Column : Tapping the diaspora productively

Written by Amitendu Palit | Updated: Jan 13 2010, 03:00am hrs
Following the PMs assurance at the Pravasi Bharatiya Divas to grant voting rights to Indians living abroad before the end of the current governments term, the diasporas contribution to the Indian economy is back in focus. At a size of almost 25 million people spread over 110 countries, the diaspora has a sizeable global presence. The bigger group in this club is comprised of PIOs followed by NRIs. The latter include Indian emigrants as well as those who have travelled abroad for shorter durations.

The economic might of the diaspora has been responsible for its growing strategic clout. Migration of skilled Indian professionals to high-income countries has helped the latter make significant productivity gains. The West has benefited the most from such migration with the US, the UK, Canada and Europe drawing large numbers of Indian professionals. In more recent years, high-income Asian economies such as Hong Kong and Singapore have become attractive destinations for Indian professionals. The professionals have contributed handsomely to the growth of these various economies in an era of high demand for skills in knowledge-intensive occupations. In the process, the professionals themselves have climbed rungs at a rapid pace. Success stories such as Lakshmi Mittal, Indra Nooyi, Vikram Pandit, Padmasree Warrior, Arun Sarin et al are well known. There are several less-celebrated stories, all of which have contributed to the diaspora emerging as a powerful economic force in terms of financial resources, managerial expertise and entrepreneurial capacities.

Remittances have been the diasporas biggest contributions to the Indian economy. India is one of the major recipients of migrant remittances among developing countries. In the year 2008, India topped the chart with $52 billion of remittances, followed by $49 billion in China and $26 billion in Mexico. Assuming an Indian GDP of $1.2 trillion in 2008, the remittances amount to roughly 4% of GDP. These flows have been functionally related to migration of skilled professionals from India as well as their earning capacities. The rise in both volumes of migration as well as earning capacities of migrants has positively influenced remittances. The latter have been a major source of stability for Indias balance of payments. So have been the non-resident deposits in Indian banks, though many argue that high deposit inflows are merely for taking advantage of high interest rates offered by Indian banks.

Beyond remittances and non-resident deposits, the role of overseas Indians, till now, has been relatively limited as far as investments in building businesses in India are concerned. This is in sharp contrast to China. The role of the expatriate Chinese in facilitating Chinas ascent to economic prosperity is well known. Most of the foreign investment flowing into China in the early years of its opening up was from the expatriate Chinese. Those from neighbouring Hong Kong and Taiwan made good use of tax benefits and other facilities offered in the special economic zones of Shenzhen and other coastal areas. By setting up new production facilities in mainland China, expatriate investors ensured that China did not lose out on the opportunities created by economic reforms and also acted as a pull factor for multinational investors.

India, unfortunately, has not benefited similarly. Despite creating a separate channel for non-resident investment from the early 1990s that offered greater benefits, expatriate capital inflows failed to take off and continue to remain below expectations. FIIs into India have been largely dominated by multinationals rather than the expatriate variety.

Why has the Indian diaspora not invested as much in India as the Chinese diaspora has in China Theres of course the generic discomfort of investing in a country that is a difficult place for doing business in. But a key factor is the difference in attitude between the two diasporas. The expatriate Chinese community has a strong entrepreneurial inclination and a great flair for risk-taking. This is probably because most of them migrated in the first place on entrepreneurial pulls in contrast to Indians who move overseas to take up employment. As a result, successful new generations of NRIs show less inclination for setting up businesses. Indias efforts in drawing expatriate investment were also constrained by the fact that none of its neighbours could perform roles similar to those played by Hong Kong and Taiwan for China.

In order to play a bigger role in Indias growth, the diaspora needs to grow beyond the safer options of remittances and term deposits to riskier avenues of putting money in creation of productive assets in India. It probably needs to take a leaf out of its Chinese counterpart in this regard.

The author is a visiting research fellow at the Institute of South Asian Studies in the National University of Singapore. These are his personal views