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Corruption and Your Finances

Scams concerning land directly appear to hit people’s savings and investments in a way that telecom and coal can never do...

The restarted economic reforms managed to keep the focus for barely a month before corruption pushed them off the front page again. From a situation where the benefits or harm of FDI appeared to be a matter of universal concerns we have rapidly shifted to how Robert Vadra, Nitin Gadkari and Sharad Pawar have acquired land. I may be wrong, but it seems to me that the public interest in these issues is far deeper and wider than it was in the telecom spectrum issue or the coal mines allocation issue.

Yesterday evening, as I walked through a parking lot, I overheard one driver explain to another the intricacies of one of these schemes. He knew and understood every detail and was able to explain them perfectly. And then, the conversation shifted to how much land prices had increased in one of their hometowns and how he had dropped the plan to buy a plot.

People connect to scams concerning landed property far more viscerally than to telecom licensing or mining leases. The value that telecom spectrum may or may not have is not an easy concept to understand hard for the ordinary Indian, but land is another matter. For literally every Indian, the ferocious escalation in the price of property is the biggest factor that impacts their earnings, savings and investments. Whether you already have the property you feel you will need in your lifetime, or whether you still have to acquire it is really what dominates almost everything else in your financial life and whether you feel rich or you feel poor.

The trajectory of property prices in India has become a massive conduit for the transfer of wealth from those who have land (or can somehow get it cheap) to those who don’t have it but need it. People connect to such scams because they see in them something that directly affects their own savings. In scams concerning land, they see a glimpse of why they have to pay ever-higher sums of money for a house to live in. They understand clearly that through booms and busts, housing keeps getting more expensive because a huge amount of slush money that the corrupt earn has nowhere to go but into land and that’s what drives housing prices.

A decade ago, buying a Rs 25 lakh apartment typically meant an EMI of somewhere around Rs 25,000 for 15 years. Today, a similar apartment can easily cost a crore. Even if interest rates had not increased it would have meant an EMI of a lakh a month. With higher interest rates today, the sum is closer to Rs 1.15 lakh a month. Effectively, where you would have paid Rs 40 lakh over fifteen years, you now pay Rs 2 crore!

While an analyst of financial investment like me can go on talking about the importance of long-term investments and of sticking to your SIPs, the person paying Rs 40 lakh over a period leads a very different life than one who has to pay three to five times as much. It’s the biggest factor that affects everything else in your life, ranging from how happy your marriage will be to how well you will educate your children.

And who did this? Who hiked up the land prices? Why, the connection is very clear in the public mind. It’s the corrupt that are buying up all the land and the apartments with their ill-gotten gains. They are the ones who are driving up land prices. They are the reason that a house worth Rs 20 lakh is actually worth Rs 1 crore. The connection between one’s own income, savings and investment with the headlines about corruption is simple to understand and easy to feel at an emotional level. By contrast, the money that a handful of big companies paid for telecom spectrum is a remote and esoteric matter.