ECONOMY MATTERS 2

1

FOREWORD

JUNE-JULY 2016

Boosted by buoyant government stimulus, China’s economy grew by 6.7 per cent in the second quarter of the current year, unchanged from the previous quarter. Yet downward pressure on the economy remains significant. Fixed-asset investment grew at its slowest pace since 2000 in

the first six months while corporate debt has ballooned to monstrous levels. Government has swung into action to control excessive credit off-take and lent support when the private sector’s backing is slowly waning in the face of bleak demand outlook. Post Brexit, when the uncertainties in the global landscape have increased, a resilient Chinese economy is expected to offer much needed respite to the investors. Meanwhile, in its first monetary policy review meeting post Brexit, Bank of England (BoE) stayed pat on the interest rates, hinting that it would wait till August 2016 before biting the bullet and reducing rates. However, BoE did highlight that Britain’s financial system proved to be resilient in weathering the initial impact arising from Brexit.

On the domestic front, monsoon so far has progressed well both on spatial and temporal front. Con-comitant with satisfactory progress in monsoons, the progress of sowing of the major kharif crops so far has also been good. Bountiful monsoons augur well for the food inflation which has skyrocketed in the recent months, lending upward momentum to overall inflation. Industrial production growth has remained lacklustre, with the crucial capital goods sector posting contraction for the past seven months. In contrast, external sector provided some cheer with merchandise exports posting its first growth after contracting for 18 months. Adding to the optimism was the sharp increase in CII Business Confidence Index (CII-BCI) for the first quarter of FY17 on the back of improvement in business expec-tations. The CII-BCI increased to the level of 57.2, up from the level of 54.1 recorded in the previous quarter. The index has been steadily climbing since the last three quarters.

In this issue, we also take a look at health indicators within the country, given that there is perhaps nothing more important than the health and well-being of its citizens delivered through an effective, comprehensive health system. However, assessments about India’s healthcare—stretching from ac-cess, spending, and capacity are often bleak. Hence, it is imperative that systemic reform in healthcare systems, wherein both the centre and states work in unison, gathers momentum. Augmenting public expenditure on health especially by the centre as also improving the efficiency of healthcare delivery at the state level is essential. It must be recognized that creating a healthy workforce is imperative for a strong economy and society. We must seize the opportunity of creating a healthy India at all costs so that people’s living standards can be raised to acceptable levels in the near-term.

Chandrajit BanerjeeDirector General, CII

3 JUNE-JULY 2016

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EXECUTIVE SUMMARY

JUNE-JULY 2016

Global Trends

China’s economy grew by 6.7 per cent in the second quarter of 2016 (2Q16) as per preliminary estimates, un-changed from the previous quarter, as a buoyant prop-erty market and government stimulus boosted output. But signs of steadier headline growth in China may con-ceal an economy that is growing increasingly lopsided, as growth becomes ever more reliant on government spending and debt. As per IMF, Brexit fallout is likely to be muted for China, the world’s second-largest econo-my, because of its limited trade and financial links with the U.K. In its monetary policy meeting held on 14th July, 2016, the Bank of England (BoE) kept its key policy rate and Asset Purchase Facility (APF) unchanged. Commit-tee members made initial assessments of the impact of the vote to leave the European Union on demand, sup-ply and the exchange rate. In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the Committee expected monetary policy to be loosened in August 2016.

Domestic Trends

The importance of good monsoons this year cannot be overemphasised particularly after two consecutive years of deficient rainfall. So far, till mid of July 2016, both temporal and spatial distribution of rainfall has been satisfactory. For the country as a whole, cumula-tive rainfall during this year’s monsoon, up to 13 July, has been 4 per cent above LPA. Meanwhile, industrial output moved to the positive territory in May 2016, posting a growth of 1.2 per cent as compared to a con-traction of 1.3 per cent in April 2016. Despite the mild ex-pansion of industrial production, the underlying anemic trend is still bothersome as it indicates that industry is underperforming. Inflationary pressures have acceler-ated in recent months with wholesale Price Index (WPI) based inflation rising to its 20-month high of 1.6 per cent in June 2016 as compared to 0.8 per cent posted in the previous month. The main driver behind a surge in WPI inflation was the sharp rise in total food inflation. On the external front, merchandise exports grew by 1.8 per cent to US$22.8 billion in June 2016 after 18 months of contraction. The pickup in export growth is heartening as it is a harbinger of improvement in external demand scenario which is likely to cushion overall economic growth in the near to medium term as well.

