'Then we wonder why imports are cheaper': Indian entrepreneur backs Sridhar Vembu on corruption

Indian entrepreneur Prakash Dadlani has backed Zoho founder Sridhar Vembu’s argument that corruption is pushing up costs across the economy, saying it is quietly making Indian manufacturing more expensive by raising the cost of land, approvals, interest and rents.

Dadlani said corruption is not only making homes unaffordable but is also weakening India’s ability to compete with manufacturing hubs such as China and Vietnam.

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His remarks came in response to a thread by Vembu, who argued that corruption has inflated land prices, increased the cost of living and is even affecting demographics. Vembu said land prices in Indian cities are far higher than what the country’s GDP per capita would normally justify, and linked those costs to rising housing, education, healthcare and household expenses, particularly in highly urbanised states such as Tamil Nadu.

In his post, Dadlani wrote that corruption affects far more than the housing market. “Corruption does not just make homes costly. It makes factories costly too,” he wrote.

 

 

 

According to Dadlani, black money flowing into real estate inflates the price of industrial land, making it more expensive to set up factories. “When black money flows into land, factory land becomes expensive. Higher fixed costs mean fewer factories can compete with China or Vietnam,” he said.

He argued that manufacturing is driven by production costs rather than wage levels. “Manufacturing does not compete on wages. It competes on cost per unit,” Dadlani wrote.

Listing what he described as the hidden costs of corruption, he said expensive land, delayed approvals, higher interest rates and rising rents all add to the cost of making goods. “Every product leaves the factory carrying the cost of corruption. Then we wonder why imports are cheaper,” he added.

Dadlani’s post was in response to a detailed thread by Vembu, who said corruption has economic as well as demographic consequences. Vembu said the cost of land in India’s urban areas is far higher than what GDP per capita would dictate. “The ratio of land value to per capita GDP is probably higher in India than anywhere else. As an example, land prices in Chennai or Bengaluru rival that of cities like New York which has a vastly higher per capita GDP,” he wrote.

Explaining why costs are rising across sectors, Vembu said political corruption money is often parked in real estate, pushing up land prices across the economy. “First, vast sums of political corruption money is parked in real estate. This raises real estate prices and high real estate prices affect everything downstream,” he said.

He added that corruption in building approvals further increases construction costs. “Second, corruption in building approvals and the like, the famous DTCP, raises construction costs, on top of already higher real estate costs,” Vembu wrote.

Vembu also argued that corruption linked to regulatory compliance raises the cost of running private schools and hospitals. “Third, corruption in private school regulatory compliance enforcement raises school fees. Fourth, corruption in private hospital regulatory compliance enforcement raises health care costs,” he said.

According to Vembu, retailers also end up paying higher rents because of expensive land and construction, making household goods costlier. “Fifth, household goods need sales outlets and those pay high rents due to high real estate prices and construction costs,” he added.

Vembu said the combined impact is visible in the rising cost of housing, education, healthcare and everyday goods. “So housing, education, healthcare and household goods — all of these now cost higher,” he wrote. He argued that these rising costs are changing people’s life choices. “As a direct consequence, the economic burden on the average person gets worse. Young people, facing all these costs, postpone marriage, and postpone children or have fewer children,” Vembu said.

He added that the problem is particularly severe in highly urbanised states such as Tamil Nadu. “While this issue exists in many parts of India, Tamil Nadu, being the most urbanized of bigger states, is particularly hit hard,” he wrote.

Calling corruption an “existential threat” to society, Vembu said rising living costs caused by corruption are one of the major reasons behind Tamil Nadu’s extremely low birth rate. “If you worry about the super-low birth rate in Tamil Nadu, way below replacement, understand that corruption raising our cost of living is one of the major causes, not the only cause, but a big one in our context,” he wrote.

Dadlani, in backing that argument, said corruption is raising the cost of homes and factories alike, while making it harder for Indian manufacturers to compete.