FERA AND

FEMA

Submitted to : Prof. Anant Amdekar

 Group 2
• Anand Chafekar 08
• Ankit Panchmatia 10
• Arham Ali Zaidi 13
• Awiz Chogle 22
• Deoul Shah 30
• Dhvani Pathak 33
• Divya Balsara 35
• Fahad Kadri 38
• Goutam Amasi 50
• Haseeb Ansari 53
Key Terms with respect to
FERA & FEMA
 Authorized Person - "Authorized person" means an authorized
dealer, moneychanger, offshore banking unit or any other person
for the time being authorized to deal in foreign exchange
securities

 Capital Account Transaction - "Capital account transaction"

means a transaction which alters the assets or liabilities, including
contingent liabilities, outside India of persons resident in India or
assets or liabilities in India of person resident outside India

 Current account transaction - "Current account transaction"

means a transaction other than a capital account transactions”
 Foreign exchange reserves - A country's reserves of
foreign currencies. Commonly known as "quick cash", they
can be used immediately to finance imports and other
foreign payables

 Capital account convertibility - Capital Account

Convertibility refers to the freedom to convert local financial
assets into foreign financial assets and vice versa at
market determined rates of exchange. It is associated with
changes of ownership in foreign/domestic financial assets
and liabilities and embodies the creation and liquidation of
claims on, or by, the rest of the world
Foreign Exchange Regulation
Act ( FERA) , 1973

An Act to consolidate and amend

the law regulating certain
payments, dealings in foreign
exchange and securities,
transactions indirectly affecting
foreign exchange and the import
and export of currency, for
enhancing the economic
development of the country.
 CASE STUDY 1

FERA VIOLATIONS
BY ITC
 ITC started Bukhara chains of restaurants

 Huge losses

 ITC honoured its commitment by giving 25% ROI

 ITC took the help of the “Chitalias”

 Chitalias bought the Bukhara chains of restaurants

 To compensate them 4 million dollars was transferred to them in cash

through Swiss Account

 This deal was the beginning of a series of events for which ITC was charged
for contravention of FERA regulations
Fraudulent Activities
 Rotten rice exported to Srilanka
 Bogey companies
 ITC had asked all its overseas buyers to route their orders through Chitalias
 Over invoicing exports
 Direct Payments
 Bankruptcy
 Huge Outstanding debts
 BAT (British American Tobacco)

Charges
 Over invoicing
 Cash payments
 For bringing funds into India not conforming to prescribed norms
 Using funds for personal use
 Need for fema

• Introduced at a time when foreign exchange (forex)

reserves of the country were low

• It regulated not only transactions in forex, but also all

financial transactions with non-residents

• The winds of liberalization

• Case of the eminent industrialist, S.L.Kirloskar

 To facilitate external trade and
payments
fema
 To promote orderly maintenance
of the foreign exchange market in
India

 To relax controls on joint

ventures, collaborations,
subsidiary establishments and the
like both in India by foreigners
and abroad by Indians
 Extent of fema
• FEMA extends to the whole of India

• Applies to all branches, offices and agencies outside

India owned or controlled by a person who is a resident
of India

• Applies to any contravention there under committed

outside India by any person to whom this Act applies

• Any person may sell or draw foreign exchange to or from

an authorized person for a capital account transaction
 Transactions under fema
Current Account Transactions

• Payments due in connection with foreign trade, other account current

business, services and short term banking and credit facilities in entire
ordinary course of business

• Payments due as interest on loans and as net income from the

investments

• Remittances for living expenses of parents, spouse and children residing

abroad

• Expenses in connection with foreign travel, education and medical care

of parents, spouse and children
 Some Transactions prohibited in current account

• Remittance out of lottery winnings

• Payment of commission on exports made towards equity

investment in Joint Ventures/Wholly Owned Subsidiaries
abroad of Indian com­panies

• Remittance of dividend by any company to which the

requirement of dividend balancing is applicable
 Capital Account Transactions
Resident in India

• Investment by a person resident in India in foreign securities.

• Foreign currency loans raised in India and abroad by a person
resident in India
• Transfer of immovable property outside India by a person
resident in India
• Export, import and holding of currency/currency notes.
• Loans and overdrafts (borrowings) by a person resident in
India from a person resident outside India
• Maintenance of foreign currency accounts in India and outside
India by a person resident in India
 Resident outside India

 Issue of security by a body corporate or an entity in India and investment therein by

a person resident outside India; and

 Investment by way of contribution by a person resident outside India to the capital

of a firm or a proprietorship concern or an association of persons in India

 Acquisition and transfer of immovable property in India by a person resident outside

India

 Deposits between a person resident in India and a person resident outside India

 Remittance outside India of capital assets in India of a person resident outside India
FERA V/S FEMA
FERA FEMA
Capital Account
Presumption of negative Capital Account
Transaction, current Provisions These
49presumptions
sections
Transaction, current
intention (Mens
89 sections Rea )
Account Transaction, were excluded
Account
and joining hands in
Features Transaction, Person,
Person,
offenceService etc.
(abatement)
were not defined
existed New terms in FEMA Service etc. were
defined
Definition of authorized person

