I met a foreigner last week in Mumbai. One of his questions to me was “what do you think about the current wave of political scandals sweeping India ?”.
I thought about it for a minute and provided a response which he was least expecting. I said “nothing much”.
He prodded me for some amplification, and I explained the background to my rather nonchalant philosophy of viewing the state of affairs afflicting the country. I said that things will move on from here, and it is no surprise that corruption and black money are on the forefront now. There always has been corruption, only the scale is hugely different now. Should we catch the thieves and punish them, of course, yes. Should we bring back the black money, no it would be counter productive to the competitiveness of the Indian economy and collapse it.
Oh, wow, how come ? I explained that, in simple terms, that corruption does exist in most countries, including the mightiest nation on earth, the U.S. Let us not forget the power of the lobbying firms of Washington which constantly influence the senators’ thinking and persuade them to vote for special interests. Is that not corruption ? Is money not changing hands ? So, let us be clear that it is not only the problem in India alone. Of course, it is not good for the health of the economy and it sets a very bad precedent for aspiring youth who get an idea that money can solve their problems. But, let the investigators and the courts have their way. No point in precipitating matters by agitations.
On the black money issue, there is no economic sense in trying to get back all that trillion dollars from Swiss banks. It is better to let that money trickle back via the Mauritius route. Let me explain. If the entire black money is brought back into the Indian banking system, that would be equivalent to minimum 4 times India’s current FOREX reserves with the Reserve Bank of India. Such a huge infusion of dollars into the economy will cause the Indian Rupee to appreciate dramatically, and may be the Indian Rupee will be worth at least 3 times what it is now, that would mean 1 USD will depreciate from INR 45 to INR 15. Just for argument’s sake, folks. Don’t take me literally, and I am no economist and what I am saying here could be entirely wrong from an economic theory perspective.
This would mean that India will immediately become totally uncompetitive in the world markets. The IT industry outsourcing market will die completely. Our manufactured exports will cease, and huge unemployment will be created. In a nutshell, our economy, which today is the world’s second fastest growing economy, will sputter and collapse within a few months of the black money coming back into the Indian banking system.
I may be right or wrong here, but such a scenario will be catastrophic for India, we all should agree. Huge economic damage will be caused. So what should we do with the black money matter ?
Don’t bring it back ! It is not going to help. But exposing the folks who own that black money deposits in Swiss banks – well that takes political courage and strong will, which the current government, already affected by many scandals, does not have in abundance at this moment.
Think about this unique challenge to India !!
12th June 2011