a-different-economic-approach-to-tackle-coronavirus-crisis

Context: The 21-day lockdown in India will reduce the gross value added (GVA) during this period to near zero. At the same time, the suffering of the stranded migrant labourers has set off a debate on public health vs. economic health.

Data about India’s health expenditure:

  • The total per capita government spending on healthcare has nearly doubled from ₹1,008 per person in FY15 to ₹1,944 in FY20, but is still low. 
  • The total expenditure by the Centre and states for FY20 was ₹2.6 trillion, or 1.29% of GDP, including establishment expenditure comprising salaries, gross budgetary support to various institutions and hospitals and transfers to states under centrally sponsored schemes such as Ayushman Bharat. 
  • Of the total public expenditure, the Centre’s share is 25%. 
  • Over the last five years, the total public expenditure on health has risen at 15?GR, much of this due to pay hikes.

Significance of the health sector in the economy: IMF has said in its annual Article IV reports that India can boost its human capital’s productivity by investing in education and healthcare. 

  • In 2018, it identified poor public health as the 12th most important hurdle for ease of doing business, ahead of crime, tax regulations and policy instability. 
  • Health and working conditions are a key recommendation in its suggestions for labour market reforms. 
  • The health sector creates both high- and low-skill jobs and can be used for pump-priming (stimulation of economic activity by investment)the service and manufacturing sectors.

Concerns with the government policy:

  • India has traditionally spent less on health, 90% of government expenditure being on the revenue side. India’s total healthcare spending (out-of-pocket and public), at 3.6% of GDP, as per OECD, is way lower than that of other countries. In FY20, the per capita capital expenditure was less than ₹200 per person, with 12 states spending under 1% of GSDP on healthcare.
    • India spends the least among BRICS countries: Brazil spends the most (9.2%), followed by South Africa (8.1%), Russia (5.3%), China (5%). 
    • With public healthcare infrastructure stretched, out-of-pocket expenditure in urban centres is high in India. 
    • The Centre spends less as public health and sanitation are inthe State list.
  • Crisis in the unorganised sector: More than half the GVA is contributed by the unorganised sector. The economy cannot remain shut indefinitely.
  • Non transmission of loan moratoriums and cash transfers : These measures can fend off bankruptcy and defaults for a few months. But liquidity and cash released by monetary and fiscal policies cannot get transmitted to the real sector during an economic shutdown. Because the money will remain unutilised if there is no production in the economy.
  • Price controls discouraging the private sector: Just about everything from masks to kits has been placed under price controls. This has removed the incentive for private labs to ramp up capacities. 

Way forward: Therefore, the policy objective must be to find ways of ensuring that the lockdown ends early without compromising on public health as well as doing less harm to Economic health.

  • Healthcare as the Engine of Economy
    • Funding health infrastructure: During a public health crisis, all resources must be used to ramp up healthcare capacities.
      • There will be jobs, including for low-skilled construction labourers. 
      • If planned and executed smartly, the severe health infrastructure deficit will get addressed.
    • Substantial ramping up of manufacturing capacities for medical grade masks, gloves, gowns, ventilators, testing labs, etc. 
      • India can raise its supply—8.5 hospital beds and 8 physicians per 10,000 people—to the standards of Japan and South Korea: over 100 beds per 10,000 people. For this, a specially designed fiscal stimulus can be funnelled into public health and policy bottlenecks removed so that the sector becomes the engine of GDP growth. 
      • Subsidized loans, earmarked land, single-window approvals, tax holidays, etc. can be used for making medical devices and drugs and setting up hospitals.
    • Encouraging the private sector: The government should fully subsidise testing. 
      • At zero MRP, more people with symptoms will come forward to get tested. 
      • The number of suppliers will increase. Costs will reduce. 
      • Private enterprise and technological innovations will come up with cheaper tests that produce results quicker.
  • Aggressive testing and isolation: People must be tested in large numbers. Those who test positive must be isolated. This will make it unnecessary for the rest of the population to stay home and it will allow the economy to restart. 
    • After ending the lockdown too, testing of randomly selected people must go on in large numbers, so that those found infected can be isolated.
  • Eliminating the fears associated with isolation:  Such fears can be reduced only if isolation facilities are good. 
    • Hotels, restaurants and caterers have come forward to repurpose their businesses temporarily for hosting health professionals closer to hospitals. 
    • The government should fully subsidise these costs.

Image Source: Economic Times