By Ajit Dayal, founder of Quantum Advisors
Like Godot the Indian economy is waiting endlessly for launch into a higher orbit. While far from being a dead economy, the government clearly agrees with the universal belief that ‘things could be better’. The kickstart via a tax rebate in the February 2025 budget speech and the Diwali Utsav on rationalization of GST announced on Independence Day are prods for a ‘breakout’. While these will take their course and provide one-off gains, the government has an astra in its armoury which can be a permanent chakra and watering pot of a thousand flowers blooming on India’s vibrant economic landscape. The equivalent of Infosys, TCS and Wipro hiring 770,000 new freshers every year – 15x what they hire today.
Reverting to 182
Since FY 2021, the government of India changed the number of days for an individual to be categorized as a “non-resident”. For taxation purposes the requirement to spend less than 182 days in a fiscal year in India was amended to less than 120 days. Ostensibly, this was to control the number of savvy Indians who were slipping off to Dubai, Singapore and similar tax-friendly jurisdictions who could, within a few hours of flying time, live a wonderful life for six months in India and then spend 6 months in a tax haven with no taxes paid to the Indian government. To curtail this “misuse”, the number of days rule was changed from ‘less than 182’ to ‘less than 120’.
The statistics and commentary suggest that since the new rule has come into play, ‘non-resident’ Indians have not surrendered their lifestyle in Dubai or Singapore. In fact, these displaced NRIs probably spent the required additional 60 days in those city-states boosting their economies and 60 days less in India.
Most packed bags and moved there – permanently. In doing so, their economic spend in India was minimized – dampening our GDP – and the benefits of paying for a cost of living trickled to other nations.
With the number of Indians surrendering their passports and NRIs shunning India spends in India have been impacted while Dubai and Singapore are experiencing booms as ‘twin capitals’ of India. Is it possible that the ’Not Required Indians’ could provide the evasive silver bullet to end the wait for Godot and deliver the required NRI, the ‘New Resurgent India’?
A changed world order of tariffs tantrums – and our own aging bodies – suggests we need to revert to a simple 182 day rule and eradicate this complexity of Resident but Not Ordinarily Resident (RNOR) and proof of a Tax Residency Certificate from a jurisdiction where the individual is resident.
Since the 120 day rule was implemented in 2021 during COVID about 40 million NRIs have increased their age by 5 years (we all age every year!) and many have increased their wealth manifold, given the over 100% surge in global stock market indices, gold and real estate. The 4 million NRIs in the United States are the richest ethnic community in per capita income and they tend to have strong cultural and family ties to India. The ‘Howdy Modi’ events are proof of this passion for India.
As the NRIs age and as their children leave their nests to get married and live their own lives, there is a fervent desire amongst elderly NRIs to spend more time in India with family and friends. If forty percent of these 4 million Indians are of the retired age (that is 2 out of 5) and yearn for a quiet place away from cold, winter weather, this amounts to 1.6 million NRIs from USA looking for relaxation and warmth of family, friends, and climate. If 20% of these 1.6 million were willing to make India their home for the 6 months of winter in the US, that is 320,000 NRIs. Assuming a family of two (wife and husband), that translates to 160,000 families boarding a flight to India every year for a six-month stay.
Extending the assumptions further on where they would live (metro city or non-metro) and the cost of living every month, it is estimated that each family will spend nearly INR 4 lakh a month for a whopping total of INR 37,000 crore or $4.2 billion for the 6 months of their stay in India.
Furthermore, since they are here in India, they will invite their children and grandchildren – and their American friends – to visit in the Thanksgiving or Christmas Holidays. All this will add to a boost to GDP and employment.
The assumption is that an estimated 25% to 32% of their expenditure will be on rental expenses and the rest on food and services. As retirees who have come to spend in India, the multiplier effect of their spend is probably 5x, similar to that of a fresher at Infosys. Whatever the freshers earn, they tend to spend. Astonishingly, a change in the income tax code from ‘182’ to ‘120’ will result in an INR 37,000 crore spend by the NRIs and – after you apply that Infoscian multiplier of 5x – this works out to 0.7% per annum boost to GDP growth. Every year. Relentlessly. On which the government can collect its share of GST.
