Improving Healthcare Accessibility and Affordability for India’s Poor

Introduction

India has made significant strides in reducing poverty in recent years. However, measuring well-being requires a broader perspective than just poverty rates. A crucial aspect of well-being is a household’s resilience to adverse shocks, such as health emergencies. This study focuses on the impact of medical expenditure on household vulnerability, particularly among the bottom 50% of the population.

The Burden of Medical Expenditure

Health shocks pose a dual challenge: physical suffering and a substantial financial burden. Diverting resources towards medical care can compromise other essential expenses, such as food and durable goods, potentially pushing households into vulnerability. This study aims to quantify the impact of medical spending on household consumption status.

Increasing Access to Healthcare

Between 2011-12 and 2022-23, the proportion of households in the bottom 50% experiencing hospitalization significantly increased, both in rural and urban areas. This indicates improved healthcare accessibility for the poorest segments of the population.

Affordability of Healthcare

While overall health expenditure as a percentage of monthly household income increased slightly for households without hospitalization, a notable decline occurred for those with hospitalization expenses. This trend is particularly pronounced in rural areas, suggesting that healthcare costs associated with hospitalization are becoming more manageable for the poor.

Mitigating the Impact of Hospitalization

In 2011-12, 40% of households in the bottom 50% who experienced hospitalization faced a decline in consumption status. However, this figure reduced to 33% by 2022-23, despite a higher incidence of hospitalization. This indicates a decreasing likelihood of households being pushed into financial hardship due to medical expenses.

Conclusion

The findings suggest that India has made substantial progress in improving healthcare accessibility and affordability for its poorest citizens. The decline in the proportion of households experiencing consumption shocks due to hospitalization is encouraging. These trends are likely linked to the implementation of the Ayushman Bharat Yojana, which has expanded health insurance coverage. Further research can delve deeper into the specific impact of this scheme and its role in reducing financial burdens associated with healthcare.

 

 

 

Reading the Inflation Tea Leaves

Context

In August 2024, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) decided to keep the policy rate and stance unchanged. However, the RBI expressed concerns about rising food inflation, which complicates its future policy decisions.

Introduction

The RBI is currently grappling with the challenge of high food inflation, which significantly impacts household inflationary expectations and, ultimately, actual inflation. Although core inflation (excluding food and fuel) remains subdued, the uncertainty surrounding food prices makes RBI’s future policy complex.

Current Status of Inflation

• CPI Inflation Trends: The Consumer Price Index (CPI) inflation has been hovering around 5% for the past six months, which is higher than the RBI’s target of 4%. This elevated level of inflation is largely driven by spikes in food prices.
• Food Inflation: Food items constitute 46% of the CPI basket, making them a major contributor to overall inflation. Key food categories such as cereals (8.8%), pulses (16%), and vegetables (29%) have kept food inflation elevated at around 8%.
• Core Inflation: Despite high food inflation, core inflation has remained below the RBI’s target of 4% for the last six months, indicating that the inflationary pressures are not broad-based.

Economic Survey Suggestion

• The latest Economic Survey suggested that the MPC should consider targeting CPI inflation excluding food prices due to the volatile nature of food inflation and its influence on overall CPI.

Challenges in Inflation Targeting

• High Share of Food in CPI Basket: India’s CPI basket has a higher weightage for food and beverages compared to developed countries (15% in the US, 20% in the EU) and emerging economies like Brazil, China, and South Africa (20-25%).
• Volatility of Food Prices: Food prices in India are highly volatile, influenced by weather conditions and supply-side factors, making it difficult for monetary policy to effectively control food inflation.
• Limitations of Monetary Policy: Monetary policy primarily addresses demand-side factors and is less effective in controlling supply-driven inflation, especially in the food sector.

What Needs to Be Done?

• Holistic Approach to CPI Inflation Targeting: The RBI needs to adopt a comprehensive approach, considering both supply-induced and demand-side inflation. It’s crucial to assess the nature of supply-driven inflation to determine whether it’s transitory or persistent.
• Focus on Transitory Components: The RBI should critically assess components of food inflation, such as vegetable prices, which could be temporary. CPI inflation excluding vegetable prices is currently around 3.7%, below the RBI’s target for the past five months.

Other Dimensions and Concerns

• Economic Indicators: High-frequency indicators like the Index of Industrial Production (IIP), auto sales, GST collections, and the Purchasing Managers’ Index (PMI) for manufacturing and services remain healthy.
• Consumption Demand and Private Investment: While rural demand shows signs of improvement, overall consumption demand and private investment recovery remain relatively muted. A healthy monsoon and moderation in food inflation could aid consumption recovery.
• Capacity Utilization: As capacity utilization rises, private investment is likely to pick up, albeit at a moderate pace.

Global Factors

• Geopolitical and Economic Concerns: Increased geopolitical turmoil and lingering growth concerns affect the global economy. There is monetary policy divergence globally, with some central banks cutting rates while others are hiking.
• US Federal Reserve’s Expected Rate Cuts: The US Federal Reserve is expected to start cutting rates from September 2024.
• India’s External Sector: The Indian economy is relatively well-positioned, with expectations of a comfortable current account deficit and healthy capital inflows in FY25. High forex reserves of $675 billion provide significant comfort, but caution is warranted given global uncertainties.

Credit-Deposit Gap

• RBI’s Concern: The RBI has highlighted the issue of bank deposit growth trailing credit growth, posing a liquidity risk for the banking sector.
• Credit-Deposit Ratio: With bank credit growing at 14% (excluding merger impacts) and deposit growth at 11%, the credit-deposit ratio has risen to 77.4% in July 2024. This is partly due to household savings being diverted to other asset classes like equity, which offer higher returns.

Going Forward

• RBI’s Focus on Inflation Trends: The RBI will closely monitor trends in inflation, particularly food inflation, which will significantly influence its future policy decisions.
• Potential Rate Cut: If domestic core inflation remains muted and food inflation shows signs of moderation, the RBI could consider a shallow rate cut towards the end of the calendar year 2024.

This structured analysis provides a comprehensive overview of the RBI’s current stance on inflation, the challenges it faces, and the potential future directions of its monetary policy.