Objectives of Exchange Control: The important purposes of exchange control are outlined below:
• To Conserve Foreign Exchange: The main objective of foreign exchange regulation in India, as laid dawn in the Foreign Exchange Regulation Act (FERA), 1973, is the conservation of the foreign exchange resources .of the country and
the proper utilization thereof in the interest of the national development. This is one of the important objectives of foreign exchange regulations of many other countries too.
• To Check Capital Flight Exchange control may be employed to prevent flight of capital from the country and to regulate the normal day-to-day capital movements.
As Krause remarks, if adequately implemented and enforced, exchange control tends to be highly effective in curbing erratic .outflows .of capital. When exchange control authorities refuse to sell foreign exchange far this purpose, they close the .only legal avenue through which capital may leave a country.
• To Improve Balance of Payments: Exchange control is one of the measures available to improve the balance of payments position. This can be achieved by restricting imparts by means .of exchange control.
• To Curb Conspicuous Consumption: In the developing countries especially, there is a craze far the consumption of imparted articles, which are regarded as
inessential ‘luxury’ goods. Exchange control may be used to prevent their import and thereby, their consumption.
• To Make Possible Essential Imports: Due to the non-availability of or scarcity within the country, the developing countries generally have to impart capital goods, know haw and certain essential inputs and consumer goods. By giving
priority to such imparts in the allocation of foreign exchange, exchange control may ensure availability of foreign exchange far these imparts.
• To Protect Domestic Industries: Exchange control may also be employed as a measure to protect domestic industries from foreign competition.
• To Check Recession-induced Exports into the Country: If foreign economies are undergoing recession when ‘the dames tic economy is free from it, the decline in prices of foreign goods, due to the recession, may encourage their exports into
the country not yet affected by recession. Exchange control may be employed to check such recession-induced exports into the country.
• To Regulate Foreign Companies: Exchange Control may also seek to regulate the business of foreign companies in the country. For instance, the FERA provided that non-residents, foreign national resident in India, companies (other
than banking companies) incorporated abroad and having more than 40 per cent non-resident interest could not carry on in India, or establish a branch/office or
other place of business in the country for carrying on any activity of a trading, commercial or industrial revenue, without the permission of the Reserve Bank of India.
• To Regulate Export and Transfer of Securities: Exchange control may be employed also for the purpose of controlling the export and transfer of securities form the country. The FERA for instance, prohibited the sending or transferring of securities from the country to any country outside India, without the permission of the Reserve Bank of India.
• Facilitate Discrimination and Commercial Bargaining: Exchange control offers scope for discrimination between different countries. It would be used to
accord exchange concessions, on a reciprocal basis, between different countries.
• Enable the Government to Repay Foreign Loans: If the system of exchange control empowers the government to acquire foreign exchange from the residents
of the country, it becomes easy for the government to repay foreign loans.
• To Lower the Price of National Securities held Abroad: It may be possible to reduce the price of national securities held abroad by preventing nationals from
buying them. This would enable the government to purchase such securities at a lower price.
• To Freeze Foreign Investments and Prevent Repatriation of Funds :
Exchange control may be used to freeze investments, including bank deposits, 3
foreigners in the home country and to prevent the repatriation of funds out of the country. This is sometimes done by hostile countries.
• To Obtain Revenue: Governments may use exchange control to obtain some revenue. The government/government agency can make profit out of the foreign exchange business by keeping certain margin between the average purchase price and the average selling price of the foreign exchange.