The exchange control in India was introduced on September 3rd, 1939, during the early period of second world war time under the powers conferred by the defence of India Rules. The emergency provisions were subsequently replaced by the Foreign Exchange Regulations Act, 1947 which came into operation on March 25, 1947. Foreign Exchange Management Act (FEMA) witnessed a comprehensive revision in the wake of the changed needs of the economy during the post-independence period and was replaced by the Foreign Exchange Regulations Act, 1973 known as FERA. The onset of the era of liberalisation of the external sector of the economy and the industrial licensing followed by Partial Convertibility of Rupee and full convertibility on current account necessitated the need for further extensive amendments in the Foreign Exchange Regulations Act (FERA), which were brought about by the Foreign Exchange Regulations (Amendment) Act, 1993. FERA was replaced by Foreign Exchange Management Act (FEMA), 1999.
FEMA has been brought to consolidate and amend the law relating to foreign exchange. The basic objective of this Act is to facilitate external trade and payments and to promote the orderly development and maintenance of foreign exchange market in India. This Act deals various regulations of foreign exchange like holding and transactions of foreign exchange, export of goods and services, realization, and repatriation of foreign exchange, etc. The role of authorized person, the provisions of contravention and penalties and the procedures of adjudication and appeal and the power of Directorate of Enforcement are dealt at great length in this Act.
The Reserve bank of India frames rules and regulations as per FEMA provisions, which are amended periodically. Main comprehensive Notifications incorporating the same are:
- Foreign Exchange Management (Export of Goods and Services) Regulations, 2000;
- Foreign Exchange Management (Current Account Transactions) Rules, 2000;
- Foreign Exchange Management (Manner of receipt and payment) regulations, 2000.