The real reason for India’s brain drain

We always come across reports of how much talented Indians are and are conquering the world in the field of technology & business. There are several reports suggesting that Indians dominate the technology industry of USA. 

But why are most of those Indians not in India but in US/UK? If we go a little more in depth to analyze this issue, we will begin to notice that the top Indian professionals & entrepreneurs today in US had actually left India during 1970s & 80s after obtaining their degrees in India. So, Why did we have such a severe brain drain in 1970s and 80s?

One common answer we get is that India did not have the right opportunities for their specialization. Maybe true for technical PhD holders who need employment from research institutes which might not have been prevalent in India. But what about entrepreneurs? They had a market of 0.7 billion ppl, something that nobody would like to ignore. Instead of going to a foreign land and toiling hard to become entrepreneurs, why did they not remain in India and do the same here? Afterall, India being a developing nation could have provided them a chance to experiment as well as capture marketshare.

It is easy to say that they were greedy, did not care for our country and flee to the US for greener pastures. But the real reason lies in the political & economic system.

This snapshot of the 1974 budget might give us some hints. During Indira Gandhi’s rule in 1970s, income tax was at an all time high with the top slab having a tax rate of 97.75% !!

tax_rate

References:
Page 9 of 1974 budget speech
Page 96 of report

If you were an entrepreneur and wanted to set up a business (obviously you want to make lots of money), would you be fine with doing business in such an economic condition? After a certain slab, for every profit of Rs 100 you made, you were supposed to part away 98 rs to govt and keep only Rs 2 for yourself. Would there be any incentive for you to work hard after you reach a certain profit level since anything you earn after that will not come to you anyway.

On top of the 97.75% tax, there were several more taxes like wealth tax, inheritance tax etc which when added up would exceed 100%!! It means after a certain slab, if you were making Rs 100, you were supposed to pay around Rs 103 in the form of tax!! Yes. It sounds funny but it was true. Entrepreneurs & businessmen who were making more profits were being “penalized” (in the form of exorbitant taxes) due to such policies.

Top businessmen like JRD Tata were actually selling a part of their wealth because for every Rs 100 they earned, they had to pay Rs 105 in the form of tax. (So, for every Rs 100 earned, they had to sell their existing assets worth Rs 5, add it to the Rs 100 earned and pay this Rs 105 as tax to the Govt).
Here is an excerpt from the book “India Unbound” by Gurcharan Das illustrating the same:

jrd_tata_taxes

EDIT: Some of the readers raised suspicion over the credibility of above excerpt from Gurcharan Das book because it just seems to be a “conversation” between Das and Piloo. Yes, many will find unbelievable that JRD Tata had to pay more that what he earned in the form of taxes. Hence, I am sharing another excerpt and this is from the book “Letters of JRD Tata” in which Mr.Tata himself has mentioned it in the chapter titled “Business Ethics”.

letters_jrd_tata_book

Link to the online edition of the book:
http://books.google.co.in/books?id=PVsORKIJimcC

And not to forget the sheer amount of running/lobbying one had to do to get hundreds of approvals to start a business in the license raj era. Here is an excerpt from an economics documentary which shows Narayana Murthy of Infosys venting out his frustration against Govt’s policies:
http://www.youtube.com/watch?v=yRRqIZmz6iI

Also, such policies led to corruption in the system which forced honest businessmen to fled the country. For more information on the Govt policies, License Raj & the corruption due to it, visit:
http://guruprasad.net/posts/roots-of-corruption-in-modern-india/

Here is an excerpt from “Accidental India” describing how Indira Gandhi’s “totalitarian rule” pushed Indian economy into dark age (Notice how even the most respected businessman JRD Tata vented out his frustration by making such strong statements against Indira Gandhi)

indira_mrtp

Here is an excerpt from “India Unbound” describing a case where such policies led to India’s loss and Indonesia’s gain:

birla_mrtp_rayon

If such powerful & respected businessmen like JRD Tata, Aditya Birla & Narayana Murthy were being penalized with such unreasonable taxes, “tortured” due to harsh bureaucracy and frustrated, imagine the plight of a normal entrepreneur. Wasn’t it much simpler to hire a taxi to the airport and get out of the country?

airport_taxi
We had a rapidly growing population and millions of engineers graduating out every year but no jobs were being generated because entrepreneurs had either left the country to setup their business abroad or were becoming stale here due to the above mentioned reasons. With jobs not matching the growing population, our graduates had no choice but to look for greener pastures where countries like US & UK were welcoming them with open arms.

We had entrepreneurs and professionals but the policies did not allow them to work here. Our talented brains & entrepreneurs did not leave our country, leading to brain drain. Our policies pushed them out. It drained them out!!

For more such insightful analysis on Indian history, visit:
http://guruprasad.net/posts/category/india/insightful/

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