A COUPLE OF MONTHS AGO, THE INDIAN FINANCE Minister Jaswant Singh proposed to alter the definition of ‘not ordinarily resident’ (NOR) citizens in his budget. This was to reduce the number of eligible persons to a fraction of the currently eligible, and curtail the period of tax benefit drastically. Currently, a returning Indian does not have to pay tax on his continuing overseas earnings to the Indian government—even if he is residing in India—for close to a decade. Singh sought to change this.

The furor that followed reached new octaves. The policy was branded ‘retrograde’ and a step backward. Some even doubted the sincerity of the Indian government in initiating the “Pravasi Bharatiya Divas.” The reaction to the proposal seems to be indicative of a wider problem that seems to plague all of us in this country who trace our roots back to India. We wear our Indianness on our sleeve, flaunt our culture, rejoice at every small event that may be indicative of progress, follow India’s sporting and intellectual victories, but when it comes to dollars, we cringe when “they” ask for it.

The latest headlines proclaim that Forex reserves—30% of which are from expatriate Indian deposits—has reached new highs of $73 billion in India. Few, however, pause to consider that most of these deposits are repatriable deposits. According to the latest RBI data, NRI deposits in the 10 month period ended January in fiscal 2002-03 have grown by $2.3 billion to $27.9 billion. The increase in the deposits is attributable to the higher rate of interest that other international deposit schemes. On the other hand, non-resident (non-repatriable) rupee deposits declined during these 10 months from $6.8 billion to $4 billion. This reinforces the view that expatriate Indians are only interested in making money out of the various dollar deposit schemes—rather than investing in the homeland through the Foreign Direct Investment (FDI) route.

It is well known that the large amount of expatriate Chinese FDI inflow was partly responsible for that country’s marked rise in the world order. The figures tell the story. In 1997-1998, FDI from Indian expatriates stood at $241 million, of the total of $3.1 billion. On the contrary, non-resident Chinese contributed $25.2 billion to the total of $38.9 billion! Making allowances for the alleged accounting malpractices, this still makes for a huge sum.

Obviously, investments help a country infinitely more than repatriable deposits. It promotes domestic skill acquisition, brings in new technology to the country, and impacts output growth by increasing the investible capital. And yet, expatriate Indians avoid investing in their homeland, but are very keen in appreciating their bank balances by choosing only those schemes that generate maximum returns in short term interest.

While MNC investment trends in India after liberalization were similar to those of the newly liberalized China, NRI investment patterns are anything but. China registered meteoric growth in expatriate FDI soon after liberalization, whereas 10 years after liberalization, the numbers in India are laughable.

What holds us back? We reject the notion that Chinese expatriates are more “adventurous.” The technology boom has proven the Indian entrepreneurial spirit. We can’t hide behind the oft-used excuse of India being a “closed economy,” as multinationals have shown great faith in the same laws and governances that we scorn. Granted, NRI deposits has contributed to some extent in making the country’sbalance of payment position comfortable, but the economy will benefit more if the NRIs route their funds through FDI. Perhaps the time has come for Indians around the world to think about this situation.

A Tax On Brain Drain
On a related note, many Chinese immigrants left their country for greener pastures before their higher education. In India’s case, most immigrants—myself included—availed of an excellent technical education in India before migrating. Other countries enjoy the benefits of these resources when our technical workforce moves abroad!

Prof. Jagdish Bhagwati, a well-known trade scholar and professor of economics at Columbia University had once called for an international tax on the intellectual capital that migrated from countries like India. Predictably, this idea had no takers.

But, with the number of people migrating from India each year, such a tax—if it becomes a reality—could probably subsidize India’s entire technical education effort. Think about it.