Daily News Mail - News of 07/02/2015

Marathi novelist Bhalchandra Nemade wins Jnanpith

• Bhalchandra Nemade has been selected for the 50th Jnanpith Award.
• Bhalchandra's novel Kosala that was published in 1963 has transformed the Marathi novel. His novel Hindu that was published in 2010 has matched the feat(an achievement that requires great courage, skill, or strength) that his novel Kosala achieved over five decades ago.

Jnanpith Award

The Jnanpith Award is a literary award in India. Along with the Sahitya Akademi Fellowship,it is one of the two most prestigious literary honours in the country.The award was instituted in 1961. Any Indian citizen who writes in any of the official languages of India is eligible for the honour. It is presented by the Bharatiya Jnanpith, a trust founded by the Sahu Jain family, the publishers of the newspaper The Times of India.

ED issues notice to Sahara on FEMA violation

• The Enforcement Directorate served a show-cause notice on the conglomerate and its chief Subrata Roy, seeking explanations for an alleged violation of foreign exchange rules involving an overseas direct investment of about Rs.3,600 crore in 2010.
• Official sources said the agency issued the notice for the case which pertain to the purchase of Grosvernor House hotel in London, a luxury property, by transfer of funds from India by the group in 2010.
•  The agency's probe, under Foreign Exchange Management Act (FEMA), has charged Sahara for not taking the legal route of obtaining the RBI clearance for transfer of funds to the tune of over Rs 3,600 crore.
• The ED probe found that the group chose to make this investment and channelise funds through the automatic route of funds transfer but Sahara allegedly did not obtain "required RBI permissions" in this regard. 

What is FEMA?

When a business enterprise imports goods from other countries, exports its products to them or makes investments abroad, it deals in foreign exchange. Foreign exchange means 'foreign currency' and includes:- (i) deposits, credits and balances payable in any foreign currency; (ii) drafts, travellers' cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency; and (iii) drafts, travellers' cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency.

In India, all transactions that include foreign exchange were regulated by Foreign Exchange Regulations Act (FERA),1973. The main objective of FERA was conservation and proper utilisation of the foreign exchange resources of the country. It also sought to control certain aspects of the conduct of business outside the country by Indian companies and in India by foreign companies. It was a criminal legislation which meant that its violation would lead to imprisonment and payment of heavy fine. It had many restrictive clauses which deterred foreign investments.

In the light of economic reforms and the liberalised scenario, FERA was replaced by a new Act called the Foreign Exchange Management Act (FEMA),1999.The Act applies to all branches, offices and agencies outside India, owned or controlled by a person resident in India. FEMA emerged as an investor friendly legislation which is purely a civil legislation in the sense that its violation implies only payment of monetary penalties and fines. However, under it, a person will be liable to civil imprisonment only if he does not pay the prescribed fine within 90 days from the date of notice but that too happens after formalities of show cause notice and personal hearing. FEMA also provides for a two year sunset clause for offences committed under FERA which may be taken as the transition period granted for moving from one 'harsh' law to the other 'industry friendly' legislation.

Broadly,the objectives of FEMA are: (i) To facilitate external trade and payments; and (ii) To promote the orderly development and maintenance of foreign exchange market. The Act has assigned an important role to the Reserve Bank of India (RBI) in the administration of FEMA. The rules,regulations and norms pertaining to several sections of the Act are laid down by the Reserve Bank of India, in consultation with the Central Government. The Act requires the Central Government to appoint as many officers of the Central Government as Adjudicating Authorities for holding inquiries pertaining to contravention of the Act. There is also a provision for appointing one or more Special Directors (Appeals) to hear appeals against the order of the Adjudicating authorities. The Central Government also establish an Appellate Tribunal for Foreign Exchange to hear appeals against the orders of the Adjudicating Authorities and the Special Director (Appeals). The FEMA provides for the establishment, by the Central Government, of a Director of Enforcement with a Director and such other officers or class of officers as it thinks fit for taking up for investigation of the contraventions under this Act.

FEMA permits only authorised person to deal in foreign exchange or foreign security. Such an authorised person, under the Act, means authorised dealer,money changer, off-shore banking unit or any other person for the time being authorised by Reserve Bank. The Act thus prohibits any person who:-

1. Deal in or transfer any foreign exchange or foreign security to any person not being an authorized person;
2. Make any payment to or for the credit of any person resident outside India in any manner;
3. Receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner;
4. Enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person is resident in India which acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.

