The Global Indian

Are high net-worth individuals (HNIs) leaving India for greener pastures abroad? There has in recent years been a pervasive narrative that wealthy Indians are “fleeing” India because doing business overseas is easier and less taxing. India is plagued by poor infrastructure, over-regulation, corruption, and social polarisation.  

How accurate is this narrative? The Henley Private Wealth Migration Report 2023, released recently, says the number of wealthy Indians leaving India has actually fallen. In 2021-22, 7,500 rich Indians (defined as those with investible wealth of over USD 1 million – Rs. 8.2 crore) left India. That number dropped to 6,500 in 2022-23.  

How do other countries fare? In China, which has a population similar to India’s, the outflow of Chinese HNIs is twice as large as in India. In 2022-23, 13,500 wealthy Chinese migrated abroad, a sharp increase over 10,800 in 2021-22. 

The credibility of the narrative of an Indian HNI exodus is further eroded by examining the numbers of wealthy individuals leaving a small country like Britain. According to the Henley Report, 3,200 British HNIs “fled” the United Kingdom for greener pastures abroad in 2022-23. More pertinently, the British exodus doubled from 1,600 in 2021-22. India was one of the few countries where the number of HNIs leaving the country fell between 2021-22 and 2022-23.  

That doesn’t mean the Indian government is as investor-friendly as it should be. Compliance measures and regulations have become onerous in recent years.  

Sunita Singh-Dalal is a partner (private wealth and family offices) in the UAE-based law firm Hourani & Partners. She minces no words criticising the government’s policies: “Prohibitive tax legislation coupled with convoluted, complex rules relating to outbound remittances that are open to misinterpretation and abuse are but a few issues that have triggered the trend of investment migration from India. Dubai and Singapore remain preferred destinations for wealthy Indian families. Dubai, also known as the ‘5th city of India’, is particularly attractive for its government-administered global investor ‘Golden Visa’ programme, favourable tax environment, and a robust business ecosystem.”  

Some of the government’s recent policies defy logic. The new tax collection at source (TCS) rules that kicked in on 1 July 2023 have done away with the Rs 7 lakh annual limit for foreign remittances under which no TCS was charged. The change may not affect HNIs but it will hurt young people working abroad after graduation who need continued financial assistance from their parents till they find their feet. The new rules could also affect outbound tourism even though credit and debit cards have been exempted.  

Compliance burdens on companies have increased exponentially. The ministry of corporate affairs (MCA), in its well-intentioned zeal to cut fraudulent transactions, has put in place annual and biannual requirements across a mind-numbing plethora of regulatory compliances. On several occasions, as in the case of angel tax on startups, the finance ministry has had to roll back its rules.  

India’s stock market is well governed. So is the Reserve Bank of India (RBI). Both can teach several lessons to the US Securities and Exchange Commission (SEC) and the Federal Reserve on keeping stock markets and banks safe for investors and depositors. But on several occasions, SEBI has overstated its case, only to be overruled by the Securities Appellate Tribunal (SAT).  

While RBI has lacked clarity in dealing with failed cooperative banks, it did an outstanding job saving Yes Bank from collapse by marshalling a successful rescue effort by the State Bank of India and a raft of private lenders like Axis Bank and ICICI Bank. The series of bank collapses in the United States highlights the strength of India’s banking regulations. The stock market too, given the complexity of monitoring over 5,000 listed companies, has experienced few defaults. Brokers used to the “badla” financing era of the 1980s and early 1990s have professionalised themselves. Several have become corporatised.  

As a result, confidence among foreign investors in Indian stocks has risen. Foreign portfolio investment (FPI) has been in positive territory despite disruptions caused by the Russia-Ukraine war. The Nifty and Sensex are among the best-performing indices globally. To make India a serious global player, however, the ease of doing business must improve.  

A development that could have long-term implications is the steady increase in the popularity of GIFT City (Gujarat International Finance Tech-City) in Gandhinagar. Branded a ghost city by foreign investors for its lack of social and cultural life, GIFT City might turn out to be a game-changer.  

According to a report in Hindustan Times, “Participatory notes (P-notes) are poised for a comeback, this time through the International Financial Services Centre (IFSC), GIFT City, Gandhinagar, after nearly a decade of being discouraged by Indian regulators. Some leading global banks that currently issue P-notes from global jurisdictions, such as Singapore, are considering shifting to GIFT City as the special economic zone offers both tax sops and regulatory clarity, a senior stock exchange official said. The official added that these banks are also receiving interest from ultra-wealthy global traders and smaller hedge funds interested in taking exposure to India without having to set up shop in India.  

“Some of the banks have already started pitching these instruments to their clients and are expected to launch full-scale issuances by the end of the year. P-notes allow foreign funds to take direct exposure to India without applying for a licence with Indian regulators. Tax is a major risk for P-note subscribers. In IFSC, the story is different as every tax benefit has been codified into law. Hence, there is no need for treaty exemptions.”  

GIFT City has the potential to be India’s onshore Dubai or Singapore. What it needs now is a Michelin-star restaurant and a busy nightlife to attract financiers, not just finance.