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India needs brain drain!

By Rajat Gupta and Anu Madgavkar
May 04, 2017 09:01 IST
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Enabling labour to become more globally mobile can produce higher remittances with powerful 'brain gain' dividends, say Rajat Gupta and Anu Madgavkar.

Indian American engineer

IMAGE: Utkarsh Sanghi, a security engineer at Google, at a hacker's conference in Las Vegas. As population growth in the advanced economies slows in coming decades, the need for migrant labour will rise. Photograph: Steve Marcus/Reuters.

The term "brain drain" is a misnomer in India.

Indians who seek their fortunes outside their home country are an economic force to be reckoned with, and a substantial future opportunity. There are around 16 million of them, making India the world's leading country of origin. The McKinsey Global Institute (MGI) estimates that Indian migrants generate a staggering $430-$490 billion of GDP in the countries in which they live and work.

They also send more remittances home than any other country's migrants. At $65 billion in 2016, remittances are 3 per cent of the national GDP -- more than the value of all the oil that India imports.

In the coming decade, India can build on the success of its Diaspora and set itself the goal of doubling remittance flows to reach some $130 billion by 2026.

India is not just the world's largest recipient of migrant remittances today, but also historically among the fastest growing.

Since 1991, remittances to India have risen 20 fold, while global remittances increased at less than half that pace.

Even over the past decade, India's remittances grew 2.3 times, outpacing world growth of 1.8 times.

In the past five years, however, remittances have stagnated in India and around the world due to sluggish global growth, greater scrutiny of cross-border financial flows, and rising nationalism. Despite these headwinds, the fact is that the developed world has deep reliance on migrant labour.

From 2000 to 2014, immigrants contributed between 40 per cent and 80 per cent of growth in the labour forces of major destination countries in North America, Western Europe, Oceania and the countries of the Gulf Cooperation Council (GCC).

Migrants from India have more than doubled in number over the last 25 years, and those in the GCC and North America (home to 70 per cent of all migrants from India) have quadrupled over this period.

All the evidence suggests that cross-border mobility of people has boosted global productivity. MGI estimates that migrants contributed around $6.7 trillion, or 9.4 per cent of the global GDP, in 2015 -- that's $3 trillion more than had they remained in their birth countries (According to People on the move: Global migration's impact and opportunity, McKinsey Global Institute, December 2016.)  

Destination countries also benefit from the innovation, entrepreneurship, and cultural contributions that migrants bring.

Yet migrants from different countries struggle to integrate fully into their host economies, earning on average 20 to 30 per cent lower wages than those of comparable native-born workers. They also tend to face higher rates of unemployment.

The good news is that Indian migrants have generally fared better. In Western Europe and the United States, migrants from India experience 1 to 2 percentage points lower unemployment than native-born workers, while migrants from many other developing countries face up to 10 percentage points higher unemployment.  

As population growth in the advanced economies slows in coming decades, the need for migrant labour will rise. Sheer economic logic ought to compel countries such as China, Germany, Japan, the United Kingdom, and the United States to favour skill-based migration as Australia and Canada have done for years, even in the face of rising pro-nationalist sentiments.

In such a scenario, India should invest in building skills in order to boost demand for Indian talent in the face of potentially less open borders and competition from other countries.

Earlier this year, Prime Minister Narendra Modi announced the launch of Pravasi Kaushal Vikas Yojana, a programme designed to raise the skills of young Indians seeking overseas employment. To complement this effort, the programme will map the jobs in demand in different economies so that India's education and training system can match those needs, provide trainees with the certification they need to work in different markets, and forge partnerships with global institutes.

The Philippines has pursued this kind of strategy by recognising and filling nursing shortages around the world. Notably, remittances to the Philippines at some $29 billion in 2016 have remained buoyant even in the midst of the global slowdown.

The combination of targeted training at home and more effective integration in their destination countries would give migrants more earning power and the ability to repatriate more.

It could also produce broader "social remittances". After working overseas, skilled migrants return with more knowledge of good business practices, and a network of global contacts they can tap for funding and collaboration. The clearest example of this is the way returning migrants applied the experience they gained in Silicon Valley to developing Bengaluru's IT industry.

India's new strategy of "diplomacy for development" is strengthening its image as an attractive destination for foreign investment, and non-resident Indians (NRIs) are a key target audience.

Modi has made an explicit appeal to Indians working abroad, asking them to contribute to economic development at home by taking part in programmes such as Swachh Bharat Mission and to invest in domestic businesses.

The Department of Science and Technology is launching a visiting joint research facility scheme that enables NRI scientists and technocrats to engage in research and development in India.

To meet the goal of doubling remittances over the next 10 years, India would require a concerted, top-down strategy with government and businesses working in concert with receiving economies, and much expanded skills training and education at home.

Enabling India's labour to become more globally mobile and valued can produce higher remittances in the short term -- and build human capital and global connections with powerful "brain gain" dividends over the longer term.

Rajat Gupta is a senior partner of McKinsey & Company and Anu Madgavkar is a partner at the McKinsey Global Institute. They are based in McKinsey's Mumbai office.

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