Weekly Update: Healthcare & Growth Are Two Things Modi Must Focus On

The big bang statement that India’s budget could have made wasn’t made. I am talking about healthcare. India spends under 1.8% of its GDP on healthcare, an amount that is far lower than what it should be ideally. The inadequacy of India’s healthcare infrastructure could not have been demonstrated better than it was during the waves of the Coronavirus pandemic that swept across the country. Millions of people suffered as hospital beds and oxygen tanks were in short supply. Much of the havoc that got created and was reported about in the media centred around India’s larger cities but the fact is that the situation was far worse in rural and semi-urban India.

The latest budget could have addressed the healthcare crisis with more focus. For example, moves to educate, train and deploy more medical and paramedical service providers, particularly in rural India. As well as measures to ensure that there is more investment in expanding the number of beds that are available for patients. According to World Bank data, for every 1000 people there is just 0.5 hospital bed available in India and that compares rather badly to even other developing countries. 

Some analysts have commended the budget for its growth-orientation. Primarily this centres on the indication of the government’s willingness to trade off higher inflation rates (at least in the short term) with higher investments. A policy that accommodates higher inflation rates for future growth potential can be non-populist and in a year that will be marked by several important state elections that can be a risk for a regime (the Bharatiya Janata Party-led ruling alliance) that has an avowed objective to rule in every state. But the government appears to have taken that risk. Now, it is to be seen whether investment and, therefore, growth is spurred.

Economic growth has become an area of serious concern in India. A statistical analysis shows that between 2011 and 2020, India’s growth slowed down while inflation soared. Prime Minister Narendra Modi had promised that by 2025, India’s GDP would reach $5 trillion. That is most unlikely to happen. Pre-Covid estimates showed that it could be far lower, say, at $2.5-2.6 trillion.

Independent pre-Covid estimates for 2025 had touched $2.6 trillion at best. The pandemic has shaved off another $200-300bn. Post-Covid, it could be lower by another $200-300 billion.

Covid, however, has not been the only dampener for the Indian economy. Hasty policy decisions such as the rush to roll out the GST tax regime and sudden decision to demonetise the rupee hit the economy hard. India’s GDP growth was at 7-8% when the ruling regime came to power in 2014. By the fourth quarter of 2019-20, it was down to 3.1%. 

The situation is far worse on the employment side. Given the Indian population’s relatively young demographics, India needs 20 million jobs to be created annually. Under the ruling regime, the number has been much lower. In 2017-18, according to official estimates, unemployment was at a nearly 50-year low: 6.1%. Since then, a Centre for Monitoring the Indian Economy (CMIE) estimate suggests that it might have doubled. Also, according to Pew Research, an estimated 25 million people have lost their jobs since early 2021 and nearly 80 million people might have gone back into poverty. 

India likes to compare itself with China, where the economy grew exponentially primarily because of a huge thrust on manufacturing and marketing. When the Modi government came to power, it unveiled the ‘Make in India’ policy to emulate the Chinese experience. By simplifying procedures and introducing manufacturing hubs where tax and other incentives were to boost manufacturing, the regime hoped that manufacturing would comprise 25% of the GDP. But nearly seven years later, manufacturing’s share remains at a paltry 15%. And the number of people employed in the manufacturing sector is down by half.

Consequently, exports have stagnated at $300 billion for the past 10 years with India losing market share to other developing countries, including tiny Bangladesh whose export growth, driven by the garments industry, has been significantly impressive.

Not all is bad, though. In basic infrastructure there have been strides. Under the Modi regime, India has been building 36 km of highways and roads every day. Under the previous government, it was barely 8-10 km. Installed capacity of non-conventional energy, mainly solar and wind, has doubled in the past five years and India will likely achieve the 2023 target of175 gigawatts.

More Indians have joined the formal sector for employment, although still too many (half of the nation’s workforce) are employed in agriculture, where productivity is low and where very little growth has taken place over the past 10 years.

There are many complex problems that policy makers attempting to boost India’s economy face. But if they were to focus on two of the most important ones they ought to be these: First, healthcare because India spends far too little on that sector. And second, boosting growth by encouraging investments. India’s latest budget attempts to do the latter. But will that be enough?

On a recent Sunday morning, the economist Kaushik Basu, a professor at Cornell University, tweeted tellingly:

“2016-17: 8.2%

2017-18: 7.2%

2018-19: 6.1%

2019-20: 4.2%

2020-21: -7.3%

These are India’s growth rates. 5 years, with each year’s growth less than previous has never happened after 1947. Sad. Let us not live in data denial, reducing everything to politics.”

High GDP Growth May Mean Nothing For Most Indians

India’s favourite bugbear is China. So when India fares a little better on growth statistics or other metrics than China does, the jubilation is exuberant. Sometimes it is also misplaced. Such as when some Indian politicians exult over things that they certainly should not. A few years back when it was declared that by 2022 India’s population (now more than 1.32 billion) could surpass China’s (now 1.37 billion), quite a few totally uncalled-for cheers were heard as if having the world’s largest cohort of people was a good thing for a nation that is already heaving under the burden of a massive population.

