Difference between FERA and FEMA

Objective

Focused on strict regulation and control of foreign exchange transactions, aimed at conserving foreign exchange reserves and preventing their depletion.

Aimed at liberalizing and simplifying foreign exchange regulations to promote foreign investment, facilitate trade, and encourage economic growth.

Date of Enactment

Enacted in 1973.

Enacted in 1999, repealing FERA.

Approach

Adopted a restrictive and controlling approach to foreign exchange management, requiring government approval for many transactions.

Adopted a liberal and market-oriented approach, emphasizing simplification of regulations and promoting ease of doing business.

Categories of Transactions

Did not distinguish between current account transactions and capital account transactions.

Categorized foreign exchange transactions into current account transactions (trade-related payments) and capital account transactions (investments and loans), subjecting them to different regulatory frameworks.

Authorized Dealers

Did not have a formal system of authorized dealers for foreign exchange transactions.

Established a system of authorized dealers, such as banks and financial institutions, to facilitate foreign exchange transactions and ensure compliance with regulations.

Penalties

Imposed stringent penalties, including fines and imprisonment, for violations of its provisions.

Imposes penalties for non-compliance but generally has less severe penalties compared to FERA.

Flexibility

Offered limited flexibility in foreign exchange transactions, with many transactions requiring prior approval from government authorities.

Introduced greater flexibility in foreign exchange transactions, allowing for more streamlined procedures and fewer restrictions, especially in current account transactions.