The evolution of India’s foreign exchange policies have been a mirror of the country’s development and its relationship with the complex yet integral, global economic landscape. Foreign Exchange Management Act, 1999 (FEMA) marked a significant shift from earlier Foreign Exchange Regulation Act, 1973 (FERA). Unlike FERA, which was primarily control-oriented, FEMA is focused on facilitating management of foreign exchange with an underlying philosophy that businesses/ individuals would be largely self-compliant with regulators acting as facilitators and post-facto evaluators, enabling responsible growth while maintaining accountability and public trust.

The government nonetheless followed a “trust but verify” stance, passing on the baton of ensuring compliance to Authorised Dealer Bankers (ADBs). Over time, owing to global push to curb tax avoidance, varied interpretations of FEMA, digitisation and availability of data with advanced analytics, regulators are increasingly adopting eagle eyed approach, aiming that principles of FEMA are followed in spirit and substance. Some of the key areas that are seeing increasing scrutiny by Regulators include:

Further, it has been recently announced that Enforcement Directorate (ED) will enhance the monitoring on Indian exchange control violations in 2025. The Regulatory focus is expected to be on export-import manipulations, violation under LRS, land ownership violations, breaches in Foreign Direct Investment norms, misuse of External Commercial Borrowings (ECB), default in trade transactions and unauthorised overseas fund transfers.