Consider the following statements: (1) FEMA came into effect from 1 June 2000. (2) FERA was mainly meant for external debt liability. Select the correct code with respect to the above statements.
- (a)Statements (1) and (2) are correct and (2) explains (1).
- (b)Statements (1) and (2) are correct but (2) does not explain (1).
- (c)Statement (1) is true, but (2) is false.
- (d)Statement (1) is false, but (2) is true.
Correct — C, Statement (1) is true, but (2) is false.
Statement (1) holds. The Foreign Exchange Management Act, 1999 (Act 42 of 1999) received the President's assent on 29 December 1999 and was brought into force on 1 June 2000. The date named in the statement is the commencement date, and it is right.
Statement (2) misdescribes FERA. The long title of the Foreign Exchange Regulation Act, 1973 sets out the regulation of payments, dealings in foreign exchange and securities, and transactions indirectly affecting foreign exchange — for the conservation of the country's foreign exchange resources.
That pairing is statement (1) true, statement (2) false, which is option C.
Carry away the boundary: FERA and FEMA are foreign-exchange statutes, whose object is first the conservation and then the management of forex dealings. External debt liability is a stock of borrowings, measured and reported separately from what these Acts set out to do.
- (a)Statements (1) and (2) are correct and (2) explains (1). — This code is the right answer to a pair where both statements stand and the second supplies the reason for the first. Neither condition is met here.
Statement (2) fails on its own, so the pair does not reach the linkage test. And a claim about what a 1973 Act was meant for would not account for the day a different 1999 Act was notified into force.
- (b)Statements (1) and (2) are correct but (2) does not explain (1). — This code is the right answer to a pair of independently true statements that have no causal link between them. It gets the second half right and the first half wrong.
It is true that FERA's purpose would not explain FEMA's commencement date. But the branch is unavailable, because option (b) still requires statement (2) to be correct, and FERA's stated object was the conservation of foreign exchange resources.
- (d)Statement (1) is false, but (2) is true. — This code is the right answer to an item where the dated statement misstates its date while the descriptive statement holds up. Here the truth values sit the other way round.
1 June 2000 is the correct commencement date for FEMA, so statement (1) survives. It is statement (2), on FERA's purpose, that does not.
Since independence three Acts have governed foreign exchange — FERA 1947, FERA 1973 and FEMA 1999. FERA, 1973 came into force on 1 January 1974, in a period of scarce reserves, and its stated purpose was the conservation of the country's foreign exchange resources.
FEMA, 1999 replaced it from 1 June 2000. Its preamble states the objective of facilitating external trade and payments and promoting the orderly development and maintenance of the foreign exchange market in India.
The change of the middle word — Regulation to Management — carries the change of approach: from restricting dealings to administering a liberalised market, with current account transactions largely free and capital account transactions regulated.
External debt liability is a separate idea. It is the outstanding amount owed by residents of a country to non-residents, tracked as a stock with a maturity and currency composition.
This item sits at the join between two things a candidate learns in the same week: the FERA-to-FEMA transition and India's external sector accounts. Both use the vocabulary of foreign exchange, which is what makes the swap in statement (2) look plausible.
The statutory position is that commercial borrowings raised abroad by residents are regulated under FEMA as capital account transactions, since borrowing abroad alters a resident's liabilities outside India.
So that part of external debt does touch FEMA — as a regulated category of transaction. It was not the object for which FERA was written.
- FEMA, 1999 (Act 42 of 1999) received the President's assent on 29 December 1999 and came into force on 1 June 2000.
- FERA, 1973 replaced the earlier FERA of 1947 and came into force on 1 January 1974.
- FERA's long title describes an Act regulating payments and dealings in foreign exchange for the conservation of the country's foreign exchange resources.
- FEMA's preamble states the object of facilitating external trade and payments and promoting the orderly development of the foreign exchange market in India.
- Under FEMA, a contravention is adjudicated as a civil matter attracting a monetary penalty, and it can be compounded.
- FEMA section 49 barred courts from taking cognizance of an offence under the repealed FERA after two years from FEMA's commencement, that is, after 31 May 2002.
- FEMA section 2(e) defines a capital account transaction as one altering a resident's assets or liabilities outside India, which covers external commercial borrowings.
- Data on India's external debt is compiled and published by the Ministry of Finance and the Reserve Bank of India.
The right column dates statement (1). The left column's stated object is what statement (2) gets wrong.
- Options (a) and (b) both presuppose that each statement is already correct; the explain / does-not-explain fork only opens after both survive on their own. Testing the linkage first can lock in a branch that was not available to begin with.
- 1999 is the year of enactment and assent; 1 June 2000 is the date of commencement. A statement carrying a date has to be read against whichever of the two it actually names.
