What is the Foreign Exchange Management Act (FEMA)?

About Foreign Exchange Management Act (FEMA), 1999:

• FEMA came into force on June 1, 2000, as a successor to the Foreign Exchange Regulation Act, or FERA, of 1973, with changing economic conditions in a post-liberalisation India.
• The main objective of FEMA is to facilitate external trade and payments and promote the orderly development and maintenance of the foreign exchange market in India.
• FEMA deals with provisions relating to procedures, formalities, dealings, etc. of foreign exchange transactions in India. 
• The FEMA regulates various aspects of foreign exchange transactions, including the acquisition and holding of foreign exchange, the payment and settlement of foreign exchange transactions, the export and import of currency, and other related activities.
• The act also empowers the RBI to make rules and regulations to carry out the provisions of the act. 
• It also makes the offence related to foreign exchange a civil offence.
• Violations of the provisions of FEMA can result in penalties and fines.
• FEMA's head office is known as the Enforcement Directorate and is situated in Delhi.
• Applicability:
• It is applicable to the whole of India and equally applicable to the agencies and offices located outside India (which are owned or managed by an Indian Citizen). 
• FEMA is applicable to the following entities and transactions:
  • Foreign exchange.
  • Foreign security.
  • Exportation of any commodity and/or service from India to a country outside India.
  • Importation of any commodity and/or service from outside India.
  • Securities as defined under the Public Debt Act 1994.
  • Purchase, sale, and exchange of any kind (i.e., Transfer).
  • Banking, financial, and insurance services.
  • Any overseas company owned by an NRI (Non-Resident Indian) and the owner is 60% or more.
  • Any citizen of India, residing in the country or outside (NRI).
• It envisages that the RBI shall have a controlling role in the management of foreign exchange. Since RBI cannot directly handle foreign exchange transactions, it authorizes “Authorised Persons” to deal in foreign exchange.
• An Authorized person can be
  • Authorized dealer.
  • Money changer,
  • Off-shore banking unit or
  • Any other person for the time being authorized to deal in foreign exchange or foreign securities by the RBI.

Q1: What is the Enforcement Directorate?

The Directorate of Enforcement or Enforcement Directorate (ED) is a domestic law enforcement agency and economic intelligence agency. It is responsible for enforcing economic laws and fighting economic crimes in India. The origin of the ED goes back to May 1956, when an "enforcement unit" was formed, for handling Exchange Control Laws violations under the Foreign Exchange Regulation Act, 1947. In 1957, the unit was renamed as the Enforcement Directorate.

Source: RBI to ease FEMA guidelines, draft paper expected soon