Question
What is exchange control? Explain various provisions related to regulation and management of foreign exchange.
07 Aug 2026
Answer :
Word Count : 1356
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# Exchange Control and Regulation and Management of Foreign Exchange Exchange control refers to the system of rules, regulations, and administrative measures adopted by a government or its monetary authority to regulate the purchase, sale, holding, transfer, and use of foreign currencies. It is mainly concerned with controlling foreign exchange transactions between residents and non-residents of a country. The primary purpose of exchange control is to manage the country's limited foreign exchange resources, maintain external financial stability, regulate international payments, and ensure that foreign currency is used for legitimate and economically desirable purposes. In India, the regulation and management of foreign exchange are primarily governed by the Foreign Exchange Management Act, 1999 (FEMA), which is administered by the Reserve Bank of India (RBI) and enforced, where applicable, by the Directorate of Enforcement. Foreign exchange is required for several international transactions such as payment for imports, receipt of export proceeds, foreign investment, overseas travel, education, medical treatment, and remittances. Since these transactions affect a country's balance of payments and foreign exchange reserves, the government establishes a legal framework for their regulation. The Indian system under FEMA is primarily designed to facilitate external trade and payments and promote the orderly development and maintenance of the foreign exchange market. One important provision relates to dealings in foreign exchange. Under FEMA, a person cannot freely deal in or transfer foreign exchange except through permitted channels and for transactions allowed under the law. Authorised persons, such as authorised dealer banks, money changers, and other entities permitted by the RBI, play an important role in foreign exchange transactions. Exporters and importers generally conduct their foreign exchange transactions through authorised banks, which ensure that the transactions comply with applicable regulations. Foreign exchange transactions are broadly classified into current account transactions and capital account transactions. Current account transactions include payments connected with foreign trade, services, interest, remittances, travel, education, and other routine international transactions. In general, current account transactions are permitted, subject to
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