It is estimated that since 2014 about 23,000 millionaires have left India to settle in other countries (Morgan Stanley). The vast majority of them weren’t tax evaders or bank looters running away from the law. They were the risk takers, wealth creators and employment generators that built this country’s industry. And despite all the falsehood about increasing inequality, these people were the pioneers of the new aspirational India. These were the people the country desperately needs to build the economy, to train the unskilled and to provide the millions of new jobs this country needs.
When these people leave they take their wealth with them. Assuming each of these “dollar millionaires” had a wealth of Rs 10 crore then at a minimum Rs. 2.3 lakh crores of capital left the country (a more realistic estimate is about Rs. 10 lakh crores). Not only is that a substantial loss of investment capital at a time when there is a desperate need for private investment, it also represents a significant loss in jobs and taxes.
Why are the rich leaving India?
There could be several reasons for this migration: opportunities, lifestyle, children’s future, safety, taxes and overregulation. India is the among the fastest growing economies in the world and by many accounts at the epicentre of future wealth creation. It is unlikely, therefore, that the rich are leaving for better opportunities. They also enjoy a great lifestyle in India—money buys a lot more trappings here than elsewhere. The rich can travel around the world at will, so it also extremely unlikely that they are leaving for a better lifestyle. Their children often study abroad so education is an unlikely reason. India is also a reasonably safe country with strict laws on gun control, and the rich can easily afford extra security.
That leaves taxes and excessive government regulations as the most reasonable explanation for why such a large number of millionaires (the largest such migration in the word) have left India over the last five years.
In her best-selling novel, Atlas Shrugged, novelist Ayn Rand wrote about the migration of people with wealth who would leave in protest against taxes and regulations. People with wealth may be a tiny minority but they exercise great economic clout, and if you overtax and overregulate them, they will leave. When France increased tax rates on the top earners to 75%, many French millionaires moved to Belgium. Over a hundred wealthy people left California after the introduction of unfavourable tax laws in 2012. They took with them countless businesses leaving behind thousands of unemployed. The wealthy too go “on strike” and finally “shrug and abandon society” as Rand predicted.
Taxes, therefore, matter a lot for economic growth. A recent illustration of this is the United States where a reduction in corporate tax rates triggered a doubling of economic growth and a twenty-year low in unemployment. The lessons of economic history are clear: no nation in history has ever taxed itself into prosperity.
A government derives its power from its ability to collect revenues by taxing those who create wealth. As governments get bigger the cost of running them increases, and consequently so does the need for tax revenue. In this zeal to collect additional revenue, governments have added layers of new taxes on those who can afford to pay, namely the wealthy. There is also a new urgency to collect “undeclared income” (black money as it is often called) through unprecedented cooperation among governments worldwide willing to share personal financial information to find the ‘crooks’ who use those ‘dastardly’ offshore entities to shield a little of their hard-earned money.
The tax-paying people, on whose backs every state runs, are the entrepreneurs and capitalists who create jobs. These people are the risk takers who pour sweat and blood to create wealth. In every country, these people pay a disproportionately larger share of total taxes simply because they can. In return, all they demand is the freedom to pursue industry without excessive taxation and regulation.
Modern-day taxation is no different than that during the medieval times–the government takes money from those who are productive to support systems that are grossly unproductive. But taxation today is disguised under the garb of inequality and income redistribution to give it an air of acceptability. Statistics are thrown around to show how the rich have gotten richer and the poor poorer. And, like Robin Hood, the political lords justify increased tax collection from the rich to help the poor. This has spawned a new class of poor–perfectly able-bodied people who are becoming conditioned to living on government handouts, reservations, subsidies, quotas, free this and free that. But all this free stuff costs money which the political lords provide for with new taxes on the rich. And the rich silently witnesses their hard-earned money been stolen and wasted by politicians.
The ‘freeloaders’ now make up an increasing percentage of the voting population, and politicians need to keep them satisfied to hold on to the levers of power. Europe is now mostly socialist– average government spending as a percentage of GDP has doubled in the last 20 years. Welfare spending in France, for example, has quadrupled in less than two decades. Greece, Spain, Italy are bankrupt states crumbling under the weight of excessive government spending on welfare programs. Brazil’s economy, a beacon of hope a decade ago, is under severe pressure as welfare spending has doubled in the last seven years. In the US, government debt as a percentage of GDP has doubled in the last decade as a result of ballooning welfare spending. India too faces similar problems with every political group lobbying for special dispensation.
This battle between the rich, who want to protect the fruit of their labour, and the modern-day Feudal lords (the politicians) who need this fruit to preserve their power, is the new battle of the 21st century. And this battle could change the world in the next two to three decades. The rich have the capital, the brainpower, the enterprise and it is only a matter of time before they break free. When that happens government welfare schemes across the world will crash, chaos and anarchy will replace law and order, and many countries as we know them now could cease to exist.
India needs the rich to create wealth and provide jobs. The migration of its millionaires should be a red flag. The only way to stop this migration is by reducing the size and reach of government, an overhaul of the tax system and significant reductions in marginal rates for the people who create wealth and jobs.