FERA (Foreign Exchange Regulation Act)

The Foreign Exchange Regulation Act (FERA) was a strict and comprehensive Indian legislation enacted in 1973 that regulated all foreign exchange transactions, cross-border capital flows, dealings in foreign securities, and activities of foreign nationals and companies in India — with a strong presumption of guilt and severe penal provisions including imprisonment for violations. FERA reflected the protectionist, license raj economic philosophy of that era — with tight controls on foreign exchange designed to conserve India's limited foreign reserves and restrict the outflow of capital. The act treated possession of foreign exchange without RBI permission as a criminal offense, and placed extensive restrictions on foreign direct investment, repatriation of profits, and overseas business activities by Indian companies. As India's economy liberalised following the 1991 balance of payments crisis, FERA became increasingly incompatible with the country's integration into the global economy — it was replaced by the Foreign Exchange Management Act (FEMA) in 1999. FERA's draconian enforcement regime and criminal liability provisions were replaced under FEMA by a civil law approach focused on compliance management rather than criminal prosecution. Understanding the transition from FERA to FEMA is historically important for Indian corporate and financial history — FERA violations drove significant offshore structuring and capital flight by Indian businesses in the 1980s and early 1990s, the legacy of which shaped India's post-liberalisation foreign investment policy framework.