Context:
RBI directs state-owned banks to penalize companies for violating Foreign Exchange Management Act (FEMA), 1999
FEMA, 1999:
- Regulatory framework for managing foreign exchange transactions in India.
- Replaced the earlier Foreign Exchange Regulation Act (FERA)
- Primary objective – To help facilitate external trade and payments in India.
- Enforcement Directorate investigates violations under the Act
- All transactions involving foreign exchange have been classified either as capital or current account transactions.
| Category | Description | Examples |
| Current Account Transactions | Transactions that do not alter assets or liabilities outside India. | Payment for foreign trade, expenses for foreign travel, education, etc. |
| Capital Account Transactions | Transactions that alter assets or liabilities outside India (either increased or decreased). | Investment in foreign securities, acquisition of immovable property outside India, etc. |
- Applicability –
- It is applicable to all parts of India.
- It is also equally applicable to the offices and agencies located outside India but managed or owned by an Indian Citizen.
- ‘Resident Indians’ – A ‘person resident in India’ is defined in FEMA, 1999 as:
- Barring few exceptions, a person residing in India for more than 182 days during the course of the preceding financial year.
- Any person or body corporate registered or incorporated in India.
- An office, branch or agency in India owned or controlled by a person resident outside India.
- An office, branch or agency outside India owned or controlled by a person resident in India.
Previous Year Question
What does venture capital mean?
[UPSC Civil Services Exam – 2014 Prelims]
(a) A short-term capital provided to industries
(b) A long-term start-up capital provided to new entrepreneurs
(c) Funds provided to industries at times of incurring losses
(d) Funds provided for replacement and renovation of industries
Answer: (b)