Equivalent to Infosys hiring 8 lakh freshers – every year!
As an equity analyst tracking Infosys stock in the 1990s until 2007, my sole request to the management team at Infosys was to allow me to eat lunch at my cost in their campus canteen in Bengaluru or Hinjenwadi with a promise not to talk to any staff member. Once approved, I would head to the canteen by 11.30 am, pick a spot in a corner and wait for the lunch crowd to arrive. In an era of regulated disclosures, there was no need to talk to the CFO or HR. Whatever the management had to discuss was legitimately already known and reported. The rest was ‘inside information’ or khabbar – a violation of law and a no-no at Quantum Mutual Fund. My objective was to see the energy of the staff at lunch; the logic was that human capital is what makes an IT services company tick. Were the staff animated and excited? Did they look dull and fatigued? And I would watch from outside the campus gates the Infoscians board the tens of buses to see how fatigued they were by the evening.
Infosys used to hire 15,000 to 20,000 new recruits annually in those days. When my colleagues and I at Quantum Mutual Fund did an analysis of the ‘multiplier effect’ of the new hires amongst the Big Three tech firms, we came to a conclusion that every new hire at Infosys (then on a starting salary of INR 25,000 per month) would spend much of their income (after tax, of course) and create a tsunami of economic activity. We estimated this multiplier of spending form job creation to be 5x of the annual salary of an Infoscian. A young person living away from parents spends money on rent, pizzas, dosas and drinks. They need services like haircuts, beautification, and pharmacies. Every spend is an income for someone else. In the magical world of economics, the ‘propensity to consume’ of a person earning a low salary is high. Hence, across the chain, we calculated that an INR 1 spend by an Infoscian amounts to an activity of INR 5 in the economy.
If the government wanted to kickstart the economy it could, in theory, inject INR 37,000 crore into a job hiring scheme for IT companies – this is the equivalent of the INR 37,000 crore the 160,000 NRI couples would spend in that 6 month stay in India. This injection by the government would be the equivalent of hiring 771,250 new trainees for 12 months at an average salary of INR 50,000 per month. After one year, another INR 37,000 crore would need to be injected by the Government to pay the salaries of the new trainees…and every year there would be a need for a fresh injection. Not the best use of the government’s limited resources. However, with a change in the rule of residency from 120 days to 182 days – and the subsequent changes in the provisions for ‘stay during the previous 4 years’ – the government of India can unleash the firepower of Howdy Modi to get India into the break-out mode and add $21 billion in NRI spend annually which, with a multiplier of 5x, is equivalent to 0.7% of GDP every year. Add NRIs from other parts of the world and we have a game-changer.
Lessons from the snowbirds of Canada.
The biggest challenge for every NRI – in the US, Canada, Europe, UK, Asia, Africa – is dealing with this 120 day rule which prevents them from doing what lakhs of retired Canadians do every year: leave Canada every winter and live in the warmer climate of Florida, Texas, Arizona. The ‘snowbirds’ – as they are called – do not have family in Florida but they own over 500,000 homes and apartments. Each home in Florida generates a 2% annual property tax for the local government. If each home costs on average $200,000 this means that the Florida government is generating $2 billion in tax revenues from individuals who live 180 days in Florida – money which is spent by the government on parks, schools, and hospitals which Floridians can access 365 days of the year.
In 2024, over 3 million Canadians visited Florida for different lengths of time and spent US$ 6 billion. Our assumption for the NRI retirees from the USA is that 160,000 couples will spend $4 billion over a 6 month period. Recognizing the contribution of Canadians to the large economies of these southern states, the Internal Revenue Service of USA grants Canadians the right to spend 180 days in USA. They are taxed on income they may earn while in USA. This is the power of the practical: a foreigner from Canada with no connection to the homeland of USA is welcomed and invited to fuel the economy of the host country.
It is time that India matched the need of a large retiring pool of NRIs who are willing to return to India and spend their time and money in India – but seek a friendlier tax regime. A perpetual and elegant solution to boost India’s GDP permanently by reversing the 120 days to the original 182 days with no time limit to their RNOR status will lead to a New Resurgent India and contribute to a breakout in economic growth.