Meaning of "Resident" as compared with Income Tax Act

Punishment

Quantum of Penalty
Civil offence
Criminal offence Appeal
Three times
Five times Right of assistance during legal proceedings

Power of Search and Seize

Foreign direct investment
( FDI ) in india
 Background
• FDI basically means investment by a foreign company for purchase of
land, equipments, buildings etc in another country

• It also refers to the purchase of controlling interest in existing operations

and businesses. It could be through mergers and acquisitions

• It helps MNCs keep production costs down by accessing low wage labour
pools in developing countries

• As for developing nations, such investments help them access

technology and ensure jobs for its unemployed population
 Foreign direct investments in India are
approved through two routes
Automatic approval by RBI –
 The Reserve Bank of India accords automatic approval within a period of two weeks (subject to
compliance of norms) to all proposals and permits foreign equity up to 24%; 50%; 51%; 74%
and 100% is allowed depending on the category of industries and the sectoral caps applicable

 The lists are comprehensive and cover most industries of interest to foreign companies

 Investments in high priority industries or for trading companies primarily engaged in exporting
are given almost automatic approval by the RBI
 The FIPB Route – Processing of non-automatic
approval cases –

 FIPB stands for Foreign Investment Promotion Board which approves

all other cases where the parameters of automatic approval are not met

 Normal processing time is 4 to 6 weeks. Its approach is liberal for all

sectors and all types of proposals, and rejections are few

 It is not necessary for foreign investors to have a local partner, even

when the foreign investor wishes to hold less than the entire equity of
the company. The portion of the equity not proposed to be held by the
foreign investor can be offered to the public
 FDI Inflow over the years
Year FDI inflow (Rs in Cr)
1991-92 316
1995-96 7172
2000-01 18406
2001-02 29235
2002-03 24367
2003-04 19860
2004-05 27188
2005-06 39674
2006-07 103367
2007-08 140180
2008-09 161536
2009-10 176304

Source : Directorate General of Commercial Intelligence & Statistics

 FDI SCENERIO IN INDIA
 India attracted FDI equity inflows of US$ 2,214 million in April
2010
 The cumulative amount of FDI equity inflows from August 1991 to
April 2010 stood at US$ 134,642 million
 In April 2010, the telecommunication sector attracted the highest
amount of FDI worth US$ 430 million, followed by services sector
at US$ 355 million and computer hardware and software at US$
172 million

India has been ranked at the third place in global foreign direct
investments in 2009 and will continue to remain among the top
five attractive destinations for international investors during 2010-
11
 Investment Scenario
In May 2010, the government cleared 24 foreign investment proposals,
worth US$ 304.7 million. These include:

• Asianet's proposal worth US$ 91.7 million to undertake the business

of broadcasting non-news and current affairs television channels

• Global media magnate Rupert Murdoch-controlled Star India

holdings' investment of US$ 70 million to acquire shares of direct-to-
home (DTH) provider Tata Sky

• AIP Power will set up power plants either directly or indirectly by

promotion of joint ventures at an investment of US$ 24.4 million
• Sembcorp Utilities, a company based in Singapore, has picked up
49 per cent stake in the 1,320 mega watt (MW) coal-fired plant of
Thermal Powertech Corporation India Ltd, a special purpose
vehicle and subsidiary of Gayatri Projects Ltd, for US$ 235.1 million

• IL&FS Investment Managers (IIML) plans to invest US$ 300 million,

in real estate and urban infrastructure projects by the end of 2010

• Cinepolis, a Mexico-based multiplex operator, is looking at

expanding its footprint in India. The company which started
operations in India last year plans to invest US$ 350 million in the
next five years to operate 500 screens in 40 cities
Exports and imports
of india
 Export Import through the Years
Year Export Import Trade Balance
(Rs in CR) (Rs in CR) (Rs in CR)

1991-92 44041 47851 (3810)

1995 -96 106353 122678 (16325)

2000-01 203571 230873 (27302)

2006-07 571779 840506 (268727)

2007-08 655864 1012312 (356448)

2008-09 840755 1374436 (533680)

2009-10(Sep) 845125 1356468 (511343)

Source : Directorate General of Commercial Intelligence & Statistics

CASE STUDY 2

FEMA
VIOLATIONS BY
RELIANCE
• Reliance Energy raised a $360-million ECB for investment in infrastructure
projects in India

• Out of this $300 million repatriated to India

• Invested these funds in Reliance Mutual Fund Growth Option and Reliance
Floating Rate Fund Growth Option

• On the next day the entire funds where withdrawn & invested in Reliance
Fixed Horizon Fund III Annual Plan series V

• After 315 days these funds where again withdrawn & used for investment in
capital of an overseas joint venture called Gourock Ventures based in British
Virgin Islands
 Conclusion
• Thus it can be concluded that FERA was introduced so that Government
Of India acquire complete monopoly over forex
• FEMA was introduced as situation changed economically, socially and
politically
• Once FEMA came into the picture liberalisation entered the expressway
towards globalisation
• Since FEMA was introduced the FDI scenario has improved tremendously
and INDIA has become a major global player
• INDIA has also emerged as an important partner to many countries in
terms of trade over the years, FEMA has played an important part in this
development

FEMA has played a pivotal part in INDIA becoming a major

global player
THANK
YOU