At other times, the jubilation is over-exuberant. The most recent rousing cheers were heard when the International Monetary Fund (IMF) estimated that India’s Gross Domestic Product (GDP) would grow this year at 7.3% and next year at 7.4%, making India the fastest growing big economy in the world once again. The fact that IMF’s estimates for China for this year is 6.6% and for next year, a lower 6.2% quite likely cranked up the decibel levels for those cheers among political leaders. But percentages matter only in the context of the base levels that they relate to. China’s GDP in 2016 was USD 11.2 trillion; and India’s only USD 2.26 trillion. Do the math to see which country adds what to its GDP if those growth estimates are correct. The answer is a no-brainer; and it is about time India stopped comparing itself to an economic superpower.

Instead, it should look at more compelling issues. Such as whether GDP growth rate should be the appropriate measure of the well being of majority of Indians. The IMF’s growth survey lauds India’s government for implementing the contentious Goods and Services Tax, which in theory is supposed to have removed multiple layers of taxation and replaced it with a national tax. And it praises it for a new Insolvency and Bankruptcy Code, which ostensibly would make it easier to do business in India and enable quicker recovery of loans. Both these are still ‘works in progress’ and their efficacy would have to be tested by time. But those structural reforms (welcome, as they may be) apart, it is time to assess whether a higher GDP growth rate alone is enough for improving the economic well-being of Indians, more than 300 million of whom live on less than USD 1.25 a day.

GDP is an aggregate that when simply divided by the number of Indians to arrive at a per capita figure does not take into account the inequality and wide disparities in socio-economic levels among the population. Wide inequalities usually mean that when it comes to GDP growth, the benefits accrue in a highly skewed manner. Only a very small minority at the upper reaches of the income pyramid end up receiving most of the increases. Sample this: according to the Barclays Hurun India Rich List for 2018, in one city, Delhi, just 163 super rich people are estimated to have cumulative wealth of Rs 6,78,400 crore. That list is a compilation of Indians with a net worth of Rs 1000 crore or more. For the record, besides Delhi’s 163 super rich, there are 233 in Mumbai and 69 in Bangalore.

Even as those statistics boggle the mind, let’s shift the focus to jobs and job creation and the Indian economy’s record on that. In the first two years after the Modi government took charge in 2014, a research report, which was backed by India’s central bank, Reserve Bank of India, found that employment in at least 27 sectors fell by 0.2% (in the first year) and 0.1% (in the second year). That means it wasn’t that jobs were not created but actually the number of jobs shrank. These were years when GDP actually grew at an impressive pace: in 2014-15, it grew at 7.4%, and in 2015-16 it grew at 8.2%.

Government officials, including Prime Minister Narendra Modi, often harp on about how jobs are actually being created and employment is on the rise and how official figures are unable to capture that because much of it is in the informal sector. They tout the rise in employee provident fund accounts as evidence but this has been variously contested as not being an authentic method of counting jobs. More recently, there have been media reports of moves to stymie the government’s own labour ministry’s exercise of compiling data on job creation, ostensibly because the findings could be embarrassing.

Several surveys, including one summed up by the RBI’s consumer confidence index, show that the majority of Indians are not elated with their current economic well being, nor of what they expect in the near future. The rupee’s value has slid perilously, and fuel prices have shot up. Add to that continuing distress on India’s farms and frustration among its jobless youth.

But more important, India’s rankings on several other measures and indices are a cause for concern. On the Human Development Index, a statistic composite index of  life expectancy, education and per capita income, India ranks 130 among 189 countries. On the World Bank’s Human Capital Index, which attempts to measure the human capital (stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labour so as to produce economic value) that a child born today can hope to achieve by the age of 18, India is at 115 out of 157 countries. On the World Hunger Index, India languishes at 103 among 119 countries; and on the inequality index, it is ranked at 147 our of 157 countries.

India’s official response to these measures has been to question the methodology and find flaws with the surveys and data that are used to compile them. But instead of splitting such hairs, it may be time for those in charge of policies and governance to address other issues—such as the runaway growth in population; the widening inequality in income; and other skewed socio-economic indicators. As for the IMF’s optimistic estimates for GDP growth, it would be best not to exult over them or gloat about how we’re growing faster than a superpower neighbour.

Sanjoy Narayan tweets @sanjoynarayan  ]]>

‘Rajan not noteban slowed growth’

reports, he said Rajan’s policies on non-performing assets (NPAs) led to a surge in bad loans and declining growth in the post-demonetisation period “and not the government’s decision to ban 500 and 1000 rupee notes”. “Under the previous governor (Raghuram) Rajan, they had instituted new mechanisms to identify stressed or non-performing assets and these continuously continued to grow up, which is why the banking sector stopped giving credit to the industry,” Kumar was quoted as saying.]]>