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March 2013

The Indian Diaspora: A Unique Untapped Global Asset for India

India today has one of the world’s largest and most successful “diasporas”, with approximately 25-30 million expatriate Indians and people of Indian origin living across a wide range of countries.  While well off Indians went for higher education in the elite schools and colleges of the British empire or to secure industrial training from the formidable might of the empire’s industrial hubs, the mass movement of Indians in the initial waves of Indian immigration were often mass labour filling shortages in some far flung part of the British Empire.  Over the last two decades, the next generation of people of Indian origin have come to represent a highly-skilled – doctors, scientists, engineers, finance professionals, and entrepreneurs – group of locals in every country they live in.  India has not managed to capitalise well on this unique and capable asset by actively attracting its human and financial capital to help drive the country’s long-term development.  Moreover, India needs to put in place policies which will reverse the outflow of its highly-skilled students and professionals, and over the longer term, make the country a global knowledge hub which can attract not just the diaspora, but immigrants from all countries.

Key Populations of Overseas Indians by Location

The Global Asset

India’s diaspora, though small relative to the country’s domestic population, is disproportionately skilled, educated and wealthy.  Further, the proportion of highly-skilled Indian migrants has increased considerably over the past decade as the globalisation of trade, capital, and labour has taken hold.  While it is only 2% of India’s population, the total wealth of this community has been estimated at c. US$1 trillion (of which half is financial assets, with the rest being land and physical assets) in a recent report by Datamonitor1 or c. 50% of India’s 2012 nominal GDP of US$2.0 trillion.  The income of this community has been estimated approximately US$400 billion or over 20% of India’s GDP2.  This high-achieving group includes US senators, Nobel laureates, CEOs of Fortune 500 companies, entrepreneurs galore and prize-winning authors.  Notwithstanding these individual success stories, the overseas Indian community is comprised of a disproportionately large share of doctors, scientists, engineers, as well as technology and finance professionals in their respective host countries– and in the US, now forms one of the most well-educated,  accomplished, and affluent communities (see table).  India has not yet figured out how to fully leverage this accomplished group, and more importantly, lure them or their capital back to work and invest in India in large numbers.  In contrast, today, the most importance source of remittances to India comes from the Gulf States, which has a large population of lower skilled migrant workers, who transferred c.US$70 billion in remittances in 20123, equal to 3.6% of India’s GDP.  In order to fully capitalize the potential of its diaspora, India clearly needs to find ways to better leverage the overseas Indian community for investment, transfer of know-how, and R&D.

“The under-served populations of India represent not just a development need, but in fact form a series of large markets with significant and often untapped potential”

Vinod Khosla, Co-Founder Sun Microsystems 
While recent measures to allow the overseas Indian community ease of access (through overseas citizenship or “Person of Indian Origin” cards) and the ability to remit money (through NRIchecking accounts) help integrate the overseas community with the homeland, they are not sufficient to drive large numbers of expatriates to return to work in India.  Indeed, the diaspora, called Non-Resident Indians (NRIs)4 by the Indian government, are treated as foreigners by India and charged increasingly large sums for visas in a tit-for-tat retaliation for the visa price hikes of governments seeking to limit Indian visitors to their countries.  India today sends the second largest number of students abroad (after China) since the country’s growing university capacity of c.20 million5, is still far smaller than the approximately 100 million Indians between the ages of 20-25.  Further, Western countries, which are coping with ageing population and a lack of science and engineering professionals, are actively attracting Indian doctors and professionals, and by some measures 10% of the total number of physicians trained in India have already emigrated.  The exodus of highly-skilled talent creates a very real “brain drain” in whole sectors of the economy such as engineering and biotechnology where up to 90% of post-graduates go to the US after completing their studies in India6
Comparing the Indian Community in US and India 7

 The Challenge for India

The talk of India losing business and people to other locations is part of the bigger issue for India as it re-focuses on providing a low cost educated labour force in an attractive easy to do business environment to domestic and foreign entrants.  A poor education system with insufficient capacity combined with the outflow of skilled professionals creates a shortage of skilled labour in India and inflates wages relative to other low-cost countries – thereby making India less competitive in these fields.  Poor governance and other systemic issues impact the business environment and drive away business, investment and high-quality jobs – thereby creating a vicious cycle which India cannot afford.   That is why the challenge for India goes beyond just determining how to leverage the many successful Indians abroad.  It needs to provide an attractive ecosystem to study and work in if it wants to retain its best and brightest, and in order to ensure that Indian businesses and foreign investors continue to invest in India.

Is the Indian economy doing very well? Yes, it is growing fast and there is a lot of new income around. But poverty is still very grave. Is Indian education a great success? Yes, of course…Yet nearly a third of the population is still illiterate.

Amartya Sen, Nobel Laureate

A Time of be Bold

Waves of Indian diaspora come every year on vacation and every decade or so to invest and work.  Both waves generally return frustrated having become too used to a less complex life in what is clearly now their home country.  India for all of its economic potential and opportunities remains a challenging country to succeed in given its institutions and business environment.  Further, returnees seeking to establish themselves will need to compete with India’s domestic elite, who have built highly successful businesses and positions in this competitive and challenging environment.  India’s IIT schools, for example, turn out 10,000 of the most highly trained engineers in the world (selected from 500,000 applicants) every year, the majority of which remain to work in India.  Yet despite the significant inroads made by its own elite in transforming India, the country’s transition to a modern industrialised economy will require it to leverage all of its assets, domestic and foreign.  The government’s efforts to date in this regard have been piecemeal and intermittent: Rajiv Gandhi as Prime Minister attracted a number of high profile overseas Indian’s in the 1980s for political positions and policy work, but his successors have not built on this initiative.  Further, Indian banks offer high interest bearing deposit accounts overseas whenever there is a financial crisis, but there is no systematic program in place to attract investment from the diaspora.  In order for India to attract its diaspora, its capital and know-how back to its shores on the scale required and to retain its current pools of talent, it will need to develop a comprehensive strategy that among other things provides sufficient incentives to make the move attractive, given the opportunities the diaspora has abroad.

