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Friday, 22 June 2012

FEMA(Foreign Exchange Management act)

It is necessary to keep adequate amount of foreign exchange reserves, especially when India has to go in for imports of certain goods.
FDI plays an important role in the long term economic development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology,strengthening infrastructure raising productivity and generating new employment opportunities.
In India FDI is seen as a development tool. 

India is the second most important FDI destination after China during 2010-12.

The sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hard ware.

Mauritius,Singapore,US and UK were among the leading source of FDI.

FDI(Foreign Direct Investment): An investment made by a company or entity based in one country, into a company or entity based in another country.
Foreign Direct Investments differ substantially from indirect investments such as portfolio flows, where in overseas institutions invest in equities listed on a nation's stock exchange.
Entities making Direct Investments typically have a significant degree of influence and control over the company into which the investment is made.
Open economies with skilled workforces and good growth aspects tend to attract larger amount of foreign direct investment.

Both FDI and Portfolio investment scheme have been protected through the FEMA (Foreign Exchange Management Act)
FEMA:
FEMA replaced foreign exchange regulation act and is passed in the winter session of parliament in 1999.
FEMA has brought a new management regime of foreign exchange consistent with the emerging frame work of the world trade organization(WTO).

The main features of this act is
1.Activities such as paymets made to any person outside India(or)receipts from them along with the deal in foreign securities and foreign exchange is restricted.
It is FEMA that gives the central government the power to impose the restrictions.

2. Restrictions are imposed on people living in India who carry out transactions in Foreign Exchange, Foreign Security or who own or hold immovable property abroad.

3. Without general or specific permission of the RBI, FEMA restricts the transactions involving foreign exchange or foreign security and payments from out side the country to India . The transactions should be made only through an authorized person.

4.Deals in Foreign Exchange under the current account by an authorized person can be restricted by the central Government , based on public interest.

5.People living in India will be permitted to carry out transactions in Foreign exchange, foreign security or to own or hold immovable property abroad if the currency, security or property was owned or acquired when he/she was living outside India or when it was inherited to him/her by some one living outside India.

6. Exports are needed to furnish their export details to RBI. To ensure that the transactions are carried out properly . RBI may ask the exporters to comply to its necessary requirement.

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