Every now and then, concern about a ‘brain drain’ sapping India of her most productive citizens is raised in the media. This phrase refers to the notion that skilled people are leaving India for better career and lifestyle opportunities abroad, leading to a shortage of social capital locally. There is much truth in this concern. India is not anywhere among the most desirable countries to live or work. More people leave India than enter it, as evidenced by its negative migration rate. India’s popularity among foreigners is low, leading it to have approximately the same migration rate as nations like Kenya and Ghana. This can be contrasted to Australia where more people immigrate into the country than emigrate from it, leading to a positive net migration rate. Addressing the factors that have caused the mass exodus from India won’t happen overnight. These factors relate to the fact that India is not by any objective measure a free society. The Heritage Foundation’s ranking of economic freedom places India at 120 in the world, which once again places it in the company of backward African economies. Unsurprisingly, India also has a lower Gross Domestic Product per capita than Australia. What’s surprising is that the supposedly ‘right-wing’ pro-business government of Prime Minister Narendra Modi hasn’t yet found a way to tap into the talent of Non-Resident Indians.
Attracting NRI investment is a no-brainer: by making it easier for NRIs to start a business and invest inside the country, jobs are created for local resident Indians due to the inflow of capital. More jobs mean more income generated, thereby improving standards of living and decreasing poverty. Foreign investment into Indian companies – for example, through the share market – would help local companies raise money for investing in research and development too. There are two easy ways to make a start on a reform agenda. First, simplify the tax system, and in particular the filing of tax returns, for both resident Indians and NRIs. Australia is a good model: the MyTax system developed by the Australian Tax Office is easy to use even for those that aren’t accountants. On the other hand, I spent a couple of days trying to figure out the process to file a tax return online in India. The arcane language didn’t help either! No Indian should have to spend more than one hour completing their tax return. To help achieve this goal, many economists recommend a flat rate of income tax without complicated deductions. Rather than persisting with a graduated system where earning more income leads to a higher rate of tax payable, everyone should pay the same low tax rate - say 10%. And there should be no deductions whatsoever, so that record-keeping burdens on individuals and businesses is reduced. Second, remove all restrictions on NRIs investing in Indian companies via the stock exchange. Currently, NRI’s must apply for permission with the Reserve Bank as part of the Portfolio Investment Scheme before they can buy shares on the Indian stock exchanges. There are also limits on how many shares NRI’s can purchase. These should be scrapped because they prevent companies from raising funds that leads to job-creation and ultimately economic growth. I would be willing to wager that these two simple reforms on their own would add at least one percentage point to India’s GDP growth rate. I have written directly to Prime Minister Modi with these suggestions in the hope that he will heed my advice. Since 2014, Modi has shown some interest in change by nudging India in the direction of human freedom, for instance, through his efforts at privatisation and the removal of regulations that serve no useful purpose. The freedom of men and women to trade and engage in voluntary commercial transactions makes parties better off. Indian citizens living abroad are no less patriotic than those currently living inside India; they deserve the right to support businesses back home with their dollars. [Originally published in the Shillong Times, 27 November 2020.]
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