Foreign Exchange Management Act – FEMA

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The Central Government of India formulated an act to encourage external payments and across the border trades in India known as the Foreign Exchange Management Act. FEMA (Foreign Exchange Management Act) was introduced in the year 1999 to replace an earlier act FERA (Foreign Exchange Regulation Act). FEMA was formulated to fill all the loopholes and drawback of FERA (Foreign Exchange Regulation Act) and hence several economic reforms (major reforms) were introduced under the FEMA act. FEMA was basically introduced to de-regularize and have a liberal economy in India.

The main objective for which FEMA was introduced in India was to facilitate external trade and payments. In addition to this, FEMA was also formulated to assist orderly development and maintenance of the Indian forex market.

FEMA outlines the formalities and procedures for the dealings of all foreign exchange transactions in India. These foreign exchange transactions have been classified into two categories — Capital Account Transactions and Current Account Transactions.

Under the FEMA Act, the balance of payment is the record of dealings between the citizen of different countries in goods, services and assets. It is mainly divided into two categories, i.e. Capital Account and Current Account.

Capital Account comprises all capital transactions whereas Current Account comprises trade of merchandise. Current Account transactions are those transactions that involve inflow and outflow of money to and from the country/countries during a year, due to the trading/rendering of commodity, service, and income.

The current account is an indicator of an economy’s status. As mentioned above the balance of payment comprises current and capital accounts, the remainder of the Balance of Payment is Capital Account, which consists the movement of capital in the economy due to capital receipts and expenditure. Capital account recognises domestic investment in foreign assets and foreign investment in domestic.

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Hey i M Ankita Pal I Have completed my MBA in HR Finance and here i am working as blogger..

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