"Foreign Exchange Management Act is the full form of FEMA. " The Central Government of India enacted it to facilitate foreign payments and also cross-border trade in India. Foreign Exchange Management Act (FEMA) was enacted in the year 1999 to exchange FERA (Foreign Exchange Regulation Act). FEMA was created to address all the inadequacies and inadequacies of FERA (Foreign Exchange Regulation Act) and, as a result, enacted several economic changes (significant reforms). It was created primarily to deregulate and liberalize the Indian economy.
It was established in India with the primary objective of facilitating international trade and payments. FEMA was also created to facilitate the growth and management of the Indian money market in an orderly manner.
Types of Foreign Currency Transactions
Current Account Transactions and Capital Account Transactions are the categories of foreign currency transactions.
The capital account includes all capital transactions, while the current account includes trade in goods. Current account transactions involve the inflow and outflow of money into and out of a nation or countries during the year due to trading/providing commodities, services, and income.
The current account is a measure of a country's economic health. As stated earlier, the balance of payments consists of the current and capital accounts, with the capital account accounting for the flow of capital in the economy due to capital receipts and expenditures. Domestic investment in foreign assets and foreign investment in domestic assets are reported in the capital account.
FEMA (Foreign Exchange Management Act) applies to the whole of India and agencies and offices operating outside India (owned or managed by an Indian citizen).
Role of FEMA
The primary purpose of FEMA is to facilitate foreign trade. Its ongoing process follows the provisions regarding the procedures and formalities of foreign exchange transactions in India. It (FEMA) is divided into two parts:
- Current account transactions
- Capital account transactions
FEMA is applicable all over India, and its agencies are spread worldwide.
Feature of FEMA
Certain activities, such as payments to any person outside India or any transaction in foreign currency, are prohibited.
Trades foreign exchange under a current account through an authorized person and may be prohibited by the central government.
Residents of India are permitted to transact in foreign currency or hold any fixed asset outside India, provided the property, security, or currency was owned while living outside India.
Major provisions contained in FEMA
The provisions of FEMA, 1999 are as follows-
- Trading in foreign exchange, etc.
- Current account transactions
- Trading (export of goods and services)
- RBI to inspect authorized persons.