What is the expansion of FERA?
VerifiedAnswer: Foreign Exchange Regulation Act
Explanation:
FERA stands for Foreign Exchange Regulation Act, which was a significant piece of legislation in India's economic history. This act was enacted in 1973 and remained in force until it was replaced by FEMA (Foreign Exchange Management Act) in the year 2000.
The primary purpose of FERA was to regulate foreign exchange transactions and conserve India's foreign exchange reserves during a time when the country faced severe balance of payments crisis. Under this act, the government maintained strict control over foreign currency transactions, foreign investments, and import-export activities. It was designed to prevent the depletion of foreign exchange reserves and maintain economic stability.
FERA had several key features that made it quite restrictive. Indian residents were not allowed to hold foreign currency or foreign securities without specific permission from the Reserve Bank of India. The act also imposed strict regulations on foreign companies operating in India, requiring them to reduce their equity holdings to 40% or less in Indian companies. This led many multinational corporations to either dilute their stakes or exit the Indian market entirely.
The enforcement of FERA was quite stringent, and violations could result in severe penalties including imprisonment and heavy fines. The act created an environment of regulatory control that, while protecting India's foreign exchange reserves, also limited the country's integration with the global economy and restricted foreign investment flows.
With India's economic liberalization in 1991 and the gradual opening up of the economy, FERA became outdated and counterproductive to the new economic policies. Consequently, it was replaced by FEMA in 2000, which adopted a more liberal approach towards foreign exchange management and facilitated India's integration with the global economy while maintaining necessary regulatory oversight.
