foreign countries make more profits. This explains the complex environment in which the value of our nation’s currency is determined. Black Money: This is an ongoing & a contemporary issue. There is no empirical evidence regarding the exact figures of total unaccounted money of India stashed in accounts held in other countries. It is stated that the money is held in countries like Switzerland, Cayman Islands etc is by taking the advantage of the DTAA (Double Taxation Avoidance Agreement) with India. It is known that most of this money is held at Swiss Banks. Switzerland in particular, has strict banking secrecy laws & tax evasion isn’t an offence there (but money laundering is!). Tax evaders take advantage of this, as the bank will not reveal the names of its account holders. Some astonishing figures stated by BJP Leader L.K. Advani concur that, Indian tax evaders money in Swiss banks range from Rs. 25Lakh crores to Rs. 75lakh crores. If this is true, it is almost $1.79 trillion, which is about 98% of India’s GDP. This flow of money which is generated in India and is transferred to other countries will increase the demand for other currencies and will depreciate the value of the Indian rupee. Due to this the value of imports will fetch more, but India has to pay a huge bill when it comes to exports. Money Supply Effects: The Banks are the masters of the money creation in the country’s financial system, RBI being the leader which monitors and controls all these masters. When govt. needs money (Under hypothetical situation, assuming there is no excess money in the system for easy understanding): GOVERNMENT ==> RBI The Government asks the RBI to print currency (Rupee) to spend this money in for the investment in various sectors like Infrastructure, health etc. for the development of the nation. RBI ==> GOVERNMENT Then, the RBI prints the money and gives it to the Government. GOVERNMENT ==> RBI In return, the Government will give Treasury receipts for the value of that money with a promise to pay it back later to the RBI. For example, when Government requires Rs. 1,000 Crore for developmental activities like Infrastructure,
36
iNM VOLUME 1, October 2011 NMIMS Hyderabad
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