Baba Ramdev’s financial naivete is only to be expected. But I am astonished that the media endlessly repeats the myth that enormous hoards of black money are lying in Swiss banks.

Only financial illiterates will leave their money in Swiss banks offering very low interest rates (sometimes under 1%). To maximize their gains and hide their cash trail, savvy crooks route their money through various tax havens, and then seek the assistance of financial managers to maximize gains.

Financial managers will suggest a variety of assets from shares and bonds to real estate, aiming for annual returns of 10-20%. When such high returns are available, only novices will leave their money in bank deposits with very low returns.

This is obvious from the details disclosed of Indian-owned accounts in the LGT Bank in Liechtenstein. Of the 26 Indian accounts unearthed, some were owned by NRIs, and only 18 looked taxable. These had received inflows of just Rs 39 crore over two years, some of which may have been legitimate earnings abroad. This suggests that even if the Swiss bank secrecy is broken, relatively modest sums may come to light.

The government is signing agreements with many countries to access more information on foreign bank accounts. The very signing will warn crooks to transfer their funds to chains of corporations in lightly taxed places ranging from Liechtenstein to Cayman Islands and Mauritius to Bermuda. Once laundered through a dozen corporations in a dozen tax havens, money becomes white.

Some businessmen may park large sums temporarily in Swiss banks pending better deployment. Some politicians may not yet be financial savvy and may be content keeping large sums in Swiss banks. These will be exceptional cases. The bulk of black money abroad is in financial assets across the globe.

Where exactly? Nobody knows. But one of the best places in which to invest money is India, not Switzerland or the US or any western destination. Housing prices in the US doubled after 2000 and that was called a bubble, but housing prices in India rose almost ten-fold. Declarations by politicians of their assets show a huge preference for real estate over all other assets.

The Dow Jones index in New York is barely higher today than in 2000, but the Bombay sensex is up six-fold. Interest rates on Indian government bonds are 8% against 3% in the US and Germany. Clearly India is one of the best investment destinations in the world. Income tax rates today are modest and there is no tax on dividends and capital gains.

So, enormous sums of black money that once went abroad have returned in white form over the last two decades. These flows may have helped the Indian economy grow faster. They have certainly helped push up land and stock prices to dizzy heights, and election spending too.

India now gets $60 billion annually of remittances from NRIs, and up to $50 billion from portfolio inflows. A significant part of this must be black money returning as white. Some inflows come as NRI bank deposits in India.

Lots of money comes through companies set up in low-tax havens like Mauritius with whom India has double taxation avoidance agreements, so the earnings of these companies in India constitute tax-free white money. Plugging the Mauritius loophole will not change matters much: the money will shift to other zero-tax havens, or low-tax havens like Holland.

But why focus on inflows from abroad? Income tax is paid in India by only 31 million people or 2.5% of the population. The number liable to pay tax must surely be ten times higher.

Within India, money moves seamlessly from black to white and black again. Real estate and stock market transactions include thousands of crores of black money every year, and experts can tell you how to convert white to black and back again. In rural areas, all transactions are in cash, even in multi-crore farm deals, and nobody pays income tax regardless of income.

Income tax officers are both corrupt and lacking in investigative skills, so there is little fear of being caught. Companies create hundreds of subsidiaries that create an impenetrable financial labyrinth. Enormous parts of the country are not within 50 km of an income tax office.