Bright future awaits Indian diaspora

India has the largest diaspora in the world with 18 million people living outside their homeland. The relationship between diaspora, home country, and new country is complex, and it is still evolving. It can raise sentiments of distrust, envy, and resentment. But, the diaspora is also a lifeline to many, as global remittances exceed foreign direct investment inflows. Diaspora networking has also accelerated knowledge and technological diffusion. Global development institutions are exploring how diaspora bonds can be used as new instruments for development.

Although the share of migrants in the world’s population has remained mostly stable for six decades, its composition has changed. The share of high-skilled migrants relative to low-skilled migrants has grown dramatically during the last decade. Nearly 75 per cent of all high-skilled migrants reside in the US, the UK, Canada, and Australia. More than 70 per cent of software engineers in Silicon Valley are foreign-born.

The global transition from the Industrial Revolution to the Digital Revolution has increased the demand for more skilled workers. This has been helped by the decline in communication and travel costs (high-skilled migrants tend to travel farther to their destination countries than do less-skilled migrants), and the desire to explore educational opportunities outside home countries. The main cause, however, is the growing recognition that human capital plays a key role in today’s knowledge economy.

Changing global demographics have also played a role. India has a unique demographic advantage, with half of its population in the working age. There are four 20-year-olds for every 65-year-old in India compared to Western Europe where the ratio is one to one.

At the same time, average earnings in India are 70 times lower compared to Europe and the US. Combined, these demographic changes, and wage differentials, have become a strong impetus for India’s migration.

A worldwide “war for talent” has started, and enterprises that manage their global talent pool well are marching ahead. Most multinational corporations now insist that high-potential executives gain global experience by working in other countries, and they have made international mobility a prerequisite for senior leadership positions.

Some of the global economy’s most familiar players — including Google, Microsoft, Alcoa, Clorox, Coca-Cola, McDonald’s, Pepsi, and Pfizer — have immigrant CEOs. Indian immigrants to the US are a spectacular success story, and bringing their own entrepreneurial stamp to the digital economy.

Flow of expertise

Education and training abroad have played an important role in facilitating the flow of expertise to India. There is a great transformation underway in India which has taken the country’s potential to a level not foreseen a decade ago. India has become an integral part of the knowledge-based economy and global services supply chain, and witnessed a mushrooming of start-ups, innovating across domains such as digital payments, online retail, education and software.

India stands out as a global outsourcing centre, thanks to the Internet. Some have viewed global outsourcing as a substitute for global mobility. But while the Internet does allow for some forms of labour to be provided at a distance, it has not displaced diaspora networks. Though information and communications technology has reduced the importance of traditional diaspora connections, ICT innovations have also been complemented by these connections. For example, the exchange of knowledge and technology through India’s links with its diaspora has enabled India to leapfrog over several traditional development stages.

India has benefited enormously from increased global trade and capital mobility. Now, it is time to reap the benefits of global talent mobility. Unlike trade and capital, migration still remains highly restricted, even though economic growth depends in large part on the availability of employment opportunities and higher returns on labour, which in turn require mobility, both globally and nationally.

India is one of the pioneers in recognising the importance of diaspora in a rapidly growing knowledge economy, and meet the aspirations of the overseas Indian community as a significant constituency across the world.

To promote investments from Indian Diaspora, several provisions have been put in place ranging from special incentives for bank deposits, investments in the share market, and certain special provisions for OCIs and NRIs for foreign direct investment. Also, to encourage employment of overseas Indians, amendments to rules for doctors, scientists, academics and accountants have been or are in the process of being amended.

Though the global talent race initially led developed countries to create special visas to attract high-skilled professionals, political sentiment toward migrants in those countries has since turned negative.

Migration has come to be seen as a threat to native workers in host countries, even though empirical evidence shows its labour-displacement effect is very small. In Silicon Valley, for example, immigration has not led to a decline in wages or the return on skills.

Migrants’ adverse effect on a host country’s public finances is very limited. Migrants may initially impose a net cost on their host society, but it is small and more short-lived than the cost of schooling a newborn native. More important, highly educated immigrants have actually contributed positively to public finances in developed countries, because these workers pay more in taxes than they use in public goods and services. Global talent mobility is also beneficial.

Policymakers have many tools to improve global talent mobility. Firms and universities are the frontline participants in the global talent race, but global-governance organisations, multilateral development banks, and civil-society groups also have key roles to play.

So, too, does technology, which now allows for virtual talent mobility through video conferencing, digital platforms, online labour exchanges, and other applications.

The global talent race will continue to accelerate as countries and businesses compete for the best and brightest. India is becoming an increasingly important destination for high-skilled labour. As India grows, the global economic clout of the advanced economies will continue to diminish. The race is on for the Indian diaspora.

The writer, a Senior Fellow at Pune International Center, worked for The World Bank, and taught economics at Oxford University.

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