On fifth of June 2011, Indian government and the Delhi Police created the history by bringing back the memories of Jalian Wala Bagh at Ramleela Maidan. No sane person can support the violent police actions that were taken against the peaceful protesters who gathered there at the call of Baba Ramdev. It was the replay of India Against Corruption Show that was initially started by Anna Hajare at Jantar Mantar. However, Baba Ramdev had different issues to look after. In place of demanding a strong Jan LokPal Bill he raised his voice against the Black Money that had been transferred in foreign banks and specially Swiss Banks. He claimed that around four lakh crore INR has been stashed in Swiss Banks and it is all Black Money. He demanded that all this money should be announced as National Property and government should do hard to bring all this money fast back to India.
For common citizens of India, who are facing inflation and price rise and are unable to cope up with the ever increasing prices of food articles and other basic commodities, it seemed like a good cause that will bring prosperity to India and hence will reduce their problems of poverty. While it is true that Baba Ramdev had good intentions behind his Satyagrah, but it is also important to analyze whether his demands will prove to be really beneficial if the Indian money is brought back from Swiss Banks?
Later on, the Supreme Court of India also issued notices against government and created a Special Investigation Team (SIT) to vigil the ongoing proceedings for bringing the Indian money back from Swiss Banks. Obviously, there are no genuine and intelligent economists in the Supreme Court, they are all lawyers and judges who know nothing about economics and how it works. Here I will provide a rational view point about bringing back Indian Money from Swiss Banks and the negative and positive effects of this.
What is Black Money?
Black money is that undisclosed money which has been stored by Indians either in foreign banks or in India itself but haven’t paid any tax on that money. AS a matter of fact, taxation is nothing but legalized robbery and exploitation of honest hard working people that is performed by the government officials under the immoral and unethical code of conduct. However, let us forget about the immorality of Taxes at present.
It is believed that most of the Black Money from India has been stored in Swiss Banks and according to the reports, this is true. Indian people believe that Indian Government willfully try not to bring back Indian black money from the banks of Switzerland and that is why they wholeheartedly supported Baba Ramdev and his demands. However, Switzerland is a different country which is far more close to the concept of individual liberty. Indians cannot understand why it is difficult or in fact, impossible to bring the black money back from Swiss banks because they have never tried to understand the concept of Limited Government. Switzerland government is a limited government and hence it does not hold any such power over the people of Switzerland and their businesses which include the Swiss Banks through which it may force them to pay the money stored by Indians to the Indian government.
It is very hard for Indians to understand this fact that even if the government of Switzerland supports Indian government and want to let Indian government have the black money, it cannot force Swiss Banks to do so. Often Indians and in fact most of the Asians fail to understand the importance of Individual liberty and its meaning. Similar thing happened during Danish Cartoon Protest when the Danish Prime Minister refused to take actions against the newspaper and the cartoonist in defense of Freedom of Expression and Freedom of Speech. People in Muslim countries were unable to understand it. Rather they felt that the Danish PM supported that newspaper and cartoonist.
In similar fashion, Indians believe that the government of Switzerland actually support the Swiss Banks and doesn’t want Indian government to get back all the black money.
How to recover the black money from Swiss Banks?
Let us assume that the money is in USD or Swiss currency (CHF). The money was first converted and then was stored in Swiss Banks. The Swiss Banks might have invested that money in some business projects. In any case, that money is of no use for Indians. The very important thing that needs to be understood is Currency is not Wealth. We do not eat rupees. We use INR as a means to share, distribute sand transfer wealth. When money or currency is taken out of an economy, the purchasing power or value of that currency increases. That is, inflation or price rise decreases. Let us try to understand it in a simpler manner.
Assume a village of 50 people where the total amount of currency is Rs100 and the total production of wheat is 100 kilos for a day. Obviously in this village, everybody will be able to buy 1 kilogram of wheat every day. While some people will be able to save some money even after buying the required one kilogram of wheat every day, some other will fail to save any money as all will be spend in buying wheat and eating food. Now those people, who have saved some money, meet and agree to collect their money and invest it in some other village or to steal it from the economy of their own village by depositing it in Swiss Banks. What will happen? Let’s say those group of people saved and deposited Rs50 in Swiss Banks. So now, the total currency in that village is Rs50. However, the weight of available wheat is still 100 kilogram per day and total number of people is still 50. The next day, the shopkeepers will sell the wheat at the same price of Rs1 per kilogram, but they will find that many people were unable to buy the wheat because the total currency is only Rs50 while total wheat is 100 Kilogram. They will fail to sell remaining 50 kilogram and will have to store it. Wheat can’t be stored for long and it will start spoiling within 2-3 days especially because of the shortage of proper storage as it is not required. As a result in order to avoid loss of wheat, the shopkeepers will reduce the price of wheat and will start selling it at a Half a Rupee per kilogram. So you see, because of the stolen money from that village’s economy, the price of wheat will decrease to half.
However, in case of Indian economy, which is already under foreign debt, if the Indian Money which is in form of USD or CHF is brought back from Swiss Banks, this money can be used to pay back the foreign debt. But will that do any good for Indians? It hardly would do any good because Indian government always works in fiscal deficit and within a few years, it will again rebuild the debt.
Now let us consider the other case in which the black money deposited in Swiss Banks is still in Indian currency. This money cannot be used to pay the foreign debt back hence; it cannot be used in any manner. However, it will certainly create havoc in India. Let us again take the case of that small village of 50 people and total currency of Rs100 where some people stole half of the currency. We saw that because of their theft of currency (not wealth), the price of wheat got reduced to half. Now total currency is Rs50, total wheat is 100 kilos and the price is 50 Paise per kilo. This is a good situation for those poor people who were unable to buy enough wheat at a price of Rs 1 per kilo because they had less money. Suddenly the government of that village decides to bring the black money back in its economy. The very next day, there are Rs100 in the village and 100 kilogram of wheat. Soon the rich people will start offering higher price to get more wheat and shopkeepers will also have to raise the price of wheat to Rs1 kilogram and a result the poor people again will suffer loss of wheat because they will not be able to buy it at increased price.
Whenever government increases the currency either by printing money or by any other means, the inflation and price rise takes place. It is a general and genuine phenomenon. Government can control inflation or price rise by reducing the currency. The Swiss Banks already have reduced the actual amount of currency that was printed by government and by doing so; Swiss Banks actually have helped Indian poor people as it has reduced the rate of inflation which at present is 10%. If somehow the Indian money is brought back from the Swiss banks, it will again increase the price of wheat and other commodities and the real sufferers will be the poor and middle class Indians who are already suffering because of inflation.
Furthermore, what is the need to bring that money back? If money can make India rich then the government and RBI can print a lot of currency in a single day. But that will not make India rich, it will make price go sky high and poor will die of hunger. We must understand that we don’t eat rupees, we eat wheat. So there is no loss is some people have deposited rupees in Swiss Banks. However, if some people are wasting or stealing our wheat, then they are the real culprit. Everybody knows that Indian government wastes a lot of wheat by not providing proper storage and they steal a lot of wheat by forcing export of wheat. The government is real culprit of Indian poverty and not the Swiss Banks or those people who have stored Indian money in Swiss Banks.