Modi missed the bus in the US

Daniel Schugurensky, a professor of public affairs at Arizona State University, defines political capital as “goodwill which is a type of invisible currency that politicians use to mobilise the voting public or spend on policy reform”.

Not since Rajiv Gandhi won in a landslide in 1984 has a Prime Minister commanded as much political capital for a national leader. And, just like Rajiv Gandhi, Narendra Modi is slowly squandering away this precious resource by largely looking inwards to his closely knit team and not being open to bold, constructive ideas.

Take his recent visit to the US where he was treated like a superstar by the Indian diaspora. So absolute was the loyalty of his fan base that outside Madison Square Garden in New York, that an Indian journalist was heckled simply because he dared to voice opposition to Modi’s record in Gujarat.

But once inside the stadium the Modi entourage asked nothing of the rousing audience. The most the Prime Minister said was to urge each person in the audience to ask five Americans to visit India as tourists because doing so would help raise the wages of taxi drivers back home. As though Agra and Varanasi have the travel infrastructure in place to host such a surge of foreigners.

Modi could have been bolder and asked the diaspora for more direct involvement in the country’s development. For starters, he could have announced the relaunch of India Development Bonds to build on his campaign theme of “Development and Governance”. These IDBs could be offered as a class of NRE (non-resident external) deposits provided they are held for a period of 5 or 10 years with all interest payable only at maturity. For good measure, he could have offered a small interest premium if the 10-year bonds were bought before a certain date. India’s IDBs attracted about $1.5 billion in 1991 when facing a fiscal crisis. Now, they could easily attract $15 billion.

And getting even bolder, he could have proposed a new policy to tax the “brain drain” — more a brain gush — at a time when the number of Indian students entering American universities and later migrating to the US is at an all-time high. India spends so much on educating its brightest only to see them all comfortably settle down in North America.

The brain gush will only get worse because the Obama administration is now openly poaching Indian talent. If some proposals in the US Senate immigration Bill become law, nearly half a million additional work visas will likely be granted annually. Such a policy is in direct conflict with India’s needs because losing these bright minds can erode India's ability to meet its own challenges and pay for India’s development, through taxes.

Consider the irony here. The US government spends nothing to create these science, technology, engineering and management (STEM) resources — but not only gets qualified workers to readily fill open positions but also taxes their earnings to help fund the US budget.

Pitching the idea of taxing global income would not surprise Indian Americans. The US already taxes its citizens and residents on global income no matter where it is earned. Expat Americans begrudgingly pay these taxes for the privilege of holding an American passport.

Modi could have framed this debate brilliantly as only he can. He has already built a brand which stresses sacrifice, hard work and integrity — traits that are natural to the Indian diaspora abroad.

Drawing on patriotic tones, he could have urged every person of Indian origin that they would now have to start paying a very small portion of their foreign adjusted gross income (AGI) to India — in effect, to pay their fair share of the burden back home.

The numbers are mind-boggling. A 2 per cent AGI contribution among the 2.8 million Indian diaspora could bring to India a whopping $1.25 billion a year. The taxes would be deductible on their own US returns as foreign taxes paid, so the bite would actually be less than 2 per cent. Add Indians in Canada, the UK, Europe and Australia to the mix and we could be looking at well over ₹10,000 crore a year in steady, dedicated income to the Indian treasury, all in valuable foreign exchange.

There are other economic advantages to India as well. As expats, these taxpayers would draw much less in benefits from the Indian Government — so, as far as the Indian Government is concerned, this could be virtually “free money”.

Finally, as the Indian diaspora population grows and becomes even more successful, this funding stream can only grow over time.

What would have been the negative effects of this tax proposal? At the extreme, the Indian diaspora would be terribly unhappy — although, unlikely. But Modi shouldn’t particularly worry because these people don’t vote in the Indian elections. Even if his political capital abroad were to deplete to zero, there is little cause for concern. Political capital is unlike real capital — that which is not spent is naturally lost forever.

The writer is the managing director of Rao Advisors LLC

COMMENT NOW