The rich are voting with their feet
The government has woken up to the fact that individuals with wealth and resources are leaving India in large numbers, and it needs to act quickly. Its immediate response was to reduce the maximum surcharge rates on income tax from 37% to 25%, bringing down the peak income tax rate in the country from 43% to 39%. Revenue Secretary Sanjay Malhotra, in a recent interview to The New Indian Express, confirmed this. It is an admission of sorts by the government that there is now growing unease among its ranks about the problem. But high income tax rates are not the only reason why people with resources and wealth are leaving India. (Un)ease and high cost of doing business, lack of quality infrastructure and quality of life, and freedom from the fear of persecution by authorities are some of the major reasons why the Indian rich are shifting bases outside India.
Recently, External Affairs Minister S Jaishankar told Parliament that 2.25 lakh Indians gave up their citizenship in 2022. In the past 10 years, 14.19 lakh have given up their Indian citizenship. They are moving to countries which score very high on the Freedom in the World Index. This index is maintained by Freedom House, a US government-backed organisation which ranks countries based on political freedom and civil liberties. According to various reports, the most preferred destinations are Portugal, US, Australia, Greece and Malta. All these countries score very high on the Freedom Index. Of course, countries with lower taxes and fewer regulations like UAE and Singapore also attract many wealthy Indians. The Economic Survey 2022–23 discusses the issue from the point of view of entrepreneurs, who tend to prefer countries like Singapore, UAE and the Netherlands to set up startups rather than India. It mentions the “lack of easy access to supportive infrastructure, or wading through the regulatory environment and tax structures” as reasons for entrepreneurs setting up companies outside India.
While the government has been acknowledging issues like compliance burdens, tax rates and lack of infrastructure, and has even acted on these fronts, nobody seems to address the elephant in the room—the issue of political freedom and civil liberties. This is usually an inconvenient truth for the political powers in the country to acknowledge. But if India aspires to be a successful economy and a vibrant democracy, it has to provide to its citizens ‘peace’ of living, apart from ease of doing business.