SSC
The Foreign Exchange Regulation Act (FERA) was replaced in 1999 by the:
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Answer: Option D — Foreign Exchange Management Act (FEMA)
Detailed Solution
The Foreign Exchange Regulation Act (FERA) was first passed in 1947 and replaced by a stricter version in 1973. It was enacted at a time when India had very little foreign exchange, so it placed strict controls on dealings in foreign currency, foreign investment, payments abroad and the activities of foreign companies in India. Violations were treated as criminal offences, and the burden of proof was on the accused. FERA was criticised for being harsh and for discouraging foreign investment; companies such as Coca-Cola and IBM left India in 1977 partly because of its rules.
After the economic reforms of 1991, India began to open its economy to foreign trade and investment, and FERA was seen as outdated. Parliament passed the Foreign Exchange Management Act (FEMA) in 1999, and it came into force on 1 June 2000.
Main differences between FERA and FEMA:
FERA aimed to regulate and conserve foreign exchange; FEMA aims to manage it, facilitating external trade and payments and promoting the orderly development of the foreign exchange market in India.
Violations under FERA were criminal offences; under FEMA, they are civil offences, punished mainly with fines. Imprisonment applies only if the fine is not paid.
FEMA is simpler, with clear rules for current account and capital account transactions.
FEMA is administered by the Reserve Bank of India (RBI) and the Central Government, while the Directorate of Enforcement (ED) investigates violations.
To deal with the misuse of foreign exchange for crimes, separate laws were passed, such as the Prevention of Money Laundering Act (PMLA), 2002.
Why not the other options?
- ✗The FCRA regulates foreign donations to Indian organisations (latest version 2010).
- ✗The PMLA (2002) deals with money laundering.
- ✗The Foreign Trade (Development and Regulation) Act, 1992 deals with imports and exports.
Quick tip
Remember: FERA (1973) = regulation, criminal offences; FEMA (1999, in force 2000) = management, civil offences, administered by the RBI; ED investigates violations.
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Economic Reforms & Foreign Trade — Preparation
This question tests your understanding of Economic Reforms & Foreign Trade, a key topic in the General Knowledge section. The detailed solution above uses a step-by-step approach to show the reasoning, and where available, a shortcut that helps you solve similar questions in under 90 seconds during the actual exam.
This topic covers the 1991 economic reforms (liberalisation, privatisation and globalisation), industrial policies, foreign trade and India's main trading partners, balance of payments, current and capital accounts, exchange rates, FDI and FPI, and foreign trade policy. Common questions ask what LPG stands for, what the current account includes, the difference between FDI and FPI, and what devaluation of the rupee means. The 1991 reforms were introduced by the government of P. V. Narasimha Rao, with Manmohan Singh as Finance Minister. Practise the economic reforms and foreign trade questions below, written in the style of the general awareness sections of exams such as SSC, banking, railways, CUET GAT, MAH CET and CLAT. Each question comes with a detailed explanation that adds related facts, so every question helps you revise more than one point.