FOREIGN EXCHANGE REGULATION ACT
FOREIGN EXCHANGE MANAGEMENT ACT
SUBMITTED TO- SUBMITTED BY- Dr. JASBIR SINGH SATISH CHAND BBA (GEN) SEC-B
MAHARAJA SUSARJMAL INSTITUTE
Foreign Exchange Regulation Act
Foreign Exchange Regulation Act (FERA) was promulgated in 1973 and it came into force on January 1974. Section 29 of this Act referred directly to the operations of MNC’s in India. According to the section, all non-banking foreign branches and subsidiaries with foreign equity exceeding 40 percent had to obtain permission to establish new undertakings, to purchase shares in existing companies, or to acquire wholly or partly any other company. Guidelines for administering this section of FERA were announced in 1973 and later amended in 1976. According to these guidelines, the principle rule was that all branches of foreign companies operating in India should convert themselves into Indian companies with at least 60 percent local equity participation. Furthermore, all subsidiaries of foreign companies should bring down the foreign equity share to 40 percent or less. The companies exporting the substantial amount of their production and those which were engaged in core sectors and priority industries were exempted from these rules. These expectations to the general rules reflected the government’s endeavours to induce trans National Companies (TNCs) to use their superior access to global distribution and marketing system, with a further view to improving India’s balance of payments position. Besides, they reflected a desire on the part of the Indian government to channel TNCs away from certain industries and into core sectors and high priority industries. The latter included primarily basic intermediates and capital goods, whereas the former group comprised mainly consumer goods.
FEATURES OF FERA GUIDELINES
All branches of foreign companies (except air lines and shipping companies) seeking approval under FERA have to convert themselves into Indian companies. A minimum permissible foreign share holding limit of 74 percent would be allowed to companies engaged in manufacturing any item listed in appendix-1 of 1973 industrial policy or predominantly export oriented or engaged in any industry using sophisticated technology or tea plantation. A permissible foreign share holding of 40 percent will be allowed for companies engaged in other manufacturing items which neither use sophisticated technology nor are listed in appendix-1 however, these companies have the option to change charter of their manufacturing operations or by becoming predominantly export oriented by manufacturing items listed in appendix-1. In such cases the maximum permissible share holding would be 74 percent. If the company is 100 percent export oriented, a foreign share of 74 percent may be allowed. Airlines and shipping companies as well as banking companies are exempted.
IMPLEMENTATION OF FERA
There were substantial delays in implementation of FERA.
1. By June 1979, only about half the companies directed to dilute the foreign holdings had carried out the process as stipulated. Most of the companies were in the process of diluting, but 64 companies had, at that time, yet to initiate the process. 2. Not until 1982, i.e., eight years after FERA came into force, did the last group of 28 companies receive final directions pursuant to the Act. Moreover, upto the end of 1985, a total of 252 foreign controlled companies were exempted from the general rule stipulating a maximum of 40 percent non-resident interest. 3. In regard to the companies that did not comply with FERA regulations, it was found that...
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