Migration Obvious Choice If Nothing Improves, Says Surjit Bhalla

Migration is driven by multiple factors. People leave not only for better opportunities but also to escape excessive regulation, bureaucratic hassles and declining quality of life—issues highlighted in the Economic Survey by the CEA [chief economic adviser].

Factors like pollution, lack of clean water and everyday harassment contribute significantly. High taxation can be a burden, but the broader issue is how regulations impact daily life.

When real incomes are rising, people tolerate certain challenges. But when nothing seems to be improving for you, migration becomes an obvious choice.

The evidence is quite strong. While at the IMF [International Monetary Fund], I analysed the tax-to-GDP ratio and found that India’s aggregate tax burden was among the highest in the world for its income level. Typically, tax-to-GDP ratios rise as economies develop, but India’s ratio has already reached around 19%.

The reason is that when we analyse real income, it becomes evident that salaried workers have seen no significant increase in their earnings for the past 14 years.

Since 2011, the average CPI [consumer price index] inflation has been around 5%. Now, in most countries—especially developing ones—taxation is based on nominal incomes, not real incomes.

As a result, individuals like you and I may see our nominal incomes rise, pushing us into higher tax brackets, even though our real incomes haven’t increased. This effectively means people across the board are paying higher taxes despite no real growth in earnings.

Tax compliance is closely linked to tax rates—higher rates encourage evasion and bribery. That’s why I have advocated for a flat tax [rate] of 12–15%, which could drive compliance close to 100%. A lower, simpler tax structure not only improves compliance but also boosts revenue, contrary to fears of revenue loss.

For 2025–26, despite tax cuts, direct tax revenue is expected to rise by about 12–13%, proving that well-designed reductions can enhance overall collections.

GST was, and still is, a great idea. A national tax system brings efficiency, accountability and compliance. But the problem lies in its structure.

Take the absurdities like popcorn taxation, for example.

The key is this: increasing compliance is the same as reducing cheating. If we provide the right incentives for businesses to comply, tax revenues will rise without the need for over-taxation.

But here’s the bigger question—why don’t we implement these obvious reforms? The answer lies in the deep state. Someone benefits from bad policies, and more often than not, it is the industrialists.

Take services versus manufacturing. In service exports, India beats China. But in manufacturing, protectionism and the deep state hold us back.

I agree, and that’s why, I think, the prime minister has emphasised the issue of freebies. State tax revenues are often used to finance election-winning giveaways rather than improving quality of life through infrastructure investment.

While both the Centre and states have significantly increased infrastructure spending, the reality is that last year, they couldn’t fully utilise the budgeted funds. The challenge isn’t just funding, it’s also about having viable projects. You cannot just build roads into the sky.

That said, we have the resources and the fundamentals in place. But one argument I consistently make is that we shouldn’t be complacent just because we are the fastest-growing economy. Growing at 6–6.5% is good, but we’ve done that for 30 years.

The real measure of success isn’t just our current growth rate, it’s how close we are to our potential growth.

The reason firms aren’t investing in R&D is the same reason people apply for government jobs—protection. Without competitive pressure, there’s no hunger to improve.

A common mistake critics of industrial policy make is dismissing it outright. But look at [South] Korea. Their industrial policy succeeded because firms had to export and stay competitive.

That’s where India gets it wrong—protectionism through tariffs. I have said it before and I’ll say it again: Trump may have been the best thing to happen to India because his policies forced us to cut tariffs, [and] not just to trade with the US.

The real problem is that industrialists, not the government, shape policy. The government executes but the deep state sets the agenda. In Korea, the government incentivised performance. Here, protectionism often shields inefficiency.

If we truly want R&D investment, we need to lower tariffs and open up to foreign capital. This will force domestic firms to compete and innovate. It’s a win-win.