The Withering Of Fera
The problem is that, since the rupee is unlikely to be made a completely convertible currency in the foreseeable future, capital account restrictions will continue and one needs a law to regulate these. What one needs, therefore, is a replacement of a hopelessly dated law with something that might be called a Foreign Exchange Management Act. Even the preamble of the existing law talks of the conservation of the foreign exchange resources of the country and the proper utilisation thereof, the assumption being that foreign exchange will always be scarce and must therefore be conserved, like tigers and giant pandas.
The 1973 Fera was an enabling piece of legislation. The actual restrictions were imposed through a deluge of government and RBI notifications. A new statute should be so crafted as to prevent a fresh barrage of such notifications. As for the enforcement provisions, following the 47th Report of the Law Commission, the principle adopted was that social and economic crimes are more serious than criminal offences. Thus the burden of disproving mens rea (guilty mind) devolves on the accused. The new statute should dilute many such provisions.
In terms of specific sections, exporters often complain about Section 18, which concerns payment for exported goods. But it is one thing to argue that export proceeds are not immediately brought back because of misaligned exchanged rates, and quite another to say that there should be no controls whatsoever. But Section 18 can and should be simplified, and several sub-sections dropped, so that its draconian provisions become less severe. Many of these sub-sections were introduced after the Kaul committee submitted a report on the leakage of foreign exchange through invoice manipulations. It is these sub-sections that have now become irrelevant. In similar vein, simplifications are necessary in Sections 2 (definitions), 6 (authorised dealers in foreign exchange), 7 (money changers), 8 (dealing in foreign exchange), 9 (payments), 10 (blocked accounts), 13 (import and export of certain currency), 14 (acquisition by the central government of foreign exchange), 16 (duty of persons entitled to receive foreign exchange), 22 (bearer securities), 24 (settlements), 25 (holding of immovable property outside India), 30 (prior permission of the RBI), 31 (acquisition and holding of immovable property in India) and 76 (permissions or licences).
Piecemeal change of such a law will leave no one satisfied. The only solution is to scrap this law altogether, and work out new legislation that reflects todays economic reality.