India has much to learn from Hong Kong

By M D Nalapat (
Updated: 2010-11-16 09:49
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Because of the savings of its people and their zeal for education and improvement, the Indian economy is growing at a speed of almost 10 percent annually.

However, India's progress is being heavily marred by corrupt and incompetent governments at both the central and state levels, and Indian people's craving for a better life is hardly a match for the burdens they face and for the red tape they are constantly subjected to.

In India there are a cascading series of taxes. Income-taxes, surcharges, service taxes, commodity taxes, state sales taxes, stamp duty, capital gains taxes and many, many others.

Contrast the sorry situation in India, where the combined tax burden on a citizen sometimes reaches 70 percent of his or her income, with Hong Kong.

The residents of Hong Kong pay only income tax, that too at a low rate. There are no taxes on capital gains or dividends, nor on interest and even the winnings from gambling.

In India, the web of regulations is so dense that most innovators either get nerve breakdowns or migrate in order to preserve their sanity. At every stage of any productive process, the citizen has to run the gauntlet created by officials (and their political masters) eager to enrich themselves at his or her expense.

In Hong Kong, by contrast, most permissions can be secured online, while bribes are unheard of. The civil service in Hong Kong is well paid, so that the incentive for graft is minimized. I had a dinner with a member of Hong Kong's Executive Council during my stay in the special administrative region several months ago. He came in a taxi, without any of the paraphernalia that accompanies those of a similar rank in India.

For a metropolis of seven million people, there is only a corps of 130,000 civil servants, or about as many as there are in a single district in the Subcontinent.
Residents in Hong Kong can move money anywhere they want, and convert it into any currency they wish. Even those coming from the outside can set up businesses freely, getting permission online to do so, rather than in offices populated with corrupt officials and staff, the way it is in India.

Had any government in India had the common sense to set up a Free Trade Zone in India on the lines of Hong Kong, tens of billions of dollars of investment would have flowed in.

However, such a project seems beyond the imagination of those politicians in India who are comfortable with poverty, because they believe that it is easier to fool the poor with false promises than to empower the middle class (which in India does not vote as strongly as it should).

Recently in West Bengal, Mamata Banerjee, a politician who is now Union Railway Minister, cost her state more than 200,000 jobs (direct and indirect) by forcing the Tata Group to relocate its revolutionary small-car (Nano) factory from West Bengal to Gujarat.

By allowing Hong Kong to be the freest economy in the world (a status that it has enjoyed for the past sixteen years, according to the Index of Economic Freedom), the Chinese government has shown a pragmatism that is absent in neighboring India.

Unless the citizens are given the right to ensure a prosperous and productive life, just giving them the right to vote every few years does not translate into a genuinely free country.

The author is the vice-chair of Manipal Advanced Research Group, and UNESCO Peace Chair and professor of geopolitics at Manipal University, India.