  1. Giving the Confidence that India is Confident to Open itself to the World: India Wide Open.  Attracting India’s diaspora is tied closely to the need for a free, fair, and open economic system which can be a magnet for entrepreneurs in a similar way that Silicon Valley was a magnet for Indian entrepreneurs in the late-2000’s.  Previous issues of the Sign have explored in detail the various measures required to help India address this long-term challenge.  India needs to create the necessary employment and entrepreneurial opportunities for highly-skilled Indian students, and may even succeed in attracting back the country’s human capital from abroad. Specific measures we have discussed on analysis on India Wide Open7 include:
    1. Open education to all domestic and global providers with no restrictions with an aim towards educating 200 million Indian for the new economy within the next five years
    2. Create capacity to train up to 100 million Indians to work in light and heavy manufacturing and services, and become the world’s “special economic zone” by making it easier for all domestic and global businesses to transfer capital, goods, and services to and from India
    3. Make India an export hub by giving tax free status to exporters from Indian soil in all industries for three years and 10% taxes for the next seven
  1. Create a Basis for Expertise to be Deployed and Rewarded: –India as a Global Knowledge Hub.In order to attract human capital of India and foreign origin to its shores and retain its highly-skilled doctors, scientists and engineers, India needs to create a knowledge ecosystem with sufficient opportunities for these individuals.  While recent examples of IIT and IIM alumni who saw huge successes abroad returning to and contributing to India are encouraging, a more proactive strategy is required to turn this into a real trend.  This would require some bold moves such as:
    1. Create government matching fund of up to US$15 billion of R&D in order to encourage private R&D and increase total R&D spend to the OECD average of 2.3% of GDP.  In a similar move, Israel invested US$5.0 billion to fund some 1300 companies alongside US$2.5 billion from the private sector to leverage the skills of 750,000 Russian Jewish immigrants.
    2. Create a National Endowment for the Arts (free from political interference) with a total corpus of US$5 billion with a goal to fund independent innovation, art and diversity.
    3. Invest US$2 billion in order to recruit 10,000 highly qualified expatriate Indian doctors and physicians in order to take over poorly managed government clinics and hospitals.
  1. Reverse Emigration Trends: World Class Mass Secondary and Tertiary Education.Finally, the country needs to free the education sectors in order to further accelerate growth in high quality capacity.  Specific elements of this strategy would include bold moves such as:
    1. Expand the right to education up to 18 years of age and create sufficient capacity for c.100m high-school students
    2. Permit investment in and accredit 5000 new large, world-class, private universities with capacity for c. 50 million undergraduate and graduate students by 2020
    3. Expand female enrolment from c. 35% of students to 50% by 2020

Importantly, in order to create a true innovation-based economy where growth is underpinned by productivity enhancements and not just better access to valuable natural resources requires the government to engage its NRIs as active participants in reforming the country.  The diaspora – particularly the Indian researchers and professors abroad –should be engaged to assist in education reform and in mobilising the required capital for private investment in education.  The many Indian physicians overseas should be engaged to help fix the country’s ailing public health system and India’s overseas entrepreneurs have a clear role to play as investors, incubators and business builders of India’s next generation of companies.  Notwithstanding the broader economic impact of the changes outlined above, the specific impact could be:

  1. c.US$10 billion in annual foreign currency outflows reversed and instead invested into the Indian education sector
  2.  c.5x growth in India’s secondary and tertiary education capacityc.
  3. c.US$40 billion in foreign investment if India can mobilise an additional 10% of the diaspora’s annual income
  4. A better managed and more effective public health, legal and education system based on nurturing domestic industries with domestic and overseas Indian skills.

Success requires India to stop seeing every problem is uniquely Indian and intractable and as a problem that someone has solved, or has the access to the experience to solve, somewhere in the world, most probably that someone is of Indian origin sitting in New York, London, Singapore, Paris, Tokyo, Cape Town, Moscow, Shanghai, Sydney or somewhere only a flight away.

High growth vibrant economies in modern history have been hubs for attracting talent.  In the last two or three years that lustre has gone from India.  A series of events have bought an old pessimism back to what has until very recently been an Indian story that has been a very strong and positive force in the world economy.  Among the many policy changes that will be required to re-energise the India story, the role of the unique diaspora that is of Indian origin all over the world can be a massive asset.  At an estimated US$1 trillion of wealth and growing, this is a valuable largely untapped asset that India cannot ignore.

[1] Datamonitor, “Benchmarking Asia Pacific Wealth Markets”

[2] Ministry of Overseas Indian Affairs, 2006-07 annual report.

[3] Source: World Bank Global Migration and Remittance Database

[4] “NRI” is the common Indian nomenclature for “non-resident Indian”

[5] Source: UNESCO 2010 Science Report

[6] N. Buga, JB Meyer, Indian Human Resource Mobility: Brain Drain Vs. Brain Gain, Robert Schuman Centre for Advanced Studies, European University Institute (2012)

[7] Source: US Census 2010 American Community Survey

[8] Sign of the Times February 2012

 

©2013 Greater Pacific Capital