How Black money came back to India!!
Ever since this debate on black money gained steam in India, I was wondering how can a Swiss Bank keep all the money like that. Money is always in circulation and even more so if it is with bank. Fundamental job of a bank is to take money from one person and give it to the other at higher interest rates. I was wondering if other economist would think this way as I have been thinking and recently I have found there is at least one economist, Swaminathan S. Anklesaria Aiyar, who shares same thought and now I am confident enough to write how this black money came back to India over the years. I am not saying that all the money is back in India but there is some portion of it in India and that’s for sure.
Financial illiteracy has made most Indians to know just one thing ‘Politicians rob India and deposit black money in Swiss Banks’. First of all, black money is not deposited in form of cash. Politian’s for not fools (well they are..when working for countries development). There are many different financial assets which they buy from where they can make more money rather than depositing it in bank. These assets can be anything like Stocks, bonds, ETFs, real estate, etc. These assets give far more return than saving accounts.
Its not just the Swiss banks. The politicians keep on looking for safe heavens where they can transfer there money and as Swaminathan says, transferring money from one bank to other for 10 to 12 times, eventually, makes it white money. Money ultimately would rest with the countries that can give more interest and those countries are one like India itself, not the western countries where interest rates are near Zero. So, after making all the rounds in the world, a portion of Indian Back money comes back in India to give more return to the foreign banks which pay interests to Indian politicians for depositing their ‘no hard earned money’ with them. Second reason, all this money in different forms are held with banks and financial institutions around the world. India had been receiving money, around $110 Billion/year, as inward remittances from abroad. There have been inflow of funds through FDI and FII like biggest Swiss Bank UBS investing in India. Most of the Indian black money is with UBS and it has invested back in India in recent years. Likewise there are many other financial institutions that have being putting same money into Indian economy.
Its just not as simple. We can’t get all the money back from Swiss Banks. All the money we talk about is not with them and it keeps on moving in search of better tax heavens.
I do not understand the rational behind Baba Ramdev’s all the actions on back money. His purpose is directed towards welfare of nation but his actions speak of financial illiteracy. Banning 500 and 1000 rupees notes will not make any difference as Gold and foreign currencies will then be used for laundering. Now, will you ban carrying Gold then or will you put a ban on forex itself. Moreover, I don’t want to keep 250 pieces of paper in my wallet when I withdraw Rs. 25000 from my ATM. With the people of India having more money in hand these days and inflation on higher side, isn’t the Baba going in just opposite direction? In this move to curb corruption, he is devising policies of economic stagnation and imbalance.