Difference between FERA and FEMA

Last Updated: 2 Sep 2025

India has stringent rules governing foreign exchange to control money flow and protect its economy. The Foreign Exchange Regulation Act and the Foreign Exchange Management Act are the two main laws that control foreign exchange transactions in India. These regulations guarantee the preservation of the nation’s foreign exchange reserves and the oversight of all cross-border transactions. So, let’s explore FEMA and FERA difference in detail.

What is FERA?

In order to control foreign exchange operations and protect the nation’s foreign exchange reserves, the Foreign Exchange Regulation Act (FERA) was passed into law in India in 1973. The main goal of FERA, which was enacted during a period of low foreign exchange reserves in India, was to stop the improper use of foreign currency and illicit activities utilizing it. FERA enforced strict regulations on a variety of forex-related transactions, such as:

• Converting currencies
• Transfers of funds
• Purchasing overseas property
• Deals involving people who are not residents

The act also gave the Reserve Bank of India (RBI) the authority to keep an eye on these activities, regulate them, and, in the event that non-compliance occurs, confiscate assets in addition to harsh penalties and jail. For numerous decades, FERA significantly influenced India’s foreign exchange environment, earning it a reputation for its stringent enforcement methods. Nonetheless, the act faced criticism due to its intricate processes, severe penalties, and perceived impediment to the liberalization of the economy

What is FEMA?

FEMA’s full form is Foreign Exchange Management Act, also known as FEMA. In order to improve India’s foreign exchange management and structure, it superseded FERA in 1999. FEMA has around 49 sections, and their main aim is to: –

• Established a structured system for managing India’s foreign exchange
• Develop clear policies and rules to control the foreign exchange market
• Facilitated payments and trade with other countries using a defined strategy
• Establish a clear legal framework to manage the legal processes

What is the Difference Between FEMA and FERA?

Aspect	FERA	FEMA
Full Form	Foreign Exchange Regulation Act	Foreign Exchange Management Act
Enactment Year	Enacted in 1973	Enacted in 1999
Objective	Control and regulate foreign exchange	Manage and facilitate foreign exchange
Regulatory Authority	Central Government	Reserve Bank of India (RBI)
Focus	Regulation	Management
Penalties	Strict penalties and criminal charges for violations	Emphasis on compliance and civil penalties
Liberalization	Restrictive in nature, aimed at protecting the Indian economy	A more liberal approach, encouraging foreign investment and trade
Provisions	Stringent controls on foreign exchange transactions, licenses required for various activities	Simplified procedures, fewer restrictions, emphasis on reporting and compliance
Enforcement	Rigid enforcement, emphasis on punishment for violations	More flexible enforcement, focus on education, and compliance

What is the Importance of FERA and FEMA?

Two important laws that control foreign exchange transactions in India are the Foreign Exchange Regulation Act and Foreign Exchange Management Act. Let’s talk about their importance in detail: –

• Foreign Exchange Regulation (FERA)

Before FEMA, FERA was enacted into law in 1973 to regulate foreign exchange transactions in India. Its intention was to maintain and manage the country’s foreign exchange reserves, which are vital for the health of the economy. Furthermore, under FERA, rigorous regulations were established for all foreign exchange transactions, including investment and remittances.

• FEMA: Foreign Exchange Management Modernisation

When FEMA replaced FERA in 1999, the foreign currency management policy of India underwent a radical change. To simplify cross-border trade and investment, FEMA liberalised several foreign exchange transaction areas and aligned them with international economic trends.

• FERA’s Significance in Maintaining Economic Stability

While it was in operation, FERA played a crucial role in safeguarding India’s reserves of foreign exchange. FERA attempted to maintain economic stability and prevent an unjustified erosion of reserves by managing the movement of foreign exchange. Its stringent laws, however, at times made it more complicated to conduct business as well as attract foreign investment.

• FEMA’s Significance: Promoting Economic Development

The establishment of FEMA revolutionised the foreign currency management landscape of India. Streamlining processes and deregulating legislation enhanced the environment for foreign investment and trade. Additionally, FEMA facilitated opportunities for foreign investors to explore India, thus driving economic growth and development.

• Harmonising FERA and FEMA: Regulatory Framework Evolution

They were active during different eras of the regulation of foreign currency. But both FERA and FEMA are important due to the manner in which India’s regulatory framework evolved. While FEMA adapted to changing global forces with economic growth and liberalisation, FERA laid down the architecture for dealing with foreign exchange in a controlled scenario.

The Bottom Line

Two significant acts that have governed foreign exchange transactions in India are FEMA and FERA. FEMA aims to liberalise and simplify the process, while FERA was more interested in governing and controlling such types of transactions. These actions have greatly helped shape how India’s economy has evolved and how it has become integrated into the global market. Thus, to avoid any legal action, it is essential that businesses and individuals handling foreign exchange understand these rules and follow the conditions.

Frequently Asked Questions

What is the difference between FERA and FEMA?

The main difference lies in their objectives, with FERA focusing on control and regulation of foreign exchange transactions, while FEMA focuses on management and facilitation.

Can residents of India invest in foreign securities under FEMA?

Yes, residents of India can invest in foreign securities subject to certain conditions and limits prescribed by RBI.

Is there a separate court system for handling violations under FEMA?

No, FEMA follows the regular judicial system in India.

What is the punishment for violating FERA?

Under FERA, violations could attract imprisonment for up to seven years and hefty fines.