The economy of a country depends on various factors that provides financial infrastructure. Different trades are one of major sources that contribute economic stability to a country. Many historical evidences show that inter trade relations between countries occurred even from ancient period. With the changes of time trade between countries had also changed. The technological developments also added more impact for the inter trade relations. The foreign investment on business or trade of different countries became a process that gave new dimensions to global unity among countries in the world. The foreign investment differs from country to country depends on the rules and regulations pertaining to the country where the investment or the business to be carried out.
The Foreign Exchange is entirely based on the transactions of foreign currency in the export and import business. In India the Government rules and regulations regarding the foreign exchange is defined as any deal in the export and import of goods or any other trade in a foreign country deals with the exchange of foreign currency that includes bills of exchange, bank drafts, traveler’s cheques drawn in Indian currency but payable in foreign currency and vice versa. Deposits, credits and balance can be payable in foreign currency.
The main focus of any business that include the foreign exchange is the proper functioning of Indian companies abroad and foreign companies in India. For proper utilization of transactions between the countries Indian Government had put forth several enactments dealing with the foreign currency. The Foreign Exchange Regulation Act or FERA 1973 deal with the provisions, to be adopted in the Foreign Exchange or Foreign currency transactions. Though this Act came into force, its nature of criminal legislation and several preventive clauses that imposed restrictions on the functions of foreign companies made the enactment a hindrance to the smooth and proper functions in foreign investments and exchange. The infringement of the clauses in the act was subject to strict punishments including imprisonment and heavy fine. This made many foreign companies to hold back from their investments proposals and projects in India, to a certain extent affected the economy of India.
As a result of globalization, economic strategies were subject to change with liberal view in many countries. In order to have a highly effective change in foreign exchange strategy, Indian Government had also taken several procedures and as a result, in India the FERA Act of 1973 was replaced by Foreign Exchange Management Act (FEMA) of 1999. Unlike the former enactment, FEMA laid out liberal provisions of civil legislative nature where penalties could be paid in the form of fines. Civil detention is to be implied only in the circumstances of default in the payment of fine within the prescribed period of 90 days. The civil natured proceedings include the sanctioning of sufficient time for the defaulter informing him through show cause notices and for hearing. The provisions are applicable to all offices or branches outside India run by a resident of India. According to FEMA only authorized person can act in relation to foreign exchange or investment. The Act empowers Reserve bank of India to have the administrative control over the foreign security, trade and investments operated by the authorized person. The authorized person under the act is defined as “authorized dealer, money changer, off shore banking unit or any other person for the time being authorized by -Reserve Bank of India.” Any person who acts in contravention of this definition and other clauses in this Act subject to the punishment provided in this Act.
For the proper adjudication pertaining to Foreign exchange policies, the Central Government has the authority in appointing authorized Central Government officers to inquire any matter that occur in contravention to the Act. The Central Government is vested with the power to establish Appellate Tribunals in hearing appeals against the orders of the Directors or the authorizing Officers. This adjudicating provisions aid for an effective implementation of foreign exchange in the Economic welfare of India.