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Differences Between FERA and FEMA

Differences Between FERA and FEMA

The Foreign Exchange Regulation Act (FERA) and the Federal Emergency Management Agency (FEMA) both have foreign exchange activities in India, but there are some key differences between the two. FERA was introduced in 1973 to regulate all foreign exchange transactions in India, while FEMA was introduced after the financial crisis of 1997 to replace FERA and make it more effective.

One of the biggest differences is that FEMA allows for the liberalization of current account transactions, which FERA does not. This means that Indians have more freedom to conduct transactions such as buying and selling goods and services with people from other countries. Additionally, under FEMA Indian citizens are allowed to hold foreign currency accounts, whereas this was not permitted under FERA.

What is FERA?

FERA or the Foreign Exchange Regulation Act was enacted in India in the year 1973. The main objective of FERA was to conserve foreign exchange and prevent the use of foreign exchange for undesirable purposes.

  • FERA also aimed at regulating certain payments to outside countries. All transactions in foreign exchange were required to be made through authorized dealers.
  • FERA restricted the import and export of currency without proper permission from the Reserve Bank of India. FERA was very stringent and it gave sweeping powers to the government to arrest and detain a person without any trial.
  • FERA was seen as a means of curbing black money and corruption. However, FERA was misused by the government and it led to the harassment of innocent people.

FERA was replaced by FEMA or the Foreign Exchange Management Act in the year 1999. FEMA is much more liberal and it gives more freedom to individuals with respect to foreign exchange transactions.

What is FEMA?

  • FEMA is the Foreign Exchange Management Act. FEMA was established in 1999 and it is responsible for managing the foreign exchange reserves of India and safeguarding the country’s external economic environment. FEMA is also responsible for promoting foreign trade and investment. FEMA has played a significant role in liberalizing the Indian economy and making it more open to foreign trade and investment.
  • FEMA has been successful in attracting foreign investment into India and has helped to boost the growth of the Indian economy. FEMA has also helped to improve the balance of payments in India by reducing the country’s trade deficit.
  • FEMA has been instrumental in providing stability to the Indian rupee and has helped to maintain a strong and stable currency. FEMA has contributed significantly to the development of the Indian economy and has helped to make India a major player in the global economy.

Differences Between FERA and FEMA

FERA was the foreign exchange regulation act that came into place in 1973. FERA regulated the transactions which involve foreign exchange and the dealers of foreign exchange. FERA was replaced by FEMA in the year 1998. FERA’s main objective was to conserve the foreign exchange reserves of India.

  • FERA was a very stringent act, any violation led to imprisonment for up to 3 years. FEMA is a less stringent act when compared to FERA, it deals with offenses only if they are committed knowingly and with an intention to defraud.
  • FEMA has replaced FERA as it gives more flexibility to businesses when conducting transactions involving foreign exchange. FEMA is in line with WTO regulations whereas FERA was not.
  • FERA restricted outward remittances whereas FEMA removed such restrictions and hence gave a boost to exports from India. FERA did not provide a framework for hedging currency risk whereas FEMA provides such a framework hence businesses can hedge their currency risk under FEMA.
  • Under FERA all assets including the immovable property of a person who has contravened any provisions of FERA could be confiscated by govt of India, however, no such provision exists under FEMA.

To sum it up we can say that FERA was a much more restrictive act than FEMA which hampers business activities however FEMA being less restrictive helps businesses to flourish.


The Foreign Exchange Management Act, of 1999 (FEMA) replaced the Foreign Exchange Regulation Act, of 1973 (FERA). FEMA is a more liberalized law with respect to foreign exchange transactions. It relaxes certain restrictions imposed by FERA and also provides for new avenues of investment. The main objectives of FEMA are to promote external trade and payments and to protect the interests of foreigners investing in India.

On the other hand, FERAA regulated certain aspects of foreign exchange transactions such as inward and outward remittances, export and import financing, etc. The repeal of FERAA led to a number of changes in the regulatory framework governing foreign exchange dealings in India. This article seeks to highlight some key differences between FERA and FEMA with respect to their applicability and coverage.

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