- FERA and external debt share the external-sector vocabulary, so a purpose swapped between them reads smoothly. Anchor on the Act's own stated object instead of the topic area.
- 31 May 2002 is the end of the two-year window under FEMA section 49 for taking cognizance of offences under the repealed Act. The repeal itself took effect when FEMA commenced.
- The shift to civil adjudication under FEMA is about how a contravention is dealt with; the enforcement machinery did not disappear with it.
The FERA-to-FEMA transition comes up as a date, as a purpose, or as a character-of-the-law point — when each Act commenced, what its preamble or long title sets out, and whether a contravention is treated as criminal or civil.
It also appears in code-and-statement form, as here, where one statement is a clean date and the other quietly relocates a concept from the external accounts into the statute.
External debt is asked on its own terms: who owes it, in what currency, over what maturity, and against which reserve or GDP ratio it is judged.
UPSC_2003_GS1_Q582003Same statutes and the same transition, tested from a different angle. That item asked which one statement about FEMA is correct, its options ranging over the character of the change — whether a foreign exchange violation remains a criminal offence — and over the period allowed for pending FERA proceedings. This UKPSC item instead asks for FEMA's commencement date and FERA's stated object. Worth noting that the 2003 paper offered, as one of its options, a sunset period of one year to 31 May 2002, whereas FEMA section 49 provides two years from commencement.
UPSC_2019_GS1_Q632019This is external debt on its own terms — who owes India's external debt and in what currency it is denominated. It is exactly the subject that statement (2) here wrongly attaches to FERA. Read together, the two questions mark the boundary: FERA and FEMA regulate foreign exchange dealings, while external debt is a stock of liabilities compiled and reported separately.
- practice — not a real PYQ
The long title of the Foreign Exchange Regulation Act, 1973 describes its purpose as the regulation of certain payments and dealings in foreign exchange for which one of the following ends?
- (a)Conservation of the foreign exchange resources of the country and their proper utilisation
- (b)Facilitating external trade and payments and the orderly development of the foreign exchange market
- (c)Servicing and management of the country's external debt liability
- (d)Regulation of foreign contributions received by associations and individuals
Answera — FERA's long title names the conservation of the country's foreign exchange resources and their proper utilisation in the interests of economic development.Option (b) is FEMA's preamble, not FERA's. Option (c) is the external debt idea this question is designed to separate from the statute. Option (d) describes the subject of the Foreign Contribution (Regulation) Act.
- practice — not a real PYQ
Which one of the following is a feature of FEMA, 1999 that distinguishes it from FERA, 1973?
- (a)The burden of proving innocence is placed on the person proceeded against
- (b)The power to compile and publish India's external debt statistics is vested in the Enforcement Directorate
- (c)A contravention is adjudicated as a civil matter attracting a monetary penalty and can be compounded
- (d)It was brought into force on 1 January 1974
Answerc — FEMA moved contraventions of foreign exchange provisions to civil adjudication with monetary penalties, and provided for compounding.Option (a) describes the reversed burden that characterised the FERA regime, so it sits on the wrong side of the comparison. Option (b) misplaces external debt reporting, which the Ministry of Finance and the Reserve Bank handle.
Option (d) gives FERA, 1973's commencement date, not FEMA's.
- practice — not a real PYQ
Consider the following statements: 1. FEMA, 1999 came into force on 1 June 2000. 2. Courts could take cognizance of an offence under the repealed FERA up to 31 May 2002. Which of the statements given above is/are correct?
- (a)1 only
- (b)2 only
- (c)Both 1 and 2
- (d)Neither 1 nor 2
Answerc — FEMA commenced on 1 June 2000, so statement 1 is correct.Section 49 of FEMA barred courts from taking cognizance of an offence under the repealed Act after two years from that commencement, which runs to 31 May 2002. Statement 2 is correct as well.
Options (a) and (b) each drop one correct statement, and (d) rejects both.
- practice — not a real PYQ
Under the present legal framework, external commercial borrowings raised by an Indian company from a lender abroad are regulated as:
- (a)Current account transactions under FEMA, 1999
- (b)Capital account transactions under FEMA, 1999
- (c)Transactions under FERA, 1973
- (d)Foreign contributions under the Foreign Contribution (Regulation) Act, 2010
Answerb — borrowing abroad alters the borrower's liabilities outside India, which is what FEMA section 2(e) defines as a capital account transaction.Option (a) is the wrong category: a current account transaction is one that does not alter such assets or liabilities. Option (c) names an Act that FEMA repealed with effect from its own commencement.
Option (d) covers foreign contributions to associations and individuals, not commercial borrowing.