COUNTRY SPOTLIGHT: INDIA… THE NEXT EB-5 SUPERMARKET AFTER CHINA?

COUNTRY SPOTLIGHT: INDIA… THE NEXT EB-5 SUPERMARKET AFTER CHINA?

Posted at 20:03h in Blog by mona shah 0 Comments 

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Mona Shah, Esq.

As documented by a recent article from the Times of India, the EB-5 program has seen a substantial increase in popularity amongst Indian investors this past year. Regional Centers have flocked to India’s major cities and financial hubs in the hope of uncovering the next untapped EB-5 Supermarket. Like its neighbor to the north, China, India has also experienced phenomenal economic growth and overseen a rise in geopolitical prominence over the past decades, albeit a little later than the Middle Kingdom. Yet, while both India and China may be on similar economic trajectories, their emigration patterns, particularly in terms of EB-5, are quite different. As India’s GDP continues to grow and its government becomes more open to outward and inward FDI, how likely are we to see a deluge of Indian millionaires entering the marketplace?

For Indian immigrants, the EB-5 program makes a lot of sense. The United States is the second-most common destination for Indian migrants, representing approximately two million of the total 14 million Indian migrants worldwide. Compared to both the overall native-born and foreign-born populations in the United States, Indian immigrants are on average significantly higher educated, more likely to be employed and have a higher household income. These statistics are reflected in the high usage of Employment-Based Green Cards and skilled occupation-based H1-B visas amongst Indian citizens. According to the Department of State, Employment-Based Green Cards for Indian citizens are backlogged to June 2008 for 2nd Preference and March 2005 for 3rd Preference. In addition, the promise of increased scrutiny and reform for the H-1B and L-visa categories have made these routes significantly less straightforward. In sharp contrast, no backlog for 5th Preference (EB-5) currently exists for Indian citizens.

Yet, despite the program’s tangible benefits, particularly for Indian citizens, India only comprised a 1.1% share of the overall EB-5 market in 2015. By comparison, China dominated the overall market with 83.5% or 8,156 approvals. Even Vietnam, which India dwarfs in population size, commanded a greater share of the market with 2.9% of approvals in 2015. As of FY2016, India stands as only the sixth most common country of origin for EB-5 investors. Given India’s immense population size and robust pace of economic growth, it would seem that there is vast room for growth in the EB-5 program in India – to at the very least, bring it on par with China.

Evidence suggests however, that while China and India share similar population sizes and economic growth figures, the similarities end there. For one, the diasporas of the respective countries are very different. By merit of the countries’ shared colonial heritage, Great Britain was the primary destination for Indian migrants in the years following Indian independence. This was facilitated by the British Nationality Act of 1948, which stipulated that citizens of the British Empire and former colonies (those countries that formed the British Commonwealth), had the automatic right to remain in the UK if they chose. This special status ended with the Immigration Act of 1971, but only after thousands from across the Commonwealth had already emigrated. In contrast, American immigration restrictions were relaxed after the passage of the Immigration and Nationality Act of 1965, which removed country-based quotas; and the Immigration Act of 1990, which created the Diversity Immigrant Visa and the five Employment-Based Visa categories that we have today. The majority of Indian immigrants arrived after 1990 via the Employment-Based channels. Today, Indian citizens are the top recipients of H1-B visas, comprising 70% of the total share. However, while this information explains why the destination country of choice for Indian migrants shifted to the United States, it still does not explain the discrepancy in the number of EB-5 applicants between India and China.

The answer to this question may lie in the macroeconomic environments of the respective countries. China’s rapid development occurred in no small part due to the massive inflows of Foreign Direct Investment that the country has received. Yet, economic freedoms in the country are significantly curtailed. The government has a heavy hand in the marketplace and access to private capital is severely restricted. 90% of the companies listed on the Shanghai and Shenzhen stock exchanges are state-owned, greatly discouraging private entrepreneurship.  Property rights and corporate governance regulations are also significantly more opaque in China. The end result is a comparatively more nurturing and favorable environment for domestic entrepreneurs in India than in China. Coupled with a general aversion to foreign investment and a preference for domestic sources of capital, one can see that outward investment has not historically been a major factor in India. This can help explain why investment visas like EB-5 are not as popular amongst Indian citizens. With entrepreneurship more greatly rewarded and venerated in India, the opportunity cost of investing abroad is higher for Indians than it is for Chinese investors.

A more favorable environment for High Net Worth Individuals (HNWI) in India means that immigration channels catering to this demographic are less in demand. Those in India with the capital to invest have more outlets, and a greater incentive to invest at home than do their Chinese counterparts.  This is also supported by UK immigration data. Indians made up 55% of all Tier 2 (Skilled Worker Visa) applicants in 2016, but were essentially a non-factor in Tier 1 (Investor Visa) applicants. There were only 8 out-of-country Tier 1 applicants from India from 2014-2017, but over 135 such applicants from China over the same period.[i]

What does this all mean for EB-5 going forward? Will India be the next EB-5 Supermarket? The fact of the matter is that traditionally favored immigration channels for Indian citizens are drying up. Like in the UK, employer-sponsored visas (EB-2 and EB-3) are dominated by Indian citizens. Not only is there an enormous backlog for Indian citizens, but also, the process is long and contingent upon finding a willing employer. On the flip side, with lawmakers looking to raise the minimum investment amount, many potential applicants who would typically favor the traditional visas may be priced out. Those with the capital in hand may be inclined to continue investing domestically. Thus, while the potential for an Indian EB-5 Supermarket is certainly there, the jury is still out.