ECONOMIC SURVEY PRIMER

A FEW NUGGETS FROM THE SURVEY — DHARMA OF SAVING A LIFE TO CUTTING OUT-OF-POCKET EXPENDITURE ON HEALTH CARE

ECHOES FROM THE MAHABHARATA

■ lndia’s response to the pandemic stemmed from the principle advocated in the Mahabharata, which says: “Saving a life that is in jeopardy is the origin of dharma”

■ The response drew on epidemiological and economic research, especially those pertaining to the Spanish Flu, which highlighted that an early, intense lockdown provided a win-win strategy to save lives, and preserve livelihoods through economic recovery in the medium- to long-term

■ India recognised that while GDP growth will recover from the temporary shock caused by the pandemic, human lives that are lost cannot be brought back

■ Stringent lockdown at the very onset of the pandemic enabled flattening of the pandemic curve and provided necessary time to ramp up the health and testing infrastructure

A NEW INDEX IS BORN

■ The survey examines the progress made in providing access to “the bare necessities” by constructing a Bare Necessities Index (BNI) at the rural, urban and all-india level

■ The BNI summarises 26 indicators on five dimensions, namely, water, sanitation, housing, microenvironment, and other facilities

■ The index has been created for all states for 2012 and 2018 using data from two NSO surveys on drinking water, sanitation, hygiene and housing condition in India

■ Access to bare necessities is the highest in states such as Kerala, Punjab, Haryana, and Gujarat while it’s the lowest in Odisha, Jharkhand, West Bengal, and Tripura

MEDICINE, NOT DIET

■ The survey compares regulatory forbearance provided during the global financial crisis and Covid-19 crisis

■ Forbearance provided post global financial crisis continued long after the economic recovery, resulting in unintended and detrimental consequences for banks, firms, and the economy

■ Forbearance represents emergency medicine that should be discontinued at the first opportunity when the economy starts recovering, not a staple diet that gets continued for years

■ Given the problem of asymmetric information between the regulator and the banks, which gets accentuated during the forbearance regime, an Asset Quality Review exercise must be conducted immediately after the forbearance is withdrawn

CENTRE STAGE AT LAST

■ The survey suggests increasing public healthcare spending from 1% to 2.5-3% of GDP

■ This can decrease the out-of-pocket expenditure from 65% to 35% of overall health care spending

■ Creation of a health care sector regulator to curb market failures stemming from information asymmetry

■ Mitigation of information asymmetry will help lower insurance premiums, enable the offering of better products, and increase insurance penetration

WHEN GROWTH & INEQUALITY CONVERGE

■ Unlike advanced economies, economic growth and inequality converge in terms of their effects on socio-economic indicators in India

■ Economic growth has a far greater impact on poverty alleviation than inequality

■ India must continue to focus on economic growth to lift the poor out of poverty by expanding the overall pie

MANAGING DEBT SUSTAINABILITY

■ Interest rate on debt paid by the Indian government has been less than the country’s growth rate by norm, not by exception

■ A fiscal policy that provides an impetus to growth will lead to lower, not higher, debt-to-gdp ratios

■ Simulations undertaken till 2030 highlight that given India’s growth potential, debt sustainability is unlikely to be a problem even in the worst scenarios