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Difference Between FERA and FEMA - Full Form, Act

  • Calender05 Dec 2025
  • user By: BlinkX Research Team
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    • The difference between FERA and FEMA lies in their approach to managing India's foreign exchange system. FERA and FEMA differ in purpose, regulatory framework, and overall impact on foreign exchange transactions. FERA was a strict law created to control foreign exchange and protect India’s reserves. FEMA replaced it with a flexible and organised system that supports smooth foreign trade and payments. This article explains FEMA and FERA differences. 

    Difference Between FERA and FEMA 

    The following table highlights the key differences between FERA and FEMA. 

    Differences FERA FEMA 
    Full Form The full form of FERA is the Foreign Exchange Regulation Act. The full form of FEMA is Foreign Exchange Management Act 
    Meaning The meaning of FERA refers to a law that strictly controlled foreign exchange. The meaning of FEMA refers to a law designed to manage foreign exchange and support smooth foreign trade and payments. 
    Act The FERA Act 1973 was passed by the Parliament of India. FEMA was enacted by the Parliament of India to replace FERA. 
    Enactment year FERA was introduced in 1973 FEMA was enacted on 20 December 1999 
    Came into force FERA came into force on 1 January 1974 FEMA came into force in June 2000 
    No. of sections FERA consists of 81 sections FEMA consists of 49 sections 
    Objective To control and conserve foreign exchange. To facilitate foreign trade, payments, and efficient forex market management. 
    Offense Violation of the FERA Act is then considered a criminal offence. Violation of the FEMA Act is then considered a civil offence. 
    Action of violations Violations were treated as criminal offences. Violations are treated as civil offences. 
    Status of residence Required a minimum stay of 6 months in India to determine residency. Requires a stay of 182 days in India to determine residency. 
    Punishment Punishment often resulted in imprisonment. Mainly monetary penalties; imprisonment applies only if the penalty is not paid in the given time. 
    RBI Approval Prior approval of the RBI is required in case of transferring funds for external operations. There is no requirement for approval from the RBI for external trade and remittances. 

    Table of Content

    1. Difference Between FERA and FEMA 
    2. What is the Importance of FERA and FEMA? 
    3. Importance of FERA 
    4. Importance of FEMA 
    5. Conclusion 

    What is the Importance of FERA and FEMA? 

    FERA and FEMA are important legislation with respect to foreign exchange in India. Both acts were enacted to control, manage, and regulate foreign exchange transactions, but the approach is different. Let's understand the importance of FERA and FEMA. 

    Importance of FERA 

    • FERA was enacted in 1973 with the aim of regulating and controlling the foreign exchange reserves of India during a time of foreign exchange shortage. 
    • Imposed strict regulations on currency exchange, foreign investments, and international trade in order to avoid excessive outflow of foreign exchange. 
    • Ensured that all foreign exchange-related transactions were highly regulated in order to protect limited reserves. 
    • Treated violations as criminal offences and thus imposed stiff penalties, including imprisonment, to ensure compliance. 
    • Played an important role when India needed supervision of foreign exchange due to the economic pressures at that time. 

    Importance of FEMA 

    • FEMA was introduced in 1999 to replace the restrictive FERA structure and support India's economic liberalisation objectives. 
    • The act facilitates external trade, foreign payments, and the efficient conduct of the foreign exchange market. 
    • Adopted a liberal and management-focused approach, shifting from a strict regulatory and control-oriented framework. 
    • Treated violations as civil offences, making compliance easy and the enforcement measures more structured and manageable. 
    • Encourages foreign investment and simplifies cross-border transactions, thereby contributing to economic growth. 
    • It helps in running business operations smoothly in the international markets and ensures easy participation of India in the global economy, improving the contribution of GDP. 

    Conclusion 

    Understanding the difference between FERA and FEMA can help in understanding how India moved from strict foreign exchange control to a more flexible one that facilitated trade and international business. Today, FEMA facilitates cross-border payments and investment facilities smoothly, which helps individuals and companies carry out their financial transactions with ease. As more people venture into global markets, digital channels like a share market app can help access information about the market, track prices, and manage investments. 

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