Regulating External Sector Instability: The Role Of Foreign Exchange Management Act, 1999 During Global Geopolitical Disruptions

Abstract

The worldwide geopolitical shocks such as the Russia-Ukraine tensions, Middle East tensions and supply chain realignments have impacted the emerging economies external sectors substantially. As a strongly interconnected country in both international trade and international capital flows, India has been volatile in terms of exchange rates, capital flows and remittance inflows. This paper looks at how the act of Foreign Exchange Management, the Foreign Exchange Management Act 1999 (FEMA) played a role in controlling the instability of the external sectors during these times of uncertainty in the world. The study assesses the effectiveness of FEMA to ensure macroeconomic stability using secondary sources like the Reserve Bank of India (RBI), world bank and IMF. The results indicate that the management and flexible-based framework created by FEMA has helped India to absorb external shocks but there are still some gaps in the regulations that are used to handle emerging digital and geopolitical risks.