Elaborate on the comparison between Foreign Exchange Regulation Act and Foreign Exchange Management Act. What are the major differences between the two Acts and suggest changes, if any, that are required.
Monetary policy may be quite effective in influencing income distribution and wealth distribution by a change in interest rates, asset prices and even employment rates. If an economy is scaled by the Central Bank with the help of declining interest rates, then wealthy people benefit the most.Read more
Monetary policy may be quite effective in influencing income distribution and wealth distribution by a change in interest rates, asset prices and even employment rates.
If an economy is scaled by the Central Bank with the help of declining interest rates, then wealthy people benefit the most. This is so because, with lower rates, borrowing becomes cheaper and thus, investors invest more in things like stocks, real estate, and other assets, which, are expected to rise in value. Owners of such assets experience an upward social mobility and a widening of the social disparity. On the other hand, possibly, small investors, who have less money invested, will not immediately notice such advantages.
- Also, regions of expansionary monetary policies open employment opportunities but not all the employment opportunities lower income gap. The dominant employment in high-wage-generating activities like finance or technology industries might expand more than low-wage occupation hence widening the gap in wages.
While the dampening effect of expansionary monetary policy or an increase in the interest rate to tame inflation may prove particularly lethal to lower-income earners, not to mention perhaps restricted credit due to high cost of borrowing, measures put in place to control inflation may slow down job creation, especially in areas where low wage earners work.
In conclusion, monetary policy works in the general economy, and it deepens income and wealth inequality since its winners are the high-income earners while its losers are the low-income earners.
See less
Here are some major differences between the Foreign Exchange Regulation Act and the Foreign Exchange Management Act: FERA and FEMA manage India's foreign currency and payments differently. In 1973, the Indian Parliament passed FERA, which took effect on January 1, 1974, to manage and save foreign cuRead more
Here are some major differences between the Foreign Exchange Regulation Act and the Foreign Exchange Management Act:
- FERA and FEMA manage India’s foreign currency and payments differently. In 1973, the Indian Parliament passed FERA, which took effect on January 1, 1974, to manage and save foreign currency at a time of low reserves. FEMA replaced the restricted FERA framework on June 1, 2000, after Parliament authorized it in 1999 to facilitate orderly foreign currency management.
- FERA’s rigorous restrictions reflected the economy and focused on foreign currency management and conservation. A complex 81-section law defined “Authorized persons” carefully and based residence status on citizenship. FERA violations were criminal crimes that carried the possibility of jail and barred legal representation. In addition, infractions were non-compoundable and could not be addressed outside of court.
- However, FEMA’s free and flexible regulation reflected India’s 1990s liberalization ambitions. With just 49 parts, FEMA’s structure is simpler and defines “Authorized persons,” including banks. The past six months of presence in India determines FEMA resident status, not citizenship. FEMA violations are civil infractions punishable by fines, but failure to pay may lead to incarceration. In contrast to FERA, breaches may be settled and the accused can be represented. FEMA added specific directors and courts to streamline appeals compared to FERA Supreme Court appeals.
- FERA’s cautious approach needed RBI approval for FX transactions, limiting operational flexibility. This regulation was repealed by FEMA, making currency transactions easier. FEMA also included information technology requirements to support a modernizing economy, unlike FERA. FERA to FEMA represents India’s transformation from a controlled to a liberalized and growth-oriented economy.
See less