HNI explains why RICH Indians are leaving India (and 5 wealth trends!)
Take a look at these 3 FACTS:
1. Flight tickets in India are more expensive than in Singapore [1].
- Flight ticket from Delhi to Hyderabad (~1500 kms) costs around INR 4500.
- Flight ticket from Singapore to Bali (~3000 kms) costs around INR 8700.
- On a per km basis, Singapore is cheaper.
2. Portuguese Villa in Goa costs way more than an actual Villa in Portugal
- Portuguese Villa in Goa costs around INR 5 crore.
- A villa in Portugal would be 30-40% cheaper!
- Portugal even has a golden visa program [2]
3. An imported car in India attracts up to 100% taxes [3]
These 3 facts to a High Net-Worth Individuals (HNIs) simply says that to avail luxury and higher standard of living in India, you are paying exponentially more than what you have to pay in some other countries.
This has led to more than 6500 HNIs leaving India in 2023 [4]. This number was 7500 in 2022.
China is the only country that shows a higher HNI migration than India in 2023.
In 2022, India showed the 3rd highest HNI migration after Russia and China [5].
Who are HNIs?
HNIs have no specific referees to people that have an investable wealth of more than INR 5 crores. They can also be categorized by the following [6]:
There are countries such as the UAE who have 0% direct income taxation [7].
In this blog, we will discuss the following key points:
- Major Wealth Trends to keep in mind if you are rich or are on the way to becoming rich.
- Why are HNIs leaving India?
- How will these changes impact YOU?
Wealth Trends in India:
1. Massive Wealth will be generated in India:
Why will India become richer with time?
There are 3 critical reasons:
• The informal sector is getting more organized [8]:
- This will lead to more white money movement in the economy.
- This will in turn lead to accelerated GDP growth in India.
• GDP growth rate is faster:
- India is an emerging economy and has a GDP growth rate of 7% as of 2022 [9].
- Also higher demographic dividend and a hungry workforce.
• Growth of Credit Economy is higher:
- Loan taking has become mainstream, leading to excess consumerism.
- The Household Debt (in % of GDP) has been growing significantly over the last decades [10].
- As consumerism increases, there will be a growth acceleration in the economy.
So, does this mean that we are all going to get rich?
For this, we have to ask a question: What type of wealth is going to be generated in India?
The type of wealth that will be generated in India will be consumer driven and not innovation driven.
Taking the example of Apple: Apple recently opened more stores in India [11].
But are Indians actually really benefiting directly from this?
Are Indians getting better jobs from Apple from this?
Maybe a few in the manufacturing and service sectors, but these are very average jobs. These jobs are not very elite when compared to the jobs offered by Apple in the US.
But from a consumer market point-of-view, Apple sees India as major consumers. All this revenue from India will eventually just go back to the company in the US.
So, in an economic sense the wealth that is generated in India will be repatriated back to the US.
The core point is that wealth will be generated in India, but this wealth will benefit other countries more than it will for India.
Further, generating this wealth via jobs for the Indian Middle Class will be very tough.
High quality jobs in India are very less while the demand for the same is significantly higher [12].
So, now the next key question would be: Can Indians generate wealth through Businesses?
There are primarily two types of businesses:
• Physical Debt-Heavy Businesses:
- Big businesses and strong connections will help you grow (Debt-driven) given that the credit economy in India is growing.
• Digital Businesses (Ed-tech, Fin tech etc.) (Asset Light):
- Domestic Demand in India is high and can be utilized [13].
- You will face a lot of competition, but bridging this gap efficiently and effectively can help grow your wealth.
• Small scale businesses
- Scaling such businesses and generating wealth is getting very difficult.
One other final way to generate wealth is by creating a good amount of wealth and then investing your wealth sensibly.
But unfortunately in India, this is also getting harder.
Indexation benefits in India have been withdrawn [14], Real Estate Investing is getting tougher and more expensive [15] etc.
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2. Wealth Gap will rise with time.
This is not just an India specific issue, it will be seen all over the world.
The chart below [16] clearly shows that the top 1% earners in India used to control 11.87% of the total wealth in 1961, and as of 2020 they control almost 31.55%.
Similarly, top 10% earner wealth control has gone up from 43.18% to 63.68%
However, the bottom 50% have gone lower and lower from 12.29% to 6.12%.
Why is this happening?
There are 3 primary reasons:
• Access to Credit:
- This is a lot easier for the top 1 and 10% than for the bottom 50%.
- They can then use this credit to grow their businesses and take further debt. This will help them keep growing their wealth faster.
• Value Capturing by Tech has become easier:
- Digital Businesses are able to build big businesses by starting off with smaller budgets and smaller teams thanks to the impact of tech.
- This was seen in Instagram, Canva etc.
- This new wealth is more easily capture by the top 1 and 10% than the bottom 50%.
• Incidence of Tax:
- Incidence of Tax simply refers to the measure of who ultimately pays for the tax burden.
- Going forward, the middle class will continue paying higher and higher taxes. And this will lead to more people falling from the middle class to the lower class.
- Check out our blog on RETURN ON TAXES IN INDIA for a deeper study on this topic.
3. Monopoly Business will corner more Wealth.
We very often see the cases of small businesses get wiped out because of monopoly businesses entering a new vertical [17].
This is playing out in almost everything from Telecom, Construction to Digital Wallets, Asset Management Companies and so on.
All of this sector is getting more and more monopolized.
Small scale businesses and the unorganized sector will have to go through these monopolies, which will make the community poorer but the big businesses richer.
Platforming will continue killing individual professions.
So if you are looking to build your own business, focus on being more innovative, and have an edge.
4. Investment wealth will start moving out of India.
As we discussed in the start, India as a Real Estate market is getting more and more expensive. In other parts of the world, you can buy real estate at much cheaper rates.
Government is looking to push more white money into real estate. But what this inadvertently does is when an HNI sells his/her Real Estate in India and gets the whole return in white, they have the opinion of repatriating that money outside India.
If the same situation played and you got the money in black, then you would have to have invested it back in India.
5. Ultra Rich will move their money to hedge their sovereign risk.
Sovereign Risk simply means investing your wealth across multiple options, more specifically investing internationally to hedge against geographical risk.
This will lead to rich people leaving an emerging economy as the country becomes rich.
What are other reasons for HNIs to move out of India?
In an investment wealth perspective, the volatility in India is increasing exponentially. Volatility simply refers to higher price fluctuations.
As the debt in the world goes up, this volatility will also continue to grow. And the debt in the world is going up. Take a look at the US Debt chart over the years [18].
This will push people, more specifically the HNIs, to move to more developed countries. This will give them more safer investment options to protect their wealth.
There are also better tax laws, better returns on taxes paid, more incentives to stay in many other countries outside of India [19].
This will cause more HNIs to move out of India.
How will these changes impact YOU?
1. The middle class will have to pick up the slack that is left by the richer class.
- They will have to continue paying higher tax and this amount will only continue to rise.
- This will lead to more and more people falling from the middle class to lower class.
2. The newer HNIs will continue considering leaving India.
- The richer class will consider the higher expenses in India, and the higher tax burden as reasons to leave the country.
- Most of these people will have the freedom to work from anywhere so other than emotional reasons they don’t see a reason to stay in India.
3. The chance of becoming a millionaire in India will go up.
- But the competition is going to be extremely high.
- You need to be exceptional to stand out and come ahead in this race.
4. As you generate wealth, focus on diversification.
- Diversify your portfolio sensibly across asset classes.
- Own real and hard assets like Real Estate, Gold etc.
- Hedge your wealth against geographical risk by investing internationally.
Conclusion
India’s wealth landscape is changing rapidly. High-net-worth individuals are leaving due to high expenses and tax burdens, while wealth generated in India often benefits foreign interests more than locals.
The wealth gap is widening, driven by easier credit access, technology’s impact, and favorable tax policies for the wealthy. Monopoly businesses and platform-driven economies are replacing traditional small-scale enterprises.
Investment wealth is moving abroad, and the ultra-rich are diversifying to hedge sovereign risk. This shift puts added tax pressure on the middle class.
To thrive in this evolving landscape, aspiring millionaires must focus on exceptional skills and diversify portfolios. Owning real assets and exploring international investments can help navigate these changes.
As India’s financial dynamics shift, staying informed and adaptable is crucial for success.
HNIs Leaving India:
- High Net-Worth Individuals (HNIs) are leaving India in increasing numbers due to factors such as high costs and limited investment opportunities.
Wealth Trends in India:
1. Massive wealth will be generated in India:
- Driven by an organized informal sector, high GDP growth rate, and a growing credit economy.
- However, wealth generation in India is more consumer-driven than innovation-driven, benefiting other countries.
2. Rising Wealth Gap:
- The wealth gap in India is widening, with the top earners gaining more control of the country’s wealth.
- This is attributed to easier access to credit, tech-driven value capture by top earners, and increasing tax burdens on the middle class.
3. Monopoly Businesses:
- Many sectors in India are becoming monopolized, which poses challenges for small businesses and the unorganized sector, making big businesses richer.
- Platforming Impact: Individual professions are being threatened by platform-based business models, requiring innovation and a competitive edge for success.
4. Investment Wealth Moving Out:
- Real estate in India is getting more expensive, leading to wealthy individuals repatriating their money outside India.
5. Ultra Rich will move their money outside India:
- The ultra-rich are moving their wealth internationally to hedge against geographical risk, potentially leading to more departures from India.
6. Impact on the Middle Class:
- The middle class faces a rising tax burden as the richer class leaves, causing some to fall into lower income categories.
7. Competition to Become a Millionaire:
- While the chance of becoming a millionaire in India is rising, competition is intense, requiring exceptional efforts.
8. Diversification:
- As you generate wealth, consider diversifying your portfolio sensibly across asset classes, including real estate and international investments, to hedge against geographical risk.
[1] https://www.makemytrip.com/
[2] https://www.goldenvisaportugal.strokesandground.com/
[3] https://www.livemint.com/opinion/online-views/why-india-must-change-the-way-it-taxes-high-end-cars-11690097665954.html
[4] https://www.moneycontrol.com/news/trends/features/6500-super-rich-indians-will-leave-india-in-2023-and-why-3-10900581.html
[5] https://www.visualcapitalist.com/migration-of-millionaires-worldwide-2022/
[6] https://www.business-standard.com/about/who-is-high-net-worth-individuals
[7] https://www.expatica.com/ae/finance/taxes/the-tax-system-in-the-united-arab-emirates-71746/
[8] https://sarveshmathi.medium.com/india-attempts-to-organize-the-unorganized-sector-9b408cc7e30e
[9] https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2022&locations=IN&start=1961
[10] https://www.ceicdata.com/en/indicator/india/household-debt–of-nominal-gdp
[11] https://www.indiatoday.in/technology/news/story/apple-to-open-3-more-exclusive-offline-stores-in-india-check-locations-launch-timeline-and-other-details-2388041-2023-06-02
[12] https://qz.com/india-doesnt-have-enough-jobs-for-those-of-working-age-1850398251
[13] https://www.statista.com/statistics/271329/distribution-of-gross-domestic-product-gdp-across-economic-sectors-in-india/
[14] https://indianexpress.com/article/business/market/indexation-benefits-debt-mutual-funds-stand-out-against-fixed-deposits-8535261/
[15] https://www.businesstoday.in/magazine/economic-slowdown/story/indian-real-estates-downward-slide-how-high-home-prices-rising-interest-rates-are-denting-the-sector-359593-2023-01-10
[16] https://www.theindiaforum.in/economy/trends-economic-inequality-india
[17] https://www.vox.com/the-goods/22550608/how-big-business-exploits-small-business
[18] https://fred.stlouisfed.org/series/GFDEBTN
[19] https://www.moneycontrol.com/news/trends/features/6500-super-rich-indians-will-leave-india-in-2023-and-why-3-10900581.html
To take action towards your goal of Financial Freedom, check out this blog post on HOW TO INVEST YOUR SALARY For Beginners
