The Foreign Exchange Regulation Act (FERA) was legislation passed in India in 1973 that imposed strict regulations on certain kinds of payments, the dealings in foreign exchange (forex) and securities and the transactions which had an indirect impact on the foreign exchange and the import and export of currency. The bill was formulated with the aim of regulating payments and foreign exchange.
FERA came into force with effect from January 1, 1974.
FERA was introduced at a time when foreign exchange (Forex) reserves of the country were low, Forex being a scarce commodity. FERA therefore proceeded on the presumption that all foreign exchange earned by Indian residents rightfully belonged to the Government of India and had to be collected and surrendered to the Reserve Bank of India (RBI). FERA primarily prohibited all transactions not permitted by RBI.
Coca-Cola was India’s leading soft drink until 1977 when it left India after a new government ordered the company to dilute its stake in its Indian unit as required by the Foreign Exchange Regulation Act (FERA). In 1993, the company (along with PepsiCo) returned after the introduction of India’s Liberalization policy.
- Activities such as payments made to any person outside India or receipts from them, along with the deals in foreign exchange and foreign security is restricted. It is FEMA that gives the central government the power to impose the restrictions.
- Free transactions on current account subject to reasonable restrictions that may be imposed.
- Without general or specific permission of FEMA, MA restricts the transactions involving foreign exchange or foreign security and payments from outside the country to India – the transactions should be made only through an authorized person.
- Deals in foreign exchange under the current account by an authorized person can be restricted by the Central Government, based on public interest generally.
- Although selling or drawing of foreign exchange is done through an authorized person, the RBI is empowered by this Act to subject the capital account transactions to a number of restrictions.
- Residents of India will be permitted to carry out transactions in foreign exchange, foreign security or to own or hold immovable property abroad if the currency, security or property was owned or acquired when he/she was living outside India, or when it was inherited by him/her from someone living outside India.
Foreign Exchange Reserve is generally referred to the money or other any assets next to money held by Central Bank or similar monetary authority. The foreign exchange reserve is comprised of various monetary products ranging from foreign banknote, foreign bank deposits, and foreign treasury bills to short- & long-term foreign government securities. However, in common usage, it includes the gold reserves, SDRs (Special Drawing Rights), International Monetary Fund (IMF) reserve Fund.
The term authorized dealer refers to any type of financial institutions who has received authorization from the RBI as a dealer to involve in trading of foreign currencies. The transaction of the authorized dealer should have been conducted in pursuance of a legal mode and under the framework established by law. Authorized dealers are nothing else but the market pronounced name of AMC i.e., Authorized Money Changer. As per master circular no. 10/2013-14 of RBI dated 01st July 2013 it describes that the AMC/ADs are entities, authorized by the Reserve Bank under section 10of the Foreign exchange Management Act 1999. In addition to Authorized Dealers category-I Banks (AD Category –I Banks) and Authorized Dealer Category–II (Ads category-II), Full Fledged Money Changers (FFMCs) are authorized by Reserve Bank to deal in Foreign exchange for specified purposes, to widen the access of foreign exchange facilities to residents and tourists while ensuring efficient customer service through competition.
|Category of ADs||
|Authorized Dealers Category – I (ADs- I )||All Commercial Banks And Scheduled banks registered Under RBI Act.
Urban Co-operative Banks (To some prescribed extent).
|It deals in all type of current ant capital account transaction according to the norms and procedure laid down by RBI.|
|Authorized Dealers Category – II (ADs- II )||Upgraded Full Fledged Money Changer and another new inclusion like Department of Post and various type of NBFCs who are operated in open market||It deals in transaction of foreign exchange which is non-trade in characteristics.|
|Authorized Dealers Category – III (ADs- II)||Financial Institutions, EXIM Bank, SIDBI, IFCI, Clearing corporation of India and Various Factoring Agents.||It deals with the activities which are incidental to financing of international trade related activities undertaken by these institutions.|
|Full Fledged money Changer (FFMCs)||It can any entities who are related with the finance sector including NBFCs, Department of Post etc.,||FFMCs are authorized to purchase foreign exchange from resident and non-resident visiting India and to sell Foreign Exchange for certain approved purposes.|
Authorized Dealers Category–I (ADs–I)
As per the latest circular Issued by the RBI, there are around 110 entities who are qualified under the segment of Authorized Dealers category–I. It includes all type of Commercial Banks irrespective of Nationalized Banks, Scheduled Banks, Private Banks and Foreign Commercial Banks operating in India. These segments of banks allowed to deals in all type of foreign exchange transaction related to current and capital account transaction according to the norms and procedure laid down by RBI.
Authorized Dealers Category – II (ADs–II)
The second category of authorized dealer operates under the restrictive environment for the implementation of some specified purposes prescribed by RBI. It includes the Upgraded Full Fledged Money Changer and another new inclusion like Department Of Post and various types of NBFCs who are operated in open markets. As per RBI the detailed of dealers classified under this category are considered as per region basis. At present, there are 11 regions in India which under this category.
Authorized Dealers Category -III (ADs–II)
The third category of authorized dealer operates with the purpose to boost the international trade by proving them adequate availability foreign currency for promotion of international trade as per the norms lay down in section 10 of the FEMA Act 1999. It includes the major player of financial institutions like IFCI, SIDBI EXIM Bank and various Factor Agencies.
Full-Fledged money Change (FFMCs)
It is the new aspect of regulation of Indian Foreign Exchange markets. It may be any financial entity other than Commercial Banks who qualified the norms and criteria laid down by RBI. FFMCs are authorized to purchase foreign exchange from resident and non-resident visiting India and to sell Foreign Exchange for certain approved purposes. The main objective of the enactment of FFMCs is to provide easy access to foreign exchange transaction to common masses.