A highly promising Budget.................... !!

Budget 2018 had brought forth rather unusual pre-budget questions in the curious intellectual minds of the country. In the absence of a scenario of estimating policy fallouts largely from indirect tax levies, for the first time the focus shifted to direct tax levies, and a prospective, policy implication of corporate tax levies or income tax levies.  The whole debate about low GDP to investment ratio, ease of doing business, cost of doing business going up by 2-3 % versus infrastructure development, farm sector reforms, job creation with the help of increased government spending, poverty eradication, health and education, the rich becoming richer, and the poor remaining poor because of economic reform; was to be continued in the context of budgetary announcements. Winter slowly walking out of the door, and the Sun shining more brightly over the country, made for an adequate budget season, and a perfect setting for a Nehru Jacket Clad Finance Minister’s budget speech.

It was going to be a reformist, or a populist budget was a no brainer at all. Thus, for those of us who claim to be economists, the more interesting part was going to be allocations. We had full confidence that the Finance Minister would be able to do the necessary jugulary of numbers and will balance tax receipts with new populist allocations, while at the same time keep a check on fiscal deficit. Which sectors will receive allocations in the wake of an imminent populist budget, was what we were looking for in the budget speech.

This was a budget focused on farm sector and healthcare, as it turned out to be.

The budget allocations to health sector, in the form of National Health Protection Scheme, providing a health insurance cover of ₹5 lakh per family and termed as ‘biggest scheme of health assurance’, in the world, to address the current healthcare needs, and establishment of tertiary care hospitals and medical colleges, to fulfill the future healthcare needs; is indeed more than welcome. Out of pocket expenditures on healthcare will be financed by National Health Protection Scheme. It does bring in the ease of living. The implementation plan of this scheme would be soon out partly, in the budget fine-print, and later in the announcements made by the ministry. However, it looks like the scheme at present is likely to benefit private sector more than the government sector in health care. Unoccupied beds in private hospitals and nursing homes will come under the affordability of larger population, as government hospitals are already crowded and overburdened as a result of this scheme. The government is then, putting an increased expenditure on healthcare amounting to 50000 crores and transferring a large part of it to the private sector in the short run. An increased 1% increase in the health cess is what the common taxpayer must pay for that. The devil is in the detail. Empanelment of private hospitals under this scheme, and the coverage would be a critical implementation question. What caught my eye was a Fortis Hospital stock going down on the stock market, while Apollo Hospitals going significantly up.

Nevertheless, the out of pocket expenditure (OoPE) on health by households is as high as 62% which adversely affects the poorer sections and widens inequalities. As per National Health Accounts 2014-15, the government healthcare providers accounted for around 23% of the Current Health Expenditure while the share of private hospitals and clinics was higher at 31%. Expenditure on diagnostics (including medicines and diagnostic tests) by households was about 10% of the total OoPE during 2013-14.

Earlier, in the economic survey, there was a mention of National Nutrition Mission, with a target to reduce malnutrition and low birth weight by 2% each year. The government has budgeted ₹9,046 crore for the mission for a period of three years. All the states and districts will be covered in a phased manner; to begin with the worst affected 315 districts will be targeted this financial year. The core idea behind the mission is to converge all the existing programs on a single platform. Farm sector reforms will increase disposable income in the rural areas and is likely to bring up consumption. Rise in minimum support price for Kharif crop by 1.5 times, should bring up farm incomes. However, a robust implementation plan which is to be prepared by NITI Aayog, would be very critical to realize effects.

We have been arguing for long about increasing allocations to preventive care, and step towards allocations made to nutrition is welcome. If we look at the nutritional deficiencies of people in the country, we find that about 80% of the population in India is low on vitamin and protein intake. Indian diet is largely carbohydrate rich diet. Advent of commodity exchanges, and futures trading in farm produce on these exchanges, increased the price of pulses and cereals. Much of agricultural sector inflation is artificial in nature, because of artificial ways of creating demand. In that kind of a system the middle-men benefit rather than the farmer. In a nutrition starved country, the demand-supply mechanism of price determination in the agriculture sector should not let the prices rise. We just hope that NITI Aayog considers this simple logic before determining the implementation plan for the MSP.

Nutritionists around the world have argued that the food grown locally is the best food to be consumed for health. Before transportation and cold storage facilities, we largely consumed local food. The diversity in food pattern and cuisines in the various regions of the country is a testimonial to that. Modern science contributed to capturing hunger, by helping in creating efficient food supply chains, to make food available in places where there was less production or drought. But it also killed local staple food patterns and gave place to something like ‘junk food’ in our diet. Taking on Nutrition on a mission mode, should also consider doing extensive research on developing staple diet based on local produce, so that food options like Ragi, Millets, Groundnut, sesame, Jawar, Bajra and locally grown fruits and vegetables remain a part of our diet and remain cost effective, because a lesser amount of money is to be spent on supply chain.

A good amount of allocation has been made to infrastructure development for the farm sector. Nutritional diversity, stress on locally grown food should be considered as major factors to make prudent allocations to infrastructure and that would be good for health too. NITI Aayog will arrange for an institutional mechanism for practices of price and demand forecasting. Can NITI Aayog develop such an infrastructure that the prices of pulses and basic cereals reduce in-spite of an increase in MSP? Would that be a difficult balancing act to make? The delivery of the promises made in the budget would be challenging.

Proposed increased expenditures on hospitals and wellness centers in primary and tertiary will definitely create jobs in the healthcare sector, but largely on the clinical side. Public Health Management cadre jobs will perhaps produce far bigger impact on health, in the long run. A zero sum game between preventive and curative expenditure is a fact that has been proven by research. A long term sustainable health system in the country should be based on preventive health, was articulated very well in the Health Policy 2017. The road map to increased expenditures in healthcare should take care of that. Some funds could be allocated to know how many doctors and nurses currently working in the hospitals have a knowledge of public health?

A little bit on other parts of the budget – marginal decrease in corporate tax, offset by an increase in capital gains tax – if it inspires corporates to make investments in productive assets rather than financial assets, will do something to create jobs. Increased investment by government in infrastructure, roads, railways, and housing should not be criticized because if jobs are created by increased government expenditure, so be it. An increase in disposable incomes in the rural areas will give a boost to consumption spending and will resultantly increase the rate of growth, is a good theoretical premise, how it unfolds practically is yet to be seen.

Overall, I wish to congratulate the FM for not going very far from the reforms, even while working with-in the compulsions of having to prepare a populist budget this time. The key to this budget would be implementation efficiency. Promises, should help in infusing confidence, we do not know. However, we let the FM score a few marks on the intention though.

The stock market till now, looks as confusing as most of the people in the country would be.