There are two kinds of rich Indians. One believes in India story, other flees the country

For some time now, a large number of super-rich Indians have been migrating from India. Between 2017 and 2022, 30,000 to 35,000 super-rich Indians, called High Net Worth Individuals or HNIs, left the country. In 2022 alone, 8,000HNIs departed. However, in 2023, only 6,500 HNIs left India. HNIs are individuals whose net worth is $1 million or more.

It is unfortunate that such a large number of HNIs have left the country and taken citizenship elsewhere in recent years. On the other hand, the number of HNIs in India is continuously increasing. Notably, in 2015, there were only 2,36,000HNIs in the country, but this number grew to 7,96,000 by 2022. Furthermore, international agencies argue that by 2027, this figure will reach 16,50,000. This shows that new entrants into the wealthy class outnumbered those who migrated overseas.

The most popular destinations for migrating rich Indians are the US, UAE, Canada, Australia, Singapore, and the UK. Obviously, when rich people migrate from India, their wealth also migrates with them, affecting revenue generation, wealth creation, and employment opportunities.

It is important to understand that HNIs are moving to other countries not only from India but also from many parts of the world. In 2023 itself, 13,500 Chinese HNIs left China and went to other countries, compared to 6,500 from India in that year. In the same year, the number of people migrating from England, Russia, and Brazil was 3,200, 3,000, and 1,200, respectively.

Not applicable to India

The belief that the rich migrate from any country because it is backward, with weak development possibilities, does not apply to India. India continues to be the fastest-growing economy in the world, while progress has stagnated  in the countries where migration is occurring. Perhaps this is the reason that although more than 30,000 HNI rich have migrated between 2017 and 2022, the number of HNI rich in the country has tripled during this period.

In fact, the increasing number of HNIs in the country shows the reality of economic development. It must also be understood that the rise in the number of HNIs in the country is generally not due to increasing inequalities but rather a positive business environment, a vibrant ecosystem for start-ups, and the availability of an abundant skilled workforce.

Political instability is often considered another reason for migration. However, this reason cannot be applied to the migration of rich people from India. In the past, the country has seen coalition governments for a long time, which had political instability inherent in them. For these reasons, the migration of rich people due to political instability during the United Progressive Alliance (UPA) government led by Dr Manmohan Singh, characterised by policy paralysis, can be understood. But, after that, the argument of an unstable government and political instability with a single-party majority does not apply.

Another perceived reason for the migration of wealthy individuals is that India is a crowded country with inadequateinfrastructure compared to developed nations. Along with this, environmental pollution, smoke, dirt, and chaos make life difficult in the country. In such a situation, rich people who have the option to go abroad tend to migrate to foreign countries.

This reason is also not valid for India, as we have seen unprecedented progress in all types of infrastructure (roads, metro, railways, water, air) in the last 10 years. Not only this, special achievements have also been made in digital infrastructure. Digital payments, DigiLocker, digitisation in government services, etc. are some developments that even developed countries envy.

Flipping of start-ups 

India has many new successful start-ups whose business is entirely in India, but the foreign investors investing in them want to transfer those startups to favourable destinations. This is called ‘flipping’. Today, our country has reached the third position in terms of the world’s start-up ecosystem, and there are about 1,00,000 start-ups in our country, out of which 111 have become unicorns (those valued above $1 billion).

It is worth noting that Indian start-ups want additional capital investment for their expansion, and they receive this investment from foreign funds. These foreign funds do not want to be bound by Indian regulations and put a condition on the start-ups receiving investment that they must mandatorily flip abroad.

Indian start-ups also fall into the trap of foreign investors because they receive less investment from Indian funds. Indian funds shy away from investing in start-ups due to adverse tax provisions and lesser tax incentives compared to foreign funds. Lately, there is a reverse trend in flipping, as many start-ups which had flipped have come back, and many are in the process of returning. Recent statement by Commerce Minister Piyush Goyal has also indicated the same.

Some people believe that the high effective tax rates on such people need to be rationalised.

Apart from this, some experts argue that rich Indians are also relocating abroad due to the high corporate tax rate in the country. Indian companies whose parent holding companies are located in countries like Mauritius, Singapore, Dubai, England, and the US have to pay lower corporate taxes, whereas the tax rate on pre-established companies in India is higher. In such a situation, it is suggested that if a low tax is imposed on all companies in India, then migration can be stopped.

It must be understood that various countries worldwide compete to reduce corporate tax to the minimum to attract investment. If small countries do this, there is no special impact on their revenue, but for large countries like India, this cannot be considered an appropriate policy. Therefore, efforts are being made globally to ensure that all countries fix aminimum floor limit for corporate tax under an agreement, below which the corporate tax cannot go. Therefore, to stop the migration of rich people from India, instead of reducing corporate tax, efforts should be made to fix the minimum limit of corporate tax through global cooperation.

Need to change mindset

There are two types of rich people in India. One group believes in the country and its growth. There is no dearth of industrialists and businesspersons in the country who believe in India’s potential and have invested a significant amount of money in the country. Based on investment by the private sector of the country, there has been unprecedented development in all sectors, including infrastructure, industry, service, and agriculture.

Secondly, there are some rich people who have inherited substantial wealth and no longer want to run businesses but instead desire to live a comfortable life by settling in a foreign destination. Such individuals need to be explained that it is not good to abandon the country that has given them this wealth for personal comforts. It’s notable that the government of India has banned people of Indian origin from taking out more than $1 million from the money earned or inherited in the country, which is a right step.

Ashwani Mahajan is a professor at PGDAV College, University of Delhi. He tweets @ashwani_mahajan. Views are personal.

(Edited by Prashant)