The Foreign Exchange Management Act (FEMA) is a significant piece of legislation in India that governs foreign exchange transactions and the cross-border movement of goods, services, and capital. Enacted in 1999, FEMA replaced the Foreign Exchange Regulation Act (FERA) of 1973, aiming to liberalize and simplify foreign exchange controls in line with economic reforms.

1. Objective:
• FEMA's primary objective is to facilitate external trade and payments and promote orderly development and maintenance of the foreign exchange market in India.
2. Enforcement Authority:
• The Reserve Bank of India (RBI) is the principal authority responsible for enforcing FEMA. The Directorate of Enforcement, under the Ministry of Finance, handles the enforcement of provisions related to contraventions and penalties.
3. Key Provisions and Components:
• Current Account Transactions: FEMA allows for liberalization of current account transactions, covering trade, remittances, and other payments.
• Capital Account Transactions: While current account transactions are largely liberalized, capital account transactions are subject to certain controls to manage foreign exchange reserves and protect the Indian economy.
4. Foreign Exchange Management Regulations:
• FEMA empowers the central government to make regulations to manage foreign exchange.
• The RBI, under the powers conferred by FEMA, issues notifications, circulars, and guidelines to regulate foreign exchange transactions.
5. Resident and Non-Resident Definitions:
• FEMA defines "resident" and "non-resident" individuals, entities, and bodies, establishing criteria for determining residential status.
6. Transactions Covered:
• FEMA covers a wide range of transactions, including import and export of goods and services, foreign investment, external commercial borrowings (ECBs), remittances, acquisition of immovable property outside India, and more.
• Liberalization of FDI:
• FEMA facilitates the liberalization of foreign direct investment (FDI) in various sectors. The government periodically reviews and revises the FDI policy to attract foreign investment.
• Authorized Persons:
• FEMA authorizes certain entities, such as authorized banks and financial institutions, to act as authorized persons for foreign exchange transactions.
• Penalties and Adjudication:
• FEMA provides for penalties for contraventions, and the adjudication process is carried out by designated authorities.