Restoring growth to boosting health infra: Charting India’s goals
NEWDELHI: On August 15, 2022, India will complete 75 years of Independence. Speaking from the Red Fort last year, Prime Minister Narendra Modi listed a set of targets he wanted to be achieved by then. “By the 75th year of Independence, farmers’ income should double, every poor [person] should get a pucca house, every family should get electricity connection and every village should have optical fibre network and broadband connectivity besides the facility of long distance education”, Modi said.
The unforeseen events in the run-up to completion of 73 years of independence today give a good reason to revisit the goals we want to achieve by August 15, 2022.
The year 2020 has one of unprecedented disruption and challenges. The Indian economy, which was already in a deceleration phase, has entered contraction mode due to the Covid-19 pandemic. Given this scenario, India’s priority has to be revive growth. This is crucial to sustaining welfare schemes and expanding crucial infrastructure.
Our health infrastructure, at least in most places, has been found to be wanting in dealing with the pandemic’s public health challenge. This means we need to look at questions beyond affordability when it comes to health care.
India lost soldiers in a border clash with China at the Line of Actual Control after four decades. This has brought to fore the need for military preparedness to deal with all eventualities.
Successfully meeting each of these challenges will require a focused policy intervention, and ambitious, yet pragmatic targets.
REBUILDING GROWTH VIA INVESTMENT PUSH
The Indian economy will suffer a contraction in 2020-21. Most estimates suggest that the contraction will be at least 5% on an annual basis. The World Bank, in its Global Economic Prospects released in June, projected that the Indian economy would contract by 3.2% this fiscal. GDP growth is expected to reach 3.1% in the following fiscal, the Bank said. This means that India’s income levels will not even return to 2019-20 levels by 2021-22. The government must do all it can to prevent this from happening. It also needs to make sure that the stimulus to push growth does not sacrifice long term interests of the economy for short term gains. The most important metric on this count will be the share of capital expenditure in total expenditure. This number was 14% in 2015-16 and 2016-17. It started coming down with deceleration in growth rates. The Budget Estimates for 2020-21 put the share of capital expenditure at 13.5%. This number is unlikely to be realised, as a revenue shortfall will make it difficult for the government to even fulfil its basic commitments such as salaries, pensions and interest payments. Capital spending is likely to take a back seat in this situation. It will be a huge sentiment boost for the economy, however, if the government announced a gradual ramping up of capital expenditure to take it share in total spending well beyond 2015-16 levels by 2021-22. (See Chart 1)
EXPANDING HEALTH WITH A CENTRAL SPENDING BOOST
The Covid-19 pandemic has raised questions about India’s health infrastructure. This merits a recalibration of our health policy focus from affordability – the Modi government announced a health insurance scheme for 100 million poor families in 2018 – to expansion. India has the dubious distinction of being a laggard in government spending on health among its peer group. State governments spend much more on health than the Centre. A Mint article by Surbhi Bhatia and Sneha Alexander shows that the Centre’s spending on health in 2019-20 was just 0.32% of GDP, while the states spent 0.9%. Can the Centre give a massive boost to health spending and pledge to spend more than the states by 2021-22? (See Chart 2)
RAISING CAPITAL SPENDING IN DEFENCE SECTOR
The arrival of Rafale fighter jets from France was greeted with a lot of enthusiasm last month. In today’s age, ensuring access to cutting edge technology and new equipment is absolutely necessary to keep our armed forces prepared to deal with all eventualities. Budget figures show that a lot needs to be done here. Defence spending as a percentage of GDP has remained stagnant at slightly above 2% over the last few years. Less than a fourth of India’s defence spending is allocated towards capital outlays. We now spend more on defence pensions than capital outlay on defence services. While the importance of decent pensions to retired defence personnel cannot be overemphasized, the fact that we spend more on them than boosting future capabilities of our armed forces, underlines the need to invest more in the future.
To be sure, things have changed in the recent past. Additional defence procurements have been ordered after the clash with Chinese soldiers. The government has also announced an ambitious import substitution programme. Can the government pledge to spend significantly more on capital outlay in defence than on pensions by the time India completes 75 years of independence? (See Chart 3)