The Act deals with two types of foreign exchange transactions:

1. Current Account Transactions
2. Capital Account Transactions

Current Account Transactions

The Act defines the term 'current account transaction' as a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes,

Payments due in connection with 

• Foreign trade,
• Other current business 
• Services, and
• Short-term banking and credit facilities in the ordinary course of business;

Payments due as 

• Interest on loans and
• Net income from investments,

Remittances for living expenses of parents, spouse and children residing abroad, and

Expenses in connection with 

• Foreign travel, 
• Education and 
• Medical care of parents, spouse and children.

In the above definition, the words “without prejudice to the generality of the foregoing such transaction includes” imply that even if the transactions listed above may fit into the definition of capital account transactions, such transactions shall be treated current account transactions. For example, resident of India imports goods from outside India on a short term credit (for a period of less than 6 months), he is creating a liability outside India and thus, it can be treated a capital account transaction but, it is specifically included in the above definition as a current account transaction.

As a general rule, any person may sell or draw foreign exchange if such sale or drawal is a current account transaction. Under the Act, Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed. Accordingly, the Central Government has issued the Foreign Exchange Management (Current Account Transaction) Rules, 2000. It contains the list of current account transactions for which drawal of foreign exchange is:- 

Totally prohibited; 

Permitted, subject to the prior approval of concerned Ministry, Central Government;

Permitted, subject to prior approval of the Reserve Bank of India;

No restrictions or limits are applicable for undertaking the transactions that are not covered by the above rules and the authorized dealers are free to release foreign exchange upon the satisfaction that the transactions will not involve and is not designed for the purpose of, violation of the Act, or any rules, regulations made thereunder.

In today's changed scenario, Indian rupee has become fully convertible so far as current account transactions are concerned. This implies that foreign exchange is freely available to the residents for remittance on account of current account transactions for the various purposes like foreign travel, foreign education, and medical treatment abroad etc. The non residents are also freely allowed to remit outside India the income or capital gain generated in India. But, even today, the Indian rupee, in respect of capital account transactions, is not fully convertible.

Capital Account Transactions

Capital account transaction is defined as a transaction which:-

Alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India. In other words, it includes those transactions which are undertaken by a resident of India such that his/her assets or liabilities outside India are altered ( either increased or decreased). For example:- (i) a resident of India acquires an immovable property outside India or acquires shares of a foreign company. This way his/her overseas assets are increased; or (ii) a resident of India borrows from a non-resident through External commercial Borrowings (ECBs). This way he/she has created a liability outside India.

Alters the assets or liabilities in India of persons resident outside the India. In other words, it includes those transactions which are undertaken by a non-resident such that his/her assets or liabilities in India are altered (either increased or decreased). For example, (i) a non-resident acquires immovable property in India or acquires shares of an Indian company or invest in a Wholly Owned Subsidiary or a Joint Venture with a resident of India. This way his/her assets in India are increased; or (ii) a non-resident borrows from Indian housing finance institute for acquiring a house in India. This way he/she has created a liability in India.

The Act also contains a list of some of the most common capital account transactions:-

• Transfer or issue of any foreign security by a person resident in India;               
• Transfer or issue of any security by a person resident outside India;                   
• Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India;
• Any borrowing or lending in rupees in whatever form or by whatever name called;
• Any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India;
• Deposits between persons resident in India and persons resident outside India;
• Export, import or holding of currency or currency notes;
• Transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India;
• Acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India;

The Act has empowered the Reserve Bank of India (RBI) to specify, in consultation with the Central Government, the permissible capital account transactions and the limits upto which foreign exchange may be drawn for these such transactions. But it shall not impose any restriction on the drawal of foreign exchange for payments due on account of amortization of loans or for depreciation of direct investments in the ordinary course of business.

Accordingly, the RBI has issued notifications governing capital account transaction. The FEMA Notification No. 1/2000 dated 3-5-2000 contains the list of permissible capital account transactions as well as list of prohibited capital account transactions.

The permitted capital account transactions have been classified into two categories:-

Capital account transactions by persons resident in India includes, 

• Investment in foreign securities;
• Foreign currency loans raised in India and abroad;
• Acquisition and transfer of immovable property outside India;
• Guarantees issued in favour of a person resident outside India;
• Export, import and holding of currency or currency notes;
• Loans and overdrafts (borrowings) from a person resident outside India;
• Maintenance of foreign currency accounts in India and outside India;
• Taking out the insurance policy from an insurance company outside India;
• Remittance outside India of capital assets of a person resident in India;
• Sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives abroad.

