At the risk of sounding highly unpatriotic, the repeated calls to get black money back into India are naïve at best — calls that lack, frankly, any logic.

It just creates a moral position that, like all such positions, is eminently avoidable. First of all, black money is not a hoard of cash that is stashed away under the Swiss Alps. The money, like any other deposit made in any bank, doesn’t stay in its vault, waiting for hubris to catch up.

If a future Indian government’s persuasive skill makes the banks in various tax havens reveal the total amount held by Indian citizens, the money will return to India as Swiss Francs, US dollars, UK pounds — in short, anything except Indian rupees. This means the sum will go to the Reserve Bank of India as any foreign exchange does in India.

What will the Indian government do then? Going by the logic being dished out by the BJP and other parties, the government will use it to do social good — like waiving interest on loans for small farmers and others. This, in banking terms, means the government will borrow humungous amounts from the RBI, by floating additional debt. The sum would be used to recap the banks which have made the debt. Some could also be used to finance additional infrastructure spending.

The same role is being performed at the moment by the government through the use of local currency. The cap on this expenditure is set by the government’s borrowing capacity — a variable that is subject to questions of inflation, the fiscal deficit and so on — but nowhere does the amount of foreign exchange held by the RBI in an economy with limited capital account convertibility make any difference. So, till this point in the discussion, it is clear that the additional sum of black money brought in from abroad is hardly going to help build up the capacity of the economy any more than otherwise.

... contd.