Current and Capital Account — Policy Reforms

Entry	Year	Description	Impact
Foreign Exchange Regulation Act (FERA) to Foreign Exchange Management Act (FEMA)	1999	The most significant legislative change impacting India's external sector was the replacement of the restrictive FERA, 1973, with the more liberal and facilitative FEMA, 1999. FERA was a draconian law aimed at conserving foreign exchange, making all foreign exchange transactions illegal unless specifically permitted. FEMA, conversely, adopted a 'management' approach, making all current account transactions permissible unless specifically restricted, and empowering the RBI to regulate capital account transactions.	This shift was pivotal for India's economic liberalization. It eased restrictions on current account transactions, facilitating trade and services, and provided a framework for gradual capital account liberalization. FEMA streamlined procedures, reduced penalties, and aligned India's foreign exchange regime with international best practices, significantly boosting investor confidence and integrating India further into the global economy.
Periodic Amendments to FDI Policy	Ongoing (e.g., 2014, 2016, 2017, 2020, 2024)	The Indian government, in consultation with the RBI, regularly amends its Foreign Direct Investment (FDI) policy to liberalize norms, open new sectors, and simplify procedures. These amendments often involve increasing sectoral caps (e.g., in defence, insurance, civil aviation), shifting sectors from approval route to automatic route, and clarifying definitions. For instance, the February 2024 amendment liberalized FDI in the space sector.	These continuous liberalizations have significantly boosted FDI inflows into India, making it one of the top global destinations for foreign investment. This has contributed to capital formation, technology transfer, job creation, and overall economic growth. From a capital account perspective, these amendments directly enhance capital inflows, helping to finance the current account deficit and strengthen India's external sector.