Rajkamal Rao

A ‘brain drain’ tax?

Rajkamal Rao | Updated on September 05, 2019 Published on September 05, 2019

Will compensate India for lost human capital

It is that time of the year when Indian graduate students are arriving on US campuses. Social media is replete with pictures of students showing off their US-bound boarding passes or posing for selfies at international hubs en route.

Those of us who immigrated in the mid-1980s are just as guilty of continuing this cycle of emigration which kicked off in the 1960s, but at least, our numbers were limited, and we had our reasons. We were educated in an economy which was so centrally planned that private-sector jobs barely existed and entrepreneurs were unwelcome.

But in 2019, the average Indian’s craze for pursuing a life abroad is head-scratching. Four years ago, a UN report named India as having the largest “diaspora” population in the world, with more than 16 million persons of Indian origin living abroad. If India can’t plug the drain, it should at least receive compensation for it. The US, with a far less-widely sprung diaspora, taxes its citizens on worldwide income. There’s no reason why India shouldn’t do the same.

A $1,000 annual surcharge on each diaspora Indian would generate $16 billion, about ₹1.15-lakh crore, an amount sufficient for the government to immediately announce a 33 per cent across-the-board reduction in income taxes to spur economic growth. Is this a punitive idea? No, just practical.

The World Bank still rates India as the fastest growing economy among large countries. India continues to be an attractive place for innovators and job creators. President Trump is the Indian entrepreneur’s best friend. His trade war with China is so fierce that American companies invested in Chinese supply chains are looking for alternative partners. There’s never been a better time for India Inc. to exploit this battle between two giants and come out ahead.

Even better, nearly two-thirds of our economy’s size is due to domestic demand. From a market of zero just a few years ago, there are now a million electric rickshaws in north India which ferry around 60 million riders. Smart entrepreneurs can profitably offer essential services to India’s heartland and thrive.

Yet our most able-bodied youth desperately want to leave India for presumed greener pastures abroad. A rich family with a roaring business acquires investor green cards. The IT employee prays day and night to earn that coveted H-1B visa. The student, whose father set up a hotshot small business by taking advantage of the liberalised economy of the 1990s, plans her trip abroad as early as the first year of college. Many small and medium-scale enterprises have no family heirs to nurture them and grow — and are sadly, sold.

So what awaits all these immigrants out West? Indian diaspora populations rarely integrate with the locals. They create India colonies everywhere they go. Indian small businesses exist only to serve other Indians. What binds everyone together is the power of the almighty dollar, and the perceived higher quality of life — when waits for green cards exceed 18 years.

Meanwhile, India loses on all counts, ceding away valuable human capital in which it has invested its scarce resources. Worse, large scale migration is burdening India’s vaunted family structure with senior citizens left behind. With a thumping majority in parliament, the government should enact big, bold, structural moves to limit regulation on residents and free up India’s jugaad spirit. The Brain Drain tax is just one idea.

The writer is Managing Director, Rao Advisors LLC, Texas

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Published on September 05, 2019
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