FEMA to facilitate external trade and payments

By Our Special Correspondent

MUMBAI, JUNE 2. The Reserve Bank of India today stated that the Foreign Exchange Management Act (FEMA) and rules give full freedom to a person now resident in India who was earlier a non- resident to hold or own or transfer any foreign security or immovable property situated outside India and acquired when he/she was resident there. Similar freedom is also given to a resident who inherits such security or immovable property from a person resident outside India.

The FEMA, 1999 has come into effect on June 1 and has replaced the Foreign Exchange Regulation Act, 1973. According to a press release issued here today by the RBI, ``the object of the Foreign Exchange Regulation Act, 1973, was to conserve foreign exchange resources, whereas the object of the new Act, Foreign Exchange Management Act, 1999, is to facilitate external trade and payments and to promote orderly maintenance of the foreign exchange market in India.''

Further, the RBI stated, a person resident outside India is permitted to hold shares, securities and properties acquired by him while he/she was resident in India. A person resident outside India is also permitted to hold such properties inherited from a person resident in India. The exchange drawn can also be used for purposes other than for which it is drawn provided drawal of exchange is otherwise permitted for such purpose.

Certain prescribed limits have been substantially enhanced. For instance, residents now going abroad for business purposes or for participating in conferences/seminars need not seek the RBI's permission to avail themselves of foreign exchange up to $25,000 per trip irrespective of the period of stay; the basic travel quota has been increased to $5,000 from $3,000 per calendar year; gifts have been increased to $5,000 from $1,000; donations to $5,000 from $1,000; employment to $5,000 from $2,500; emigration to $5,000 from $3,000 and maintenance of close relatives at $5,000.

The Exchange Earners' Foreign Currency (EEFC) account holders and Residents' Foreign Exchange (RFC) account holders are permitted to freely use the funds held in EEFC/RFC accounts for payment of all permissible current account transactions.

The rules for foreign investment in India and Indian investment abroad are also comprehensive, transparent and permit Indian companies engaged in certain specified sectors to acquire shares of foreign companies engaged in similar activities by share swap or exchange through issue of ADRs/GDRs up to certain specified limits.

The new Act repeals the old FERA. But any offence committed under the old Act which is taken cognisance of by a court within two years from the repeal of FERA would be dealt with under the provisions of the old Act. FEMA is a civil law unlike FERA.

Contravention under FEMA will be dealt with through civil procedures. Unlike in FERA, the burden of proof under FEMA will be on the enforcement agency and not on the implicated. FEMA describes an elaborate redressal machinery for total justice and fairness to the implicated while deciding on the question of contravention.

Application of FEMA may be seen broadly from two angles, namely, capital account transactions and current account transactions. Capital account transactions relate to movement of capital, for example, transactions in property and investments and lending and borrowing of money.

There are seven types of current account transactions which are totally prohibited and no transaction can, therefore, be undertaken relating to them. These include transactions relating to lotteries, football pools, banned magazines and a few others.

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