Retired General Manager,
Exchange Control Department,
Reserve Bank of India.
Published By :
Taxmann Publications Private Ltd.
Government of India has taken decisive and quick steps towards further liberalisation. FEMA has become a reality.
FEMA is a landmark step in the continuing process of liberalisation. Current account convertibility has now become a part of the law itself - rather than a concession given through circulars.
At the same time, the prima facie impression is that FEMA is a précis of FERA retaining almost all powers for the RBI. Real quality of liberalisation will be known when all the circulars & notifications under FEMA are published. We believe, these notifications will be a pleasant surprise.
This is a quick commentary on FEMA.
We propose to present a comprehensive commentary once the new Exchange Control Manual is published. Like FERA, under FEMA also, the major provisions will be made in the notifications & circulars. Hence the present commentary remains a brief commentary not even touching upon several issues. Covering all important issues will be done in the comprehensive commentary.
All comments & suggestions from the readers are most welcome. We will try to cover them appropriately in the comprehensive commentary.
Rashmin Sanghvi,
Naresh Ajwani,
K. G. Chaudhari, Retired G.M., ECD, RBI
The date from which it will be effective, has to be notified. There is a delay in the notification of the date, as :
(i) the rules and Exchange Control Manual are being framed by officials of Reserve Bank of India and the Government. Unless these are also issued, FEMA by itself with be insufficient.
(ii) the Prevention of Money Laundering Act (PMLA) has yet to be passed. The bill has been referred to a select committee of the Parliament. Both PMLA & FEMA may be made effective simultaneously.
It is expected that FEMA will be made effective within a two to four months.
A quick reading of FEMA shows some omissions.
1. Immovable Property
For Purchase etc. of immovable properties, earlier, the control was by citizenship. Now the control will be by residential status.
Acquiring Indian residential status is easy. If a foreigner comes to India and takes up an employment, he will become Indian resident from the first day. Then he can buy 100 acres of land, agricultural property, or a tower in Nariman Point. After six months he can resign from the job & go away.
Neither RBI nor GOI may be able to prevent.
Please see paragraph (para) 7.2 for details.
2. Definition of Residential Status.
There is no provision for determining residential status of a firm, HUF, AOP - or any other unincorporated body.
Please see para 4.6 for details.
3. Business Activity
Under FERA, regulations were in place for foreigners and non-residents doing commercial activities in India. S.30 covered professional activities. S. 29 covered business activities.
Now provisions of both these sections have been deleted.
Under FEMA, section 6(6) authorises RBI to prevent non-residents from establishing business offices in India. But if someone does business without establishing an office; RBI has no power to deal with him.
Please see para 7.6 for details.
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