Capital account transactions by non- residents includes, 

• Investment in India such as (i) issue of security by a body corporate or an entity in India and investment therein by a non-resident and (ii) investment by way of contribution to the capital of a firm or a proprietary concern or an association of persons in India;
• Acquisition and transfer of immovable property in India;
• Guarantee in favour of, or on behalf of, a person resident in India;
• Import and export of currency/currency notes into/from India;
• Deposits between a person resident in India and a person resident outside India;
• Foreign currency accounts in India of a non-resident;
• Remittance of the assets in India held by a non-resident.

There are generally two types of prohibitions on capital account transactions :-

General Prohibition:- A person shall not undertake or sell or draw foreign exchange to or from an authorized person for any capital account transaction. This prohibition is subjected to the conditions specified by Reserve Bank in its circulars and notifications. For example, Reserve Bank of India has issued an AP (DIR) Circular, wherein a resident individual can draw from an authorized person foreign exchange up to US$ 25,000 per calendar year for a capital account transaction specified in Schedule I to the Notification.

Special Prohibition:- A non resident person shall not make investment in India in any form, in any company or partnership firm or proprietary concern or any entity, whether incorporated or not, which is engaged or proposes to engage:- (i) in the business of chit fund, or (ii) as Nidhi Company, or (iii) in agricultural or plantation activities or (iv) in real estate business, or construction of farm houses or (v) in trading in Transferable Development Rights (TDRs).

Rebels take over Yemen

• Yemen’s powerful Shiite rebels announced that they have taken over the country and dissolved Parliament, a dramatic move that finalises their months-long power grab.
• The development also plunges the impoverished country deeper into turmoil and threatens to turn the crisis into a full-blown sectarian conflict, pitting the Iran-backed Houthi Shiites against Sunni tribesmen and secessionists in the south.
• It could also play into the hands of Yemen’s al-Qaeda branch, the world’s most dangerous offshoot of the terror group, and jeopardise the U.S. counter-terrorism operations in the country.
• In a televised announcement from the Republican Palace in the Yemeni capital of Sanaa, the Houthi rebels said they are forming a five-member presidential council that will replace President Abed Rabbo Mansour Hadi for an interim two-year period. The Houthis also said that “Revolutionary Committee” would be in charge of forming a new Parliament with 551 members.

Madhu wins 200m IM in 35th National Games

• P.S. Madhu stole the thunder from other accomplished swimmers to become the standout performer on the penultimate day of swimming competitions of the 35th National Games.
• The Services swimmer set two meet records on the day that saw Sajan Prakash court joy and disappointment at the same time
• However, the day belonged to national champion Madhu who put Kerala’s golden boy Sajan Prakash in his place with a commanding win in 200m IM that saw the Services swimmer set a new Games record.
• Taking the lead in the breaststroke leg, Madhu pulled ahead to finish in 2:08.98s which broke Virdhawal Khade’s old mark (2:11.78) set in 2011.

Uttarakhand gears up for panchdham yatra

• Recovering from one of the deadliest natural calamities of recent times, Uttarakhand is all set to welcome more than 40 lakh pilgrims across the country for the ‘panchdham yatra’ which will start from April 26.
• “The natural disaster was the challenge to the people of Uttarakhand. We had accepted it with determination. Today, we stand with better and more secure facilities than ever before for pilgrims,” said Uttarakhand Chief Minister Harish Rawat in Mumbai.
• While the Badrinath yatra is scheduled to start on April 26, dates of holy yatra of Gangotri, Yamnotri, Kedarnath and Hemkund Sahib will soon be declared.
• “Kedarnath which received the maximum brunt, stands tall like ever before. With three helipads, secure track routes and residential facilities, we hope that we will wipe out the terrible memories of 2013,” Mr. Rawat said, adding that State Disaster Response Force has been set up to manage and help pilgrims.
• The Uttarakhand government till now has spent around Rs. 800 crores to rehabilitate areas which were destroyed due to floods. As per the government’s new policy, it is expected to spend around Rs. 50,00 crore to revive the tourism sector of the State alone.
• The State is to receive Centre’s aid worth Rs. 7,000 crore, out of which it has received the first package of Rs. 1,600 crore. “We hope that the new government in Delhi will ensure that the State gets remaining aid as per the earlier decision,” he said.
• Recalling the past mistakes while developing the tourism industry, Mr. Rawat admitted that scientific and environment friendly modes of development were never followed. “But we learned from the mistake. Nature has warned us and we will never forget the lesson,” he said.