Legal Foundations of Financial Regulation and Their Impact on Economic Growth

Abstract

This study examines the legal foundations of financial regulation and evaluates their impact on economic growth, with a particular focus on the Indian context. Financial regulation, embedded in laws governing banking, capital markets, foreign exchange, taxation, and corporate governance, plays a vital role in ensuring market stability, promoting investor confidence, and facilitating efficient resource allocation. The research adopts a doctrinal methodology based on secondary sources including statutes, regulatory documents, case law, and academic literature. Key legislative instruments such as the Goods and Services Tax (GST) Act, the Reserve Bank of India Act, FEMA, the Companies Act, and the Banking Regulation Act are analyzed to assess how their legal provisions shape financial oversight and contribute to macroeconomic outcomes. The study also presents two case studies: the implementation of GST as a unifying tax reform that formalized the economy, and the Reserve Bank of India’s regulatory response during the COVID-19 crisis, which highlighted the legal empowerment of financial institutions in mitigating systemic shocks. Findings reveal that strong, adaptable, and transparent legal frameworks are critical to economic progress, especially in a rapidly evolving global and technological landscape. However, the study also identifies challenges such as regulatory overlap, enforcement delays, and the need for continual legal reform. It concludes that a well-grounded financial legal system not only stabilizes financial markets but also acts as a catalyst for sustainable and inclusive economic development.