IGNOU : M.COM : IBO 4 : UNIT 7 : Q - 1. What do you mean by exchange control ? Describe the broad objectives of exchange control.

 

Ans. Exchange Control : Exchange control means official intervention with the foreign exchange of a country. It is a system of rationing foreign exchange among competing demands for it, effected by controlling the receipts and payments thereof. The control of receipts aims at centralizing the country's means of external payments in a common pool in the hands of its monetary authorities. Reserve Bank of India is the monetary authority in India. It facilitates judicious use of foreign exchange . The control of payments aims at restraining the demand for foreign exchange broadly in consonance with the national interests within the limits of available resources.

OBJECTIVES OF EXCHANGE CONTROL

Most of the developing countries including India found it necessary to continue exchange control introduced during the Second World War on a systematic and long- term basis. Exchange control became essential in view of the substantial requirements of foreign exchange for the planned developmental effort undertaken by them. Over the years, the scope of exchange control in India has steadily widened. The regulations have become progressively more elaborate with the increasing foreign exchange outlays under successive Five Year plans and the relative inadequate earnings of foreign exchange. During the span of more than 40 years that the control has remained in force, appraisals and reviews of policies and procedures have been undertaken periodically and modifications made as and when considered necessary.

In specific terms, the broad objective of the exchange control are:

1) to prevent flight of capital,

2) to ensure the availability of sufficient foreign exchange for specific purposes Such as meeting the international commitments,

3) to stabilize the external value of the domestic currency, and

4) to insulate the economy from external economic pressures.

You should note that the basic objective of exchange control in India is conservation of the foreign exchange resources and proper utilization thereof in the interest of economic development of the country.