Jagdish Bhagwati, authored a paper in 1974, laying out the theory of brain drain and in 1976, he proposed a revolutionary solution to the problem. The solution was to levy a tax on emigrants from a country and send the revenue back home. This idea is called the brain drain tax, or the Bhagwati tax, which aims to compensate the loss of some of the best-trained high-skilled citizens to the less developed country (in this case, our India), by levying a supplementary income tax on the immigrants’ earnings in the developed countries.
Forty one years after the idea was proposed, in an unprecedented move, I have taken the initiative and introduced a bill into the Lok Sabha titled the “Indian Diaspora and Education Infrastructure Act, (Brain Drain Cess) 2017” to implement this solution.
High-skilled labourers in Science, Technology, Engineering and Mathematics (STEM) industries possess a higher degree of mobility as compared to every other worker, and therefore are able to easily relocate to countries that offer them the highest salaries. While as Indian citizens they are entitled to the freedom of movement, and as guaranteed by the UN declaration of human rights, they have the right to emigrate from their own country, high-skilled emigrants create a pressing public policy crisis in India.
Therefore, in order to impose the responsibility that the emigrants bear to contribute to the growth of the country, but at the same time respect their right to emigrate, a globally-levied brain drain tax is required. This is a strong statement to make, and needs to be justified in detail before it is blown out of proportion:
First, non-resident Indians (NRIs) have the rights that every citizen of India possesses, including the right to vote in local, state and national elections. However, under the Income Tax Act, these residents do not pay taxes to the Indian government if they live outside India for more than 180 days per year. This has led to a situation of “representation without taxation”, meaning they enjoy the benefits of an Indian citizenship without the obligations that come with it.
Second, the Indian government subsidizes science and technology education through institutions like the Indian Institute of Technology, Indian Institute of Management, and other public universities in order to cultivate domestic technological innovation and research. However, as argued above, the engineers and scientists that graduate from these universities access their right to emigrate to better opportunities and move out of the country, rendering the public investment without fruit.
Third, high-skilled emigration creates a large distributional issue in taxation within the country. The NRI population, that typically falls in the top 1% of the income distribution in the country (as evidenced by H1 visa wages), fail to pay their fair share of taxes, leaving more of the tax burden on the poorer parts of the country.
One of the arguments used as a shield against the critique of brain drain is that it brings in money to our country, especially directly into the households, as remittances. The fact, however, is that in recent years the outward migration has increased and remittances have fallen. There has been a 225 percent increase in the number of people migrating to the US for education, work or permanently since 1999 from 1,37,230 to 4,45,281 in 2015.
Though India stands on top of the world in absolute numbers for remittances, there is a declining trend evident recently. Even when we consider total remittances received by India as a percentage of GDP, the number has declined from about 4.2 percent in 2008 to 3.2 percent in 2015. Therefore, it is clear that as more and more people are leaving the country, the income inflow from abroad is gradually decreasing.
From the human rights perspective, the right “to leave any country, including one’s own” is a fundamental right, protected for all, whatever their skills. Thus, according to the critics of Brain Drain cess, there is no need to tax skilled migrants in order to reconcile the right to emigration and social justice. Social justice is not incompatible with the right to emigration but rather with restrictions on mobility. However, my Bill does not aim at restricting mobility rather it emphasizes on providing equal opportunities to people in both the countries. By emigrating, skilled professionals jeopardize the socio-economic development of their country and should therefore be asked to compensate for the losses caused by their voluntary actions to a third party.
Therefore, the emigrants should be held to the same standards as the rest of India and expected to pay their fair share in taxes. But then how do we put the resulting revenue to the best use, especially to address Brain Drain? That is what my bill introduced recently in the Lok Sabha seeks to ensure. The most significant and salient features of my bill are:
1) Institute a cess on the foreign-income tax payments of NRIs. The cess rates will be progressive, and will have a high floor for taxation (tentatively at $65,000 per year). It will also be temporary, covering only the first five years spent abroad, so that the NRIs don’t get excessively punished for leaving the country. The payment of this cess can be avoided by contributing directly to universities, research programs, government scholarship funds, among others.
2) To better focus public resources on developing local research and development, the bill provides need-based funding for students, who agree to stay in or return to India, to study in top universities of India and the world.
3) The bill also institutes a service obligation requirement for recipients of scholarships and research funds, which requires them to reside within the territory of India for a specified period of time. This is done only to recipients of scholarships, similar to a policy in Singapore, because a large-scale imposition of such a service obligation would be unconstitutional.
4) The bill allocates large corpus funds as competitive research grants for students, professors and researchers in both public and private institutions to accelerate the culture of research in India. The lack of research funding is often the most quoted reason for exiting students from India. We have the talent and the brilliance in our students to make India the research hub of this century, we just need proper governance and funding.
5) Finally, the bill allocates any and all remaining funds to funding start-up businesses in India. Job creation is an immediate and pressing crisis in India, and with a growing working age population and dismal job prospects for high-skilled labourers, we need to start supporting innovation and entrepreneurship as soon as possible and as strong as possible.
The bill provides a choice to every student, who aspires to study in the top colleges in the world including India: if you want the Government to sponsor your education fully, we will do it, provided you dedicate certain years of service for the nation, in the nation.