HNI migration can be checked via policy measures

There’s much ado over migration of Indian millionaires in the recent past. The trend of high net-worth individuals (HNIs) taking off to shinier shores is here to stay and unlikely to reverse. Mostly, because such an urge is natural once you become wealthy.

In the Indian context it is more natural because it is occurring due to tax-terrorism, degenerating quality of life and restrictive policies and rules for overseas investments and asset creation.

I have deduced this from my conversations with some of the ultra-rich who have left the country. What comes out starkly from my interactions with them is there are three main reasons for millionaire-drain from India.

Tax terrorism is the foremost cause of millionaire exodus. Most of those who have left were from Mumbai and Delhi. They said tax harassment had peaked; so much so that it had created a fear psychosis among them. They have left to escape it.

The other common grouse is the deteriorating quality of life in India. They say air quality, traffic condition and other parameters of good living environment have gone from bad to worse over years.

The third reason is more economic and has to do with the globalisation of their operation.  A lot of them are looking at investing and building assets overseas. The best way to do this is to become an overseas resident. Today, the regulatory environment in the country is such that if you are a resident of India, there are too many restrictions for foreign exchange investment overseas. This hampers the freedom to take such economic decisions from India.

Then, there is a fourth, and not so compelling, reason of wanting to give children better exposure and world class education. But it’s mainly the tax-terrorism, quality of life and inability to invest overseas that have driven millionaires out of the country in hordes.

And sure enough, they are leaving in huge numbers. And it’s not that the outflow of millionaires has begun only 3-4 years back. Its a phenomenon that began over a decade back and only now that people are tracking it. 

To be sure, these occurrences are not likely to have any material economic impact, for the simple reason that millionaires will invest in areas where they will make most money. And today India is the most lucrative market. Many of them will learn that investing overseas doesn’t pay. Overseas market is good for borrowing at lower interest rates and making your balance sheet look good. It is also good for building assets but these millionaires will realise that returns are not as good as in India.

The only direct economic impact is on consumption demand. That could take a hit to some extent as millionaires are high-consuming people. What it could do is high-end or super luxurious properties in Delhi and Mumbai may not find buyers. 

Of course, purchases are also down because a lot of bribe money trickles into them and bribes in Delhi has come down drastically under this government.  But that’s not a big loss. Roughly, it could be in the region of Rs 50,000 crore to Rs1 lakh crore, if you take an average spend of Rs 1 crore per year by each of them.

However, looking at India’s GDP of $2.597 trillion in 2017, this amount is immaterial. 

One has to accept the fact that this millionaire migration is here to stay and is unlikely to reverse. At best, it can be checked through policy measures for greater capital convertibility and for ease of overseas borrowings to create foreign assets. 

Strong growth potential here

Today India is the most lucrative market. Many of them will learn that investing overseas doesn’t pay. Overseas market is good for borrowing at lower interest rates. It is also good for building assets but these millionaires will realise that returns are not as good as in India

The writer is the chairman of Manipal Global Education and former director of Infosys