UPSC Prelims 2003 Q58: Indian Economy – External Sector & Balance Of Payments
Which one of the following statements is correct with reference to FEMA in India?
- (a) The Foreign Exchange Regulation Act (FERA), was replaced by Foreign Exchange Management Act (FEMA) in the year 2001
- (b) FERA was given a sunset clause of one year till 31st May 2002 to enable Enforcement Directorate to complete the investigation of pending issues
- (c) Under FEMA, violation of foreign exchange rules has ceased to be a criminal offence
- (d) As per the new dispensation, Enforcement Directorate can arrest and prosecute the people for the violation of foreign exchange rules
Answer: (c) Under FEMA, violation of foreign exchange rules has ceased to be a criminal offence
Explanation
FEMA in India
| Statement | Verdict |
|---|---|
| a. FERA replaced by FEMA in 2001 | False: FEMA came into force on 1 June 2000 |
| b. FERA given a sunset clause of one year till 31 May 2002 | False: the sunset clause was of two years |
| c. Under FEMA, violation has ceased to be a criminal offence | True — it is a civil offence |
| d. ED can arrest and prosecute under the new dispensation | False: FEMA is civil, with penalties |
Only statement (c) is correct: violations of foreign exchange rules under FEMA are civil, not criminal, offences.
Answer: (c) Under FEMA, violation of foreign exchange rules has ceased to be a criminal offence.
Why each option is right or wrong
- (a) Incorrect. FEMA replaced FERA in 2000.
- (b) Incorrect. The sunset clause was two years.
- (c) CORRECT. FEMA treats violations as civil offences.
- (d) Incorrect. Arrest powers were largely removed.
Key point
FERA 1973 (criminal) replaced by FEMA 1999 (civil), effective 1 June 2000.
Remember
FEMA made foreign exchange violations a civil offence.
Common mistakes
- Dating FEMA to 2001, the wrong year.
- Calling the sunset clause one year only.
- Thinking that FEMA keeps the arrest powers of FERA.
Exam tip
FERA = regulation, FEMA = management; civil rather than criminal.
Sources
- Foreign Exchange Management Act, 1999
- Foreign Exchange Regulation Act, 1973