It's time to impose an exit tax on the rich and educated who're fleeing India, says Bharat Jhunjhunwala

Consultancy company Henley and Partners assists the rich in migrating from one country to another. It has said that the number of the rich wanting to emigrate from India had increased by 63 per cent in 2020. Certainly, there is the contribution of the Covid pandemic towards this move. However, in 2018, before the pandemic, the Afro Asian Bank, in its Global Wealth Migration Review reported that 15,000 rich persons migrated out of China, 7,000 from Russia, 5,000 from India and 4,000 from Turkey.

Three of these four countries—namely, China, Russia and Turkey—are dictatorial in their political set-up. We may speculate that the outward migration from these countries could be due to political suffocation. The inclusion of democratic India in this list is ringing a danger bell for us. On the other hand, the destination of the rich was 12,000 to Australia, 10,000 to the United States, 4,000 to Canada and more importantly, 100-plus migrated to a developing country like Mauritius. We lost the rich while Mauritius gained. The exodus of the rich from India is, therefore, not merely due to the Covid pandemic but has deeper causes.

Growing ranks of the rich

Contrary to this assessment, Avendus Wealth Management, which too helps the rich to migrate, has said that India need not worry about this emigration because India is creating more numbers of rich than those going away. This much is true that the number of rich in India is increasing despite this emigration. However, if we have to become a developed country and be included in the countries at the forefront of the world, then we will have to develop the capacity to attract the rich from other countries, just as Australia, the United States and Canada are doing.

Let us first dismiss three alleged reasons for this emigration. The rates of income tax in Australia are high, yet the rich are migrating to that country in hordes. This establishes that allegedly high tax rates are not the cause of emigration. The availability of good quality education and opportunities in hi-tech finance and technology sectors is also plentiful in India. Therefore, these too cannot be held to be the causes of emigration.

Issues of safety, freedom

The report of the Afro Asian Bank says that one main reason for emigration from a country is safety. The rich like to migrate if they find that their families are not safe. Religious disturbances are said to be the second reason. The presence of religious disputes leads to agitations and endangers the security. The third reason is freedom of media and entertainment. This is important because the rich may want to live in a ‘free’ environment. They do not like that they may be prevented from obtaining information freely or may not be able to express themselves freely.

The fourth reason is the low rate of economic growth. We may understand this to indicate the less availability of opportunities, which again translates into social disturbances. The government must deal with these issues. The Indian economy has become like an inverted funnel that is sucking out the wealth and sending it to foreign countries. No wonder our GDP growth rate has been declining in the last six years. The government must consider the following steps to manage these reasons for emigration.

First, the government must institute external evaluation of all senior police officers. The Fifth Pay Commission had recommended the external evaluation of all Class A officers of the government. However, this was put in cold storage at the behest of the bureaucrats. The implementation of such evaluation would provide the government with better information regarding the police officers that are more efficient in controlling crime.

An Indian institute of religions

Second, the Prime Minister had expressed his resolve to make Varanasi the global spiritual capital. Followers of different religions live together peacefully in countries like Malaysia and states like Kerala in our country. One reason is that the followers are more aware about the beliefs of the other religions and do not consider them antagonistic to their beliefs. The government must establish an ‘Indian Institute of Religions’ on the lines of IITs and IIMs in each state. Departments of different religions may be stablished in these institutes so that a constructive dialogue takes place and better understanding is created between the religions.

Three, Kabir had said “Keep critics near you. They clean up your temperament without soap and water.” The government must give special advertisements to those print media and TV channels that engage in constructive criticism of the government. This will create an atmosphere of freedom in the minds of the rich. The rich will then not be afraid and not want to emigrate for this reason.

Four, our GDP growth rate has been declining in the last six years. At the same time the share markets have been rising and rising. The reason for these contradictory movements is that our economic policies are supporting large businesses and making it difficult for the small businesses to survive. This policy of killing small businesses and handing over their market to large business on a platter was supposedly to make it attractive for the rich to stay in India. It is having exactly the opposite effect, however.

Small businesses dying

The killing of small businesses is leading to less demand in the economy, lower growth rate and less opportunities for the rich even though they may be making more profits immediately. This is like the plentiful availability of chocolates but no bread. In the end, the rich are leaving despite making profits because they do not see the economy growing.

Lastly, the government must impose an ‘exit tax’ on those rich and educated who want to surrender their Indian citizenship. The US has a provision that any person surrendering American citizenship has to pay a huge ‘exit tax’. The idea is that the person has benefitted from the public services of the US and they must repay the monies spent by the US on their welfare. Large numbers of the rich, along with graduates of IITs and IIMs, are migrating to greener pastures in foreign countries. They must be required to pay a huge exit tax. Perhaps that will dissuade some. In any event, it may provide good revenue to India to compensate for their emigration.

The writer is a former professor of Economics, IIM Bengaluru

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