India's foreign exchange control regime is governed by the Foreign Exchange Regulation Act, (FERA), 1973. Comprehensive amendments to FERA, especially with respect to foreign investment have been undertaken in order to give effect to the liberalization's announced in the economic policies. FERA provisions that imposed restrictions on locally incorporated companies with foreign equity holding in excess of 40 per cent (known as "FERA companies") have been removed. Such companies are now permitted to operate in India without any special restrictions, effectively placing them on par with wholly Indian owned companies.
Foreign exchange controls have been substantially relaxed. Effective from August 20, 1994, India announced its movement to Article VII status in the IMF: the Indian Rupee is now fully convertible on the current account. For authorized foreign investors, the Indian Rupee is already convertible on the capital account. Full capital account convertibility is expected in the coming years.
Although the Indian foreign exchange market is not yet fully developed, a variety of instruments have been introduced in the recent past. The dollar rupee forward market is very active, and firms have access to cross-currency options.