Sunday, September 02, 2007

An exit tax for IIT/IIM products?

I wouldn't have thought brain drain would be a big issue today, seeing that we are seeing a modest return of highly qualified NRIs. Apparently, it is.

Outlook magazine has a story on the parliamentary standing committee of the HRD ministry considering an "exit tax" or IIT/IIM graduates leaving the country:

The panel's report, submitted to Parliament last week, has sparked off a heated debate within government and academic circles. Some feel students who enjoy the benefits of a highly subsidised education should serve the country—or be penalised. Others find the proposed tax impractical, impacting only poorer students who may be unable to pay up even though they get lucrative job offers or scholarships from abroad.

............ an IIT graduate pays Rs 40,000 per annum as fees while the state spends nearly Rs 1.50 lakh on him for the period. The state subsidy for an IIM student is higher at Rs 3.5 lakh per annum. Interestingly, almost a year before passing out, students from these premier institutions are wooed by companies with annual salaries of at least Rs 6 lakh—it's higher for those going abroad. So, isn't the state fair in asking for its share, runs the argument.

These arguments are not new. But the implementation issues have been formidable. At what point is the tax to be collected? Is a candidate expected to make a declaration to the Income tax department that he or she is an IIT/IIM product and leaving the country and, therefore, wishes to have a clearance certificate? What if the compensation is understated? Is the passport supposed to carry a stamp saying the candidate is from IIT/IIM? In the case of fresh graduates leaving immediately after graduation, they may not have the resources to pay the tax. So, are they expected to raise a loan? Will banks provide loans to departing individuals? And what about graduates who return after a few years' experience? Are they eligible for a tax refund? And why only IIT/IIM products?

Get the idea? The more you think about it, the more you realise the problems in implementing such a scheme. And what would the total collection amount to? Would it serve any purpose other than satisfying some people that a 'penalty' has been imposed on those betraying their 'lack of patriotism'?

I must mention here that there is already a means available to the IIMs to recover some of the subsidy incurred on their products. There is a fee that is levied on recruiters and the fee has risen steeply for foreign recruiters. Perhaps, this can be jacked up even further. The graduate does not pay out of his or her pocket but the institution does recover some of the subsidy. The calculation of the subsidy itself is a vexed issue and there is reason to believe that the figures tend to be inflated.

Some of those interviewed by Outlook think the answer is to phase out the subsidy through higher fees. That is clearly not the way to go, in my view. The IIMs accepted this when they agreed to take care of a portion of the costs of those coming from families with an income of less than Rs 2 lakh. Any increase in fees at the IITs and IIMs will mean an increase in fees in all other institutions and this will undoubtedly go against the idea of greater inclusion in higher education. It will not just not fly with the political class- so forget about higher increase in fees.

I also think that we can afford to be a little more relaxed about the issue of 'brain drain'. Indian professionals who go abroad contribute in various ways: they send remittances, they create networks between foreign firms and Indian firms, they play a role in getting foreign firms to invest in India and, over time, there is diffusion of the intellectual wealth they create abroad. So the "loss" on account of brain drain, it turns out, is not as high as was previously supposed.

Not least, the departure of these brains has not come in the way of India touching a growth rate of 9%- so what are we fretting about? Let me put it this way. When India was trapped in a growth rate of 3.5%, we didn't do anything about the emigration of highly qualified professionals. It does seem a little odd to think of an 'exit tax' at at time when the Indian economy is doing much better and professionals are also thinking twice about leaving.

I say: tax the recruiters through stiff fees at the campuses- and leave it at that.

No comments: