1. FERA TO FEMA Foreign exchange regulation act to Foreign exchange management act (1973) (August,1998)

6. Given India’s progress towards a more open economy, it was only inevitable that the Foreign Exchange Regulation Act. (FERA). Be reborn in a liberal, modern avatar. The process received a push , with the cabinet approving the draft Foreign Exchange Management Act (FEMA). The draft reportedly relaxes to a degree the restrictions on all current and some capital account transactions.and provides for the expected move towards full account convertibility. FERA was the product of a time when oil crisis, among other things, had depleted India’s foreign currency reserves.

7. Unfortunately , the act went to absurd lengths in its attempt to conserve foreign exchange. A simple hospitality offered by a foreign national for instance, had to be reported to the government. The Act also routinely came into the way of many national business transactions, and combined with the extremely harsh penalties for offences under the Act, Effectively discouraged productive investment. The excess became glaring post –1991, as the country’s trade and investment linkage with the rest of the world increased and foreign exchange reserve mounted to near embarrassing levels.

8. Business associations without exception and rightly, saw the Act as a fetter on the ability of domestic enterprise to take on the challenges of a globalising world. It is this concern primarily that the government is now seeking to address with FEMA. For all the expected relaxations through, the draft bill is unlikely to receive more than half a cheer from Industry. While most would welcome the distinction the bill seeks to make between compoundable and penal offence –the former with provisions for fine and the latter with provision for criminal proceedings

9. It is still far from clear what would actually constitute penal offence(s) and what would be the enforcement directorate’s precise powers. If penal offences relate essentially to money laundering activities--- the Indian subcontinent is , incidentally,a major international hub for such actions--- the definition would make eminent sense. A much wider definition could, however make the proposed act not very different from what exists, and especially if the current over arching power of the enforcement directorate remain what the are. It was also widely anticipated that the provision of new bill would apply retrospectively,to cover cases already under investigation.

10. As it stands tough, this is not to be . The principle that on going cases ought to be considered in the light of the objectives and norms that obtain today is a well established one, and it is difficult to understand why government did not it appropriate for application in the present instance. The issue needs to be debated once again. Finally the government would do well to examine how other countries, placed in situation similar to India’s in the matter of foreign exchange problems, have managed with significantly more lenient legislation.

11. If Indian enterprise is to mark its presence globally, it is perhaps much better to err on the side of liberty.In any case, the government guiding objective in this whole exercise should be to take the fear out of FERA.

12. The FEMA act extends to the whole of India. The main provision of the Act are as follows: Section 3: Dealing in Foreign Exchange Section 4 Holding of foreign Exchange Section 5 Current account Transaction Section 6 : Capital account Transaction Section 7: Export of Goods and Services Section 8 : Relisation of Repatriation and Foreign Exchange Section 9: Exemption from Resalisation and Repatriation