UKPSC Prelims 2024 General Studies Paper-I · Question 51 of 147

Correct — D, 1999.

The Foreign Exchange Management Act was passed by Parliament in December 1999 and received the President's assent on 29 December 1999, so it is cited as FEMA, 1999 (Act 42 of 1999). It replaced the Foreign Exchange Regulation Act of 1973 as India's framework for dealings in foreign exchange.

The idea to carry away is that regulation gave way to management. FERA treated foreign exchange as a scarce resource to be conserved and its breach as a crime; FEMA treats it as something to be facilitated for trade and payments, with breaches handled as civil contraventions.

Two dates belong to FEMA. 1999 is the year it was enacted; 1 June 2000 is the day it came into force. The stem asks when the Act came into existence, and 2000 is not among the options, so 1999 is the answer.

• (a)
  1973 — 1973 is the year of the Act that FEMA replaced, not of FEMA itself. The Foreign Exchange Regulation Act (FERA), 1973 was enacted that year and came into force on 1 January 1974, tightening the earlier 1947 regime.

  FEMA repealed FERA when FEMA came into force on 1 June 2000, so the two years mark the two ends of the FERA era.

• (b)
  1980 — 1980 belongs to a different chapter of the economy timeline: it is the year of the second round of bank nationalisation, when six more commercial banks were taken into public ownership in April 1980.

  Between FERA (in force from 1974) and FEMA (enacted 1999), 1980 falls inside the FERA era, when foreign exchange was still strictly regulated.

• (c)
  1998 — 1998 is close, but it is the year of a Bill rather than of the Act.

  A Foreign Exchange Management Bill was introduced in the Lok Sabha in 1998 and examined by the Standing Committee on Finance; that Bill lapsed when the Lok Sabha was dissolved, and a fresh Bill was passed in 1999.

  An Act carries the year of its enactment in its short title, which for FEMA is 1999.

FEMA, 1999 is the law that governs dealings in foreign exchange and foreign securities in India, and transactions between residents and non-residents. It sets out who may deal in foreign exchange (authorised persons), which current account and capital account transactions are permitted, and how contraventions are penalised.

Its stated purpose is to facilitate external trade and payments and to promote the orderly development and maintenance of the foreign exchange market in India. The Reserve Bank of India administers the Act; the Directorate of Enforcement investigates contraventions.

• FEMA received Presidential assent on 29 December 1999 and is Act No. 42 of 1999.
• FEMA came into force on 1 June 2000, the date appointed by the Central Government under Section 1(4).
• It repealed the Foreign Exchange Regulation Act, 1973, which had been in force since 1 January 1974.
• The Act has 49 sections arranged in seven chapters.
• A contravention is a civil matter: the penalty can be up to three times the sum involved, or up to two lakh rupees where the sum is not quantifiable.
• A continuing contravention can attract a further penalty of up to five thousand rupees for each day it continues.
• Contraventions under FEMA may be compounded on application by the person who committed them.
• A 'person resident in India' is one who has resided in India for more than 182 days during the preceding financial year.
• The Reserve Bank of India administers FEMA and authorises the persons who may deal in foreign exchange.
• The Directorate of Enforcement, working under the Department of Revenue in the Ministry of Finance, investigates FEMA contraventions.
• FEMA extends to the whole of India and also to branches, offices and agencies outside India owned or controlled by a person resident in India.
• Since October 2019, rules on non-debt instruments such as equity FDI are made by the Central Government, while the RBI regulates debt instruments.

• Reading 'come into existence' as the commencement date: FEMA took effect on 1 June 2000, but its year of enactment, and the year in its name, is 1999.
• Picking 1973 because FERA is the more familiar acronym; 1973 is the Act that FEMA repealed.
• Picking 1998 because a Bill was introduced that year; a Bill's year is not the Act's year.
• Assuming FEMA, like FERA, makes violations criminal offences; under FEMA they are civil contraventions with monetary penalties.
• Placing the Directorate of Enforcement under the Department of Economic Affairs; it works under the Department of Revenue.

• practice — not a real PYQ

  The Foreign Exchange Management Act, 1999 repealed which of the following Acts?

  • (a)Foreign Exchange Regulation Act, 1947
  • (b)Foreign Exchange Regulation Act, 1973
  • (c)Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974
  • (d)Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976
  Answerb — FEMA repealed FERA, 1973 when it came into force on 1 June 2000. FERA, 1947 had already been replaced by FERA, 1973, so (a) was gone before FEMA existed.

  COFEPOSA, 1974 is a preventive detention law and SAFEMA, 1976 a property-forfeiture law; each remains in force and was not repealed by FEMA.

• practice — not a real PYQ

  Under the Foreign Exchange Management Act, 1999, a contravention of its provisions is treated as

  • (a)a criminal offence punishable with mandatory imprisonment
  • (b)a civil contravention attracting a monetary penalty
  • (c)an offence tried in the first instance by a Sessions Court
  • (d)an offence that cannot be compounded
  Answerb — FEMA decriminalised foreign exchange violations: an Adjudicating Authority imposes a monetary penalty of up to three times the sum involved. (a) describes the FERA regime that FEMA ended. (c) fails because adjudication under FEMA is administrative, not a court trial. (d) fails because Section 15 expressly allows contraventions to be compounded.
• practice — not a real PYQ

  Which agency investigates contraventions of FEMA, 1999, and under which department does it work?

  • (a)Directorate of Revenue Intelligence; Department of Economic Affairs
  • (b)Directorate of Enforcement; Department of Revenue
  • (c)Directorate of Enforcement; Department of Economic Affairs
  • (d)Central Bureau of Investigation; Ministry of Home Affairs
  Answerb — The Directorate of Enforcement investigates FEMA and PMLA cases and works under the Department of Revenue, Ministry of Finance. (c) has the right agency but the wrong department.

  (a) names the customs intelligence agency, which itself sits under the Department of Revenue, not Economic Affairs. (d) fails twice: the CBI works under the Ministry of Personnel, and FEMA enforcement is not its mandate.

• practice — not a real PYQ

  The Foreign Exchange Management Act, 1999 came into force with effect from

  • (a)29 December 1999
  • (b)1 January 2000
  • (c)1 April 2000
  • (d)1 June 2000
  Answerd — Section 1(4) left the commencement to a date appointed by the Central Government, which notified 1 June 2000. (a) is the date of Presidential assent, not of commencement. (b) and (c) are the calendar-year and financial-year starts, neither of which was the appointed date.