India's new forex law

India is replacing a controversial foreign exchange law with a more liberal act so as to encourage outside investment.

The old Foreign Exchange Regulation Act (Fera), which has now been revoked, was disliked by traders and businessmen who frequently criticised what they termed its harsh provisions.

Fera came into existence in 1973, and since then many top industrialists and businessmen fell foul of its provisions.

Suspects accused of violating the law were often detained for questioning, and faced the prospect of a prison sentence if they were found guilty.

Deregulation

But under the new Foreign Exchange Management Act (Fema), which comes into force on Thursday, suspected foreign exchange violations are treated as civil rather than criminal offences.

India is attracting more foreign investment

Financial experts say Fera was devised and implemented when India had a highly regulated economy, and when foreign investment was either not allowed or regarded with much suspicion.

All that changed in 1993, when India liberalised its economy and started to attract a lot more overseas investment.

Since then there has been a substantial increase in India's foreign exchange reserves.

Foreign trade has increased, tariffs have been curtailed and foreign institutions are allowed far greater access to its stock markets.

The new law, experts say, reflects the ongoing desire of the financial authorities to attract more foreign investment and promote exports.

However the authorities have made clear that although Fera is repealed, it still applies to offences committed before its abolition.

There are nearly 7,000 cases pending, some of which are in an advanced stage of investigation.

One of those being investigated for foreign exchange violations is the son of a former Prime Minister, P V Narasimha Rao.