Drawbacks Of Foreign Exchange Regulation Act India
Foreign exchange has always been one of the most closely regulated parts of the financial sector of India. Under the Foreign Exchange Regulation Act India has seen some the worst years of foreign exchange related activities. The Act has been singled out as draconian and a relic of the socialist past. It was replaced in 2000 by the new and more liberal Foreign Exchange Management Act.
The Foreign Exchange Regulation Act was implemented in 1973. This was the prime time of IndiaÂ's socialistic model of development. The country had brought most of the important sectors under public control and the FERA turned out to be a tool for strict regulation of the way most of the companies in India as well as investors who instead money in foreign exchange operated.
The main problem with the Foreign Exchange Regulation Act was that it was against some of the basic principles of natural justice. The very basic principle of natural justice is that the accused cannot be held guilty until proven to be so. The burden of proof, that the accused has committed such crime lies on the prosecution.
The Foreign Exchange Regulation Act however followed the reverse course. According to this law, the accused was considered guilty as charged. He was considered to have committed the crime and the trial took place not to prove his guilt but his innocence. The burden of proof also rested on the accused person himself. Similarly another important principle of natural justice is that unless the law specifically prohibits an act, it is considered to be legal and in accordance with the law. On the other and, the Foreign Exchange Regulation Act provided that only those activities as have been defined under the law to be legal can be considered legal. Any activity that is not considered legal even though undefined shall be considered to be prohibited. The Foreign Exchange Regulation Act considered any action illicit and the guilty was subject to the provisions of criminal law. This meant that people could be thrown behind the bar for slightest of mistake. After the liberalization of India economy in 1990s, this was proving a major bane for IndiaÂ's development and had to be removed. Today the new law considers contraband activities as a civil wrong with light provisions of punishment and fine. Moreover Foreign Exchange Regulation Act was not in compliance with the guidelines set by the World Trade Organization. The WTO requirements ask for flexible and modular organizational structures where guidelines could be revised easily and regularly. Foreign Exchange Regulation Act was by its very nature a clunky and complicated law. With the repeal of Foreign Exchange Regulation Act India has breathed a new life in its foreign exchange sector.
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