Why in the news
ED has sent notices invoking Section 3(a) of FEMA to residents who had friends or agents abroad pay initial instalments (10-20%) for artwork, watches or property, even where deals were genuine.
About FEMA
- India’s main law on foreign exchange, external trade and cross-border capital flows; in force from 1 June 2000.
- Administered by the Ministry of Finance; enforced by RBI and the Enforcement Directorate.
- Aims: ease external trade and payments, develop the forex market in an orderly way, shift from control to management, attract investment.
- Violations are civil, with focus on penalties rather than jail.
Transaction types
| Type | Nature | Examples |
|---|
| Current account | Trade, services, income, remittances; generally allowed | Import-export payments, foreign travel, education, medical costs, interest and dividends |
| Capital account | Capital flows, asset or liability creation; regulated | FDI, ECBs, property abroad, securities issued to non-residents |
Who does what
- RBI: regulates capital account, frames rules, authorises dealers.
- Central Government: sets current account rules.
- ED: investigates and adjudicates contraventions.
FEMA vs FERA
| Basis | FEMA (1999) | FERA (1973) |
|---|
| Approach | Facilitative | Restrictive |
| Nature | Civil | Criminal |
| Focus | Managing forex | Conserving forex |
| Presumption | Innocent until proven guilty | Guilty until proven innocent |
| Economy | Liberalised | Closed |
Exam angle
- Authorised Person: bank or entity licensed by RBI for forex dealing.