Key Features of the Foreign Exchange Management Act (FEMA)
Regulation of Foreign Exchange
FEMA regulates all foreign exchange transactions, dealings in foreign currency, and payments made in foreign currency within India. It also governs transactions involving foreign securities, export and import of goods and services, and foreign direct investment.
Authorized Persons
FEMA empowers the Reserve Bank of India (RBI) to designate certain persons or entities as "Authorized Persons" who can deal with foreign exchange transactions on behalf of others, subject to the provisions of the Act.
Current and Capital Account Transactions
FEMA distinguishes between current account transactions (relating to trade in goods and services) and capital account transactions (relating to investments and capital flows). While current account transactions are relatively liberalized, capital account transactions are subject to specific regulations.
Foreign Investment
FEMA governs foreign investment in India and sets out the guidelines for foreign direct investment (FDI) and foreign portfolio investment (FPI) in various sectors. It also prescribes the limits and conditions for foreign institutional investors (FIIs) and foreign venture capital investors (FVCIs).
Penalties and Offenses
The Act lays down penalties for violations and offenses related to foreign exchange transactions. These can include fines and penalties, confiscation of contravening assets, and prosecution in certain cases.
Enforcement Directorate
The Enforcement Directorate (ED) is the agency responsible for enforcing FEMA and investigating violations. It has the authority to conduct inquiries, seize documents, and take appropriate action against offenders.
Liberalization Measures
Over the years, FEMA has been periodically amended to introduce liberalization measures to encourage foreign investments and facilitate trade. The Act allows the central government and RBI to notify specific transactions and sectors for further liberalization.
