A lot of cry is being raised for bringing back the Indian money deposited in
Swiss banks. It makes one feel better that somebody at least remembers the problem. More often than not corruption & black money is blamed for the burgeoning Indian deposits in Swiss banks. However there is another side to the story, which goes unnoticed.
Since the 90s, when the reforms began, the value of the dollar has progressed from about Rs.10 to Rs. 50. The value of the Rupee has been falling against the
Dollar (except a brief surge a year back) which makes it worthwhile for an Indian with excess money to store it in Dollars. Further the value of the Rupee will continue to depreciate, which means further erosion of the net value of the savings in rupees. This coupled with the rampant inflation in the Indian economy ensures a negative growth of the economic worth of Indian money in PPP terms. On the contrary, the same money, if kept overseas in dollars consistently increases its net value outperforming both the Indian Inflation & the international economic trends.
This is another major reason for the increase in Indian deposits in Swiss banks.
What is the remedy? Is ending corruption the only way out? The answer of any patriotic economist worth his salt should be a big NO.
We, Indians as a rule are very dishonest & unpatriotic people. But for a few demonstrations of valour by our soldiers, our innate character borders on being a borne traitor rather than a patriot. Due to the utter dishonesty of our character, (mostly promoted by the arm chair Ganidhians badmouthing politicians of all hues) Indians as an entity will never fight against corruption, which makes it, better for the establishment to concentrate on using economics to combat the problem.
The most disastrous tragedy of corruption on our economy (the symptom as well as the effect) has been its exodus abroad. We (and many others) have been financing the Swiss Economy & Euro-American Growth for decades. The Black Rupee (notice similarity to blood diamonds, another peculiar character of similar character) stored in the safety of Swiss vaults does not produce interest worth being interested about!
Thus the Swiss get virtually interest free funds in billions, which is used to finance their chocolate & watch makers (amongst numerous others), a great portion of which is purchased by our white Rupee completing the parody of economic life cycles. The Swiss are very innovative & ingenious people. They have mastered the art of subsidizing the positive growth of their economy by a reverse mechanism of cross subsidizing the negative growth of corrupt countries like ours. Morons like us finance the upsurge in their economy, currency & international rankings on diverse wellness parameters at the cost of degrading ours in inverse proportion.
To halt this trend, we must prevent the exodus of Indian money. Before trying to prevent the exodus of the Rupee, we will first have to make the Rupee stable & should we wish to generate a return of the money already stashed abroad, the Rupee will need to be made stronger. If the Rupee becomes stronger, the Dollar will be depreciate vis-à-vis the Rupee & it will become alluring to bring back the money & to prevent the devaluation of the net worth of this Black Rupee.
This is a worthwhile option because money laundering is indeed very easy locally. If even a fraction of the Indian deposits in Swiss banks, were to come to India (they definitely will, if the rupee strengthens consistently), this money could be easily hidden away by the novel Hawala operators in chains of Benami transactions. This will have a positive effect on most aspects of the Indian economy like Real Estate (most of large chunks of land are Benami properties or purchased through black money), increase in consumption (sectors like food, white goods, automobiles, electronics), industries of snobbery (expensive weddings, haute couture fashion, in general the blasphemous show of liquidity). All this will eventually have the tickle down effect & do wonders for the recession struck economy, if not the polity.
Another angle to our woe of backwardness is the fact that although poor, we are net exporters of Finance. One of the major reasons for the fall of the Rupee is the encouragement by the government of India to send the Indian money abroad. In fact most of the developing & the not so developing countries are heavy exporters of their currencies to the first world. Since the international currency has been the Dollar & other first world currencies, the third world countries have to maintain a reserve of foreign currency to finance their international purchases. This creates a demand for the first world currency, more specifically the Dollar. This sustained demand for the Dollar (& a few other such internationally used currencies) drives up heir price & makes their economies more valuable in an ever increasing manner.
Indian government (& most of the third world) is under a misguided assumption that its economy will be judged in direct proportion to the value of the foreign exchange reserves it holds (or hoards). Hence more often than not it goes overboard in hoarding more foreign currency than is required, again contributing to the appreciation of Dollar & company vis a vis the Rupee & encouraging further exodus of the Rupee. To buy these huge stocks of foreign currency, more & more of the local money needs to be sent out. The volume of this money is much more than that of the foreign investments coming into India. Thus we have a situation we fare unfavorably with the world on balance of trade, but favorably in the trade of money. The tragedy is that this favorable status is unfavorable to our economy!
If we wish to make our economy strong in real terms in the long run, we will have to curb this outward flow of the Rupee & stop strengthening the others at our cost. Further we can strive to become a mini dollar at least for the nearby region. A strong currency is one of the first steps to the recognition of a country’s economic might & the key to sustained long term growth.
And yes, it can also help us to bring our Swiss billions back!
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