FEMA stands for the Foreign Exchange Management Act. It is an Indian law that was introduced in 1999 to consolidate and amend the laws relating to foreign exchange in India. The act was passed to facilitate external trade and payments, promote orderly development and maintenance of the foreign exchange market in India, and to conserve India’s foreign exchange reserves.
Under FEMA, the Reserve Bank of India (RBI) is the regulatory authority for managing and regulating foreign exchange transactions in India. FEMA governs all aspects of foreign exchange transactions including payments, receipts, and remittances of foreign currency, as well as transactions in Indian currency with non-residents.
FEMA also regulates the conduct of forex transactions by individuals and companies in India and imposes penalties for violations. The act also provides for the establishment of Special Economic Zones (SEZs) and the regulation of their operations with regard to foreign exchange transactions.
Overall, FEMA plays a critical role in managing and regulating foreign exchange transactions in India and helps to ensure the smooth functioning of the Indian economy.