1.1 ABSTRACT
Foreign Exchange Management Act, 1999 (FEMA) which was enacted by the Parliament has substituted the Foreign Exchange Regulations Act, 1973. FEMA came into effect on 1st June, 2000. The importance of foreign exchange reserves was felt by the Exchange Control of India in the year 1939 as there was a huge shortage of it. Various rules became a necessity for the system of exchange control and were brought under the Defense of India Act, 1939. Foreign Exchange Regulation Act, 1947 was adopted on a temporary basis for initial 10 years because the foreign exchange predicament continued for a long time. Though, the purpose of Act for foreign exchange crisis did not bring any variation in economic development, nor it brought back to normal. Considering the difficulty, FERA was entered perpetually in the law since the year 1957. The Act was a good support for the economic system and shortage of foreign exchange was brought back to normal. There was also need for various amendments as well as new rules which needs to be made; the Act was replaced with Foreign Exchange Regulations Act, 1973 which came into force from 1st January, 1974.
During the 1990s, new approach was brought towards the external sector where the economic reforms brought huge changes. In the year 1991 financial investments were allowed in various segments because of economic liberalization policy which was brought in by the Government of India. Due to this there was an upturn in the flow of foreign exchange in India and also in the foreign reserves. In some kinds of payments FERA prescribed strict rules which were affecting the foreign exchange situation. Due to such rules, Foreign exchange and various securities which were indirectly affected the foreign exchange and the import and export of currency. There was a need for new act which can regulate payments and also bring a proper import and export of currency so that the foreign exchange reserves in country grow at a good pace. FERA was than repealed in the year 1999 under the government of Atal Bihari Vajpayee who replaced it by the Foreign Exchange Management Act, 1999 which came into force in 1st day of June, 2000. This Act relaxed foreign exchange controls and even gave some limitations to some kinds of foreign investments. The research will thereby conclude by the giving certain suggestions as per required. The research project will cover the rules of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 where the rules for a person who is residing outside India for investing will be studied. Further it will help us to understand investment by Foreign Portfolio Investor (FPI) and Down-stream investment will also be studied in detail. Further, suggestion what can be done by taking various measures will also be noted and will conclude as per required.
1.2 OBJECTIVES
FEMA was mainly introduced in India to ease all the import and export trade or payments and for safeguarding foreign exchange market. Foreign exchange transactions are classified into two parts i.e. Capital Account transactions and Current Account transactions and FEMA frameworks the procedures to transact in India. FEMA can even support as well as amend the law relating to foreign exchange with the objective of properly maintaining the forex market in India. The objective of FEMA is to eliminate inconsistency of payments in India and maintain a proper flow of foreign exchange. Further, dividing the instruments into non-debt and debt instruments and for knowing the rules separately, thus the Reserve Bank of India prepared separate rules which provides in detail requirements for investments in India.