Foreign Exchange Management Act (FEMA)

Why it matters

• Shifts the regulatory focus from the restrictive control of foreign exchange to the management of foreign exchange transactions.
• Empowers the central bank and the central government to regulate and oversee capital and current account transactions.
• Provides a civil adjudication process for contraventions, replacing the criminal proceedings associated with earlier legislation.
• Aims to balance the need for capital inflow with the necessity of maintaining macroeconomic stability and currency integrity.

How it is asked

Focus on the distinction between current and capital account transactions, the role of the Enforcement Directorate in adjudication, and the evolution of India's capital account convertibility policy.