"Forex Management" in India is governed by the Foreign Exchange Management Act, 1999 (FEMA), a central legislation and concept that consolidates and amends the law relating to foreign exchange. The Act's objective is to facilitate external trade and payments and promote the orderly development and maintenance of the foreign exchange market in India.
FEMA was passed on December 29, 1999, and came into force on June 1, 2000, replacing the highly restrictive Foreign Exchange Regulation Act (FERA), 1973. FERA was created when India's foreign exchange reserves were low, treating foreign exchange as a scarce resource that required strict control. The shift to FEMA was a key part of the post-1991 economic liberalization, changing the regulatory philosophy from 'control' to 'management'.
The Act works by classifying all foreign exchange dealings into Current Account Transactions and Capital Account Transactions. Section 5 of FEMA permits any person to draw foreign exchange for a current account transaction, subject to reasonable restrictions imposed by the Central Government in consultation with the Reserve Bank of India (RBI). The RBI is empowered to regulate Capital Account Transactions. A major mechanism change is that violations under FEMA are treated as civil offences, attracting monetary penalties, unlike FERA, where they were criminal offences.
FEMA is closely connected to the RBI, which issues rules and regulations, and the Directorate of Enforcement, which handles adjudication. It also paved the way for the Prevention of Money Laundering Act, 2002 (PMLA). The Liberalised Remittance Scheme (LRS), which allows resident individuals to remit funds abroad, is a provision under FEMA.
The framework has seen recent amendments, such as the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, notified on June 12, 2026. This amendment replaced the term "Non-Resident Indian (NRI) or Overseas Citizen of India (OCI)" with the broader term "an individual" in Rule 9, widening the scope for foreign individuals to invest in listed Indian securities. Furthermore, the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, effective from October 1, 2026, extended the realization period for export proceeds to 15 months for goods and services.