Difference Between Similar Terms and Objects

Differences Between FERA and FEMA 

Foreign Exchange Regulation Act (FERA) and Foreign Exchange Management Act (FEMA) are statutory requirements, which were enacted by the parliament of India to conserve India’s foreign exchange reserves.


What is FERA?

The Foreign Exchange Regulation Act is an act of parliament that was introduced in 1973 with the aim of controlling and managing foreign payments, purchase of fixed assets to foreigners, and the export and import of currency from and in India.

FERA aimed to ensure that the economy was competitive by conserving India’s foreign reserves, which was inadequate despite the economy recording improvements.

The act is so elaborate and exhaustive such that it covers all citizens of India who are living inside or outside India.


What is FEMA?

Foreign Exchange Management Act (FEMA) is an expansion or improvement of the Foreign Exchange Regulation Act (FERA). The primary purpose of FEMA is to regulate and facilitate foreign exchange while at the same time encouraging the development of forex market in the country.

The act covers all India’s resident including those living inside or outside the country. Moreover, any agency that is managed by a resident of India is also subjected to requirements of FEMA.


Differences Between Foreign Exchange Regulation Act (FERA) and Foreign Exchange Management Act (FEMA)

Purpose/Objective of FERA and FEMA

The primary difference between FERA and FEMA is that FERA was enacted to facilitate all the payments and other foreign exchange activities in India.

On the other hand, despite being an improvement of FERA, which means that it also covers payments and facilitation of foreign exchange activities, FEMA has a specific role of ensuring that external trade and payments are correctly executed.

FEMA has the responsibility of ensuring that there is the orderly management of foreign exchange market in the country.

Residential Status of FERA and FEMA

The basis for determining residential status in both acts shows significant levels of differences. For FERA, the citizenship of a person is the basis for deciding the residential status of the person. This means that any person who is citizenship is subjected to all the provisions of the foreign exchange regulation act.

For a person to be subjected to the provisions of foreign exchange management act, he or she must stay in India for more than six months. This means that any person performing foreign exchange transactions for less than six months is not subjected to foreign exchange management act.

Foreign Exchange Reserve of FERA and FEMA

Foreign Exchange Regulation Act was formulated and implemented when the country was experiencing challenges in its foreign exchange reserves. This means that FERA was a countermeasure that came into force to liberate the country from foreign exchange challenges.

The Foreign Exchange Management Act was formulated and implemented when the foreign exchange reserve of India was satisfactory. It was expressed to increase effectiveness and efficiency of the existing Foreign Exchange Regulation Act (FERA).

Approach/Methodology if FERA and FEMA

FERA executes and controls foreign exchange transactions quietly and conservatively, which do many foreign exchange experts as restrictive consider. The act has a large number of sections (81), which portrays how detailed and exhaustive the law is.

FEMA is considered to be a flexible act that incorporates other measures towards the management and control of the foreign exchange market. Additionally, FEMA is short with 49 sections, which are not detailed or restrictive.

Violation and Punishment

FERA is a non-compoundable offense, which means that the complainant cannot enter into a compromise and drop the case against the accused. However, FEMA is a compoundable violation where the accused can choose to agree with the accused and drop the charges.

Any attempt to act against the provisions of FEMA attracts a monetary penalty, which may change to imprisonment if the accused fails to pay the financial penalty on time. On the other hand, contravening the provisions of FERA results to jail term with no requirement of monetary charges.

Origin/Year of Enactment

The Foreign Exchange Regulation Act (FERA) is the older of the two provisions enacted to control and facilitate foreign exchange in India. The act was formulated and implemented in 1973.

The Foreign Exchange Management Act is an extension of the earlier foreign exchange regulation act. It was formulated and implemented to increase efficiency and effectiveness in the foreign exchange market. This statute was enacted in 1999.

Differences Between FERA and FEMA: Comparison table for FERA vs.  FEMA


Summary of  FERA vs. FEMA

  • FERA and FEMA are acts of parliament that were formulated and enacted to facilitate foreign exchange market in India.
  • FERA is the older act, which was later replaced by the flexible and efficient FEMA in 1999.
  • FERA applied to the citizens of India and was enacted at a time when the foreign exchange of the country was experiencing challenges while FEMA applied to persons staying in India for more than six months.
  • Other notable differences between the two acts include an approach to forex, violation, and punishment, the basis for residential status, and purpose among others.

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References :

[0]Goldman, Martin E., and Joseph L. Magrino Jr. "Some Foreign Aspects of Securities Regulation: Towards a Reevaluation of Section 30 (b) of the Securities Exchange Act of 1934." Virginia Law Review (1969): 1015-1042. 

[1]Marshall, Andrew P., and Pauline Weetman. "Information asymmetry in the disclosure of foreign exchange risk management: can regulation be effective?." Journal of Economics and Business 54.1 (2002): 31-53. 

[2]Roy, S. K. "Foreign Exchange Regulation Act, 1973." Calcutta: Kamal Law House (1973). 

[3]Image credit: https://en.wikipedia.org/wiki/Security_(finance)#/media/File:Philippine-stock-market-board.jpg

[4]Image credit: https://upload.wikimedia.org/wikipedia/commons/4/4e/India_1862_One_Mohur.jpg

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