FERA and FEMA part 7

 Okay, here are the notes from the Telugu video transcript, summarized in English:

Context:

• This video discusses economic reforms in India, continuing from a previous video that covered the 1991 reforms, specifically the abolition of the licensing system and downsizing of public sector enterprises under Industrial Reforms.

Topic 1: FERA and FEMA

1. FERA (Foreign Exchange Regulation Act)

   • Full Form: Foreign Exchange Regulation Act

   • Telugu Meaning: విదేశీ మారక నియంత్రణ చట్టం (Foreign Exchange Control Act)

   • Enacted: 1973

   • Implemented: January 1, 1974

   • Purpose: To strictly regulate and control foreign exchange transactions.

   • Mechanism:

     • RBI determined the exchange rate for converting foreign earnings (like Dollars from exports) into Rupees.

     • This rate was often less favorable than the market rate (e.g., RBI might offer ₹30 per Dollar when the market rate was ₹80).

     • Holding foreign currency privately was difficult and restricted.

     • It aimed to control imports/exports and conserve foreign exchange, often discouraging foreign trade by making it less profitable or more cumbersome.

     • RBI controlled approvals for buying foreign goods or selling Indian goods abroad in foreign currency.

   • Nature: Restrictive, controlling, aimed at conserving foreign exchange reserves, sometimes seen as hindering trade.

2. FEMA (Foreign Exchange Management Act)

   • Full Form: Foreign Exchange Management Act

   • Telugu Meaning: విదేశీ మారక నిర్వహణ చట్టం (Foreign Exchange Management Act)

   • Reason for Introduction: FERA was too restrictive and incompatible with the post-1991 liberalization goals.

   • Introduced: Replaced FERA. FERA was abolished in 1999, and FEMA was introduced (operational from 2000).

   • Purpose: To manage foreign exchange and facilitate external trade and payments.

   • Nature: More liberal than FERA, shifting from strict control to management. Aims to promote orderly development of the foreign exchange market in India. Aligned with economic liberalization.

Topic 2: MRTP Act (Monopolies and Restrictive Trade Practices Act)

1. MRTP Act

   • Full Form: Monopolies and Restrictive Trade Practices Act

   • Enacted: 1969 (December 27)

   • Implemented: MRTP Commission established in 1970 (operational from June 1, 1970).

   • Purpose: To prevent the concentration of economic power, control monopolies, and prohibit monopolistic, restrictive, and unfair trade practices. Ensure fair competition.

   • Background (Committees leading to the Act):

     • Mahalanobis Committee (1960, reported 1964): Studied concentration of economic power.

     • Monopolies Inquiry Commission (K.C. Dasgupta, 1965): Investigated monopolies.

     • Subimal Dutt Committee (1967, reported 1969): Looked into industrial licensing issues.

     • These committees highlighted the increasing concentration of wealth and economic power in a few hands.

   • Key Provisions (Pre-1991):

     • Regulated large companies based on asset thresholds (initially ₹25 Cr, later raised to ₹50 Cr, then ₹100 Cr).

     • Required government/MRTP Commission approval for expansion, mergers, etc., for these large firms.

     • Controlled the location of industries to promote development in backward areas.

     • Addressed unfair trade practices (like misleading ads - Sachar Committee recommendation, 1984).

   • Post-1991 Changes:

     • Asset thresholds for defining MRTP companies were removed in 1991.

     • Focus shifted slightly towards market share (e.g., controlling >25% market share defined dominance).

     • Restrictions on investment size and location were eased.

     • Despite changes, the Act was seen as outdated, hindering competition, and prone to corruption.

   • Abolition & Replacement:

     • Abolished based on the Raghavan Committee recommendations.

     • Repealed and replaced by the Competition Act, 2002.

     • Competition Commission of India (CCI) established (around 2003) to enforce the new Act.

   • Shift in Philosophy: The focus shifted from curbing the size of firms (monopolies) to promoting competition and preventing anti-competitive behaviour (like abuse of dominance, anti-competitive agreements, regulating mergers/combinations that harm competition).

Key Takeaways from the Video Segment:

• The 1991 reforms led to significant changes in regulating foreign exchange (FERA to FEMA) and controlling monopolies/promoting competition (MRTP Act to Competition Act).

• The shift was generally from strict government control and regulation towards management, facilitation, and promoting fair competition, aligning with liberalization, privatization, and globalization (LPG) goals.

• FERA and MRTP were seen as restrictive instruments hindering private sector growth and foreign trade/investment in the pre-1991 era.

• FEMA and the Competition Act represent the more liberalized regulatory framework.