserve Bank makes its own rules, the main objective of which is to increase the import of foreign exchange into India and the market contrary to the strict rules of FERA earlier. Let me work in the interest of the country by keeping the market liberal.
Enforcement Directorate & Foreign Exchange Management –
FEMA made in Parliament Under this law, the Reserve Bank has been given the right to regulate and ED this institution has the task of keeping an eye on the activities happening under FEMA, in which whatever activities are seen contrary to the FEMA law, whether it is Be it in India or anywhere abroad which comes under the purview of this law.
Enforcement Directorate, this institution looks into the illegal incidents happening in economic matters, which have been specifically mentioned in the FEMA Act with a special provision that it should be implemented. FERA does not have a criminal rule like this law for its illegal activities, but in this the ED has been given the right to settle civil cases or take penal action.
What is Foreign Exchange –
Prior to 1990, there was a significant shortage of foreign exchange in India under this law, which is mainly used for imported goods and services. After the 1990s, changes were made to this regulation and the purpose of foreign investment was only to regulate, it was changed to planning or managing what we understand under FEMA this law. Foreign exchange is done under RBI for the management of cash, deposits, bonds and financial assets.
Foreign exchange means India’s currency, it is the main medium of exchange for transactions under it, imports and exports from foreign countries, it is mainly done in international currency which is considered to be US dollar. And in other countries, what will be the currency of the transaction is decided by making a business agreement.
It controls the foreign exchange in India with the guidance of the Reserve Bank of India and after the establishment of the global market system, the accumulation of foreign exchange started increasing in India and foreign exchange was also available for imports. The movement of people abroad increased due to jobs, migration, medical reasons, for this it became necessary to manage foreign exchange, for this the Government of India made this law FEMA, under which the accumulation and regulation of currency started happening.
Difference between FERA & FEMA –
During the British India in India, we had adopted the monetary policy, which was made after the independence of India, the foreign exchange regulation law was made, whose main purpose was that the capital available to import foreign currency to India was very less, therefore Strict rules were made to protect it. The provisions of the law of FERA regulation were very stringent in the provision of punishment in which criminal charges were imposed.
Companies like Coca-Cola and Pepsi had stopped their production in India on the imposition of FERA law, many such foreign companies had left India at that time, as a result of which the accumulation of foreign exchange in India was reduced by the 1990s and the economic crisis of the country. When I was standing in front, we made changes in our economic policies through the World Bank.
The FERA Act was repealed and in 1999, the FEMA Act was passed in Parliament, the main objective of which was changed to open the way for foreign exchange to be invested in India and the restrictions on the accumulation of foreign exchange were removed, resulting in foreign companies started to coming to India again and accumulation of foreign exchange started increasing. Therefore, we found that the objectives of the FERA Act and the FEMA Act are quite different.
Objectives of FEMA –
The purpose of FERA law was to store maximum foreign exchange in India, but the regulations for foreign investment and foreign companies were very strict. FEMA The main purpose of this law was to plan or manage foreign exchange because after 1990 changes were made in India’s economic policies.
Illegal cases related to foreign exchange were brought into civil law, in which such cases are settled through punishment, which under the earlier law, criminal charges were imposed which were not settled. It was clearly stated in the preamble of the law made in the Parliament that this law has been made to manage foreign exchange.
Under this law, all foreign exchange transactions have been made free in the market, but by imposing tax provisions on it, all transactions should be done through the government, this was done. So that how much foreign exchange comes into India and how much foreign exchange goes out of India can be planned. As a result, it helped in increasing foreign investment in India and foreign companies started coming to India.
International (US) Dollar and FEMA Law –
The development of any country depends on the proof of its import and export, in which talking about India, we always have to depend on other countries for oil and technology. After 1973, the US dollar was recognized by OPEC for international trade. Because oil imports have been the most purchased product mostly from developing countries. During the 1990s, India’s foreign exchange accumulation was very low.
Which was resulting in our import and US dollar accumulation was left for a few days. Through liberalization, the Government of India changed the economic, policy and to increase the accumulation of US dollars in India, we have been successful in increasing the accumulation of foreign exchange through the FEMA law under the new economic policy. Foreign companies’ investment in India has increased significantly after 1990 and this has enabled us to increase our foreign reserves.
Self-reliant India Under this scheme, many strategies were made to increase exports by reducing the proof of its imports, but it could not be successful. In order to increase the accumulation of American currency in India, it has been increased by making many laws and it has benefited in increasing foreign investment in the Indian stock market. In order to get the right price to the Indian rupee, many rules were made in the FEMA law, through which the right amount of US dollars for export is saved, so the policy was made.
Features of FEMA –
- FEMA this law was repealed and made in 1999.
- Due to FEMA law, foreign investment in India and foreign companies encouraged to grow business in India, which led to the accumulation of foreign exchange.
- FEMA was brought in by repealing the FERA Act under the policies given by the World Bank.
- FEMA Under this law, the Government of India can control the movement of currency related to India by a person or entity sitting outside India.
- All transactions related to foreign exchange were made binding on the person or organization authorized by the Government of India.
- Any transaction relating to foreign securities or currency is binding in accordance with the rules of FEMA.
- The Government of India can restrict individual current accounts in any foreign business in the interest of the public.
- Under FEMA, the Reserve Bank has been empowered under which it can restrict or control the capital account of any person or entity if it violates this law.
- If a citizen of India or a company registered in India does business or employment in a foreign country, then it also comes under the purview of this law.
- If any foreign company of the world does business by setting up a branch in India, then it comes under the purview of this law.
Critical Analysis of FEMA Law
- India’s problem has been that exports increase and imports decrease, but even after making this law, we could not solve this problem.
- By neglecting the legal system of India, many currency related transactions are done, due to which there is a lot of loss to the country, which is not reduced even after coming, which is called hawala.
- Self-reliant India This plan has remained only in paper form and for import, we still have to spend maximum foreign exchange for petroleum products and expensive metals.
- We have not been able to do any more development than developed countries in terms of modification, as a result of which we are dependent on foreign imports for many products.
- We have to spend much more for the imports every year than the foreign exchange, we earn from exports in India, so what it deducts can give us bad results over a long period of time.
- The assets and currency of foreign companies in India, which are accumulated in the form of currency are also seen as the currency of the country, in reality it is foreign assets.
- The US dollar has to be stored as an international foreign currency because of the dominance of the US on the oil product, due to which we have to keep more US dollar reserves than other foreign exchange in the world.
- We had to implement the policies given by the World Bank under FEMA in India, which results in India’s sovereignty.
Foreign Exchange Management Act The purpose of enacting this law was to see the changes in the economic structure of 1990, which allowed us to open foreign trade in India. Due to which India’s small business is considered to be the biggest crisis, because the capital value of a foreign company like Apple is more than the entire economy of India. Small businessmen of India cannot stand in front of such companies and we cannot make security laws for this, this is our problem.
If any country has to develop, it has to increase its exports and for which it is necessary to develop in technology, but we are dependent on foreign countries for this. We have to import modern machinery to be installed for our industry, in many such cases we have to depend on other countries.
We have to develop India’s education policy which will have to give revision based education which is not there today. Countries like China had planned for this since 1970, the results of which are visible to them today. Students studying in a good government institution in India like to work abroad but do not want to work for the country, due to which our objective of being self-reliant remains incomplete.
About the Foreign Exchange Management Act law, we have tried to tell the provisions of this law in front of you in as simple a language, so if you like this article, then forward it further ….