Policy Focus

The important policy announcements by the Govern-ment in the months of June-July 2016 are covered in this month’s Policy Focus. The Union Cabinet under the Chairmanship of Prime Minister Shri Narendra Modi has given approval to a special package for employment generation and promotion of exports in the textile and apparel sector. The steps will lead to a cumulative in-crease of US$2.6 billion in exports and an investment of US$7.0 billion over next 3 years. The second policy document released was the National Mineral Explora-tion Policy 2016 which primarily aims at accelerating ex-ploration activity in the country through enhanced par-ticipation of the private sector. In another significant development, the Union Cabinet approved the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) with an outlay of Rs.12000 crore to impart skilling to one crore people over the next four years (2016-2020).

Focus of the Month: Transforming Healthcare in IndiaThe advantages of giving weightage to healthcare are manifold. For one, a healthy society is crucial for improv-ing the quality of life and enhancing the productivity of the workforce in the country. The ability to leverage our distinct demographic advantage and capitalize on the large reservoir of knowledge capital would depend es-sentially upon the priority accorded to healthcare as no population can be productive without the security pro-vided by health. However, preliminary observation indi-cates that healthcare has yet to receive the attention and primacy of place which it deserves. As per latest data available for 2014, the country spent 4.7 per cent of its GDP on health of which public expenditure on health is 1.4 per cent of GDP. This means that healthcare activity is primarily in the domain of the private sector (3.3 per cent). This is also borne out from the fact that only around 30 per cent of expenditure on healthcare is undertaken by the government. The remaining 70 per cent of healthcare expenditure is borne by the private sector. Against this backdrop, this month’s Focus of the Month would seek to discuss some key issues such as the current status, our outlays and outcome on health at the center and state levels, major policies of the gov-ernment and the suggestions to rev up the healthcare sector.

ECONOMY MATTERS 6

GLOBAL TRENDS

China’s Economic Growth Remains Steady in 2Q16

China’s economy grew by 6.7 per cent in the sec-ond quarter of 2016 (2Q16) as per preliminary es-timates, unchanged from the previous quarter,

as a buoyant property market and government stimulus boosted output. But signs of steadier headline growth in China may conceal an economy that is growing in-creasingly lopsided, as growth becomes ever more reli-ant on government spending and debt. While fears of a hard landing have eased, investors worry that a further slowdown in China and any major fallout from Brexit would leave the world more vulnerable to the risk of global recession.

Rebalancing of growth towards consump-tion remains key challenge for China

China’s economy is in the midst of a major transition from a growth model based on construction and heavy industry to a system which would place greater reliance on consumption and services. In a sign of progress towards rebalancing, investment contributed only 2.5 percentage points to GDP growth in the first half, down from 2.9 points last year, while consumption rose from 4.2 points to 4.9 points during this period. Net exports declined by 0.7 points. Monthly data also showed good news for consumption. Retail sales grew 10.6 per cent in June 2016 from a year earlier, the fastest pace since December 2015.

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GLOBAL TRENDS

JUNE-JULY 2016

From the demand-side, private sector investment fell to a record low in the first half of 2016. Businesses retrenched workers in the face of sluggish economic outlook and weak exports. This slowdown has alarmed investors and policymakers alike, as the private sector accounts for over 60 per cent of China’s total invest-ment and 80 per cent of its jobs. An anemic private sec-tor makes it evident that the government may need to provide additional stimulus this year to hit its growth target of 6.5 to 7.0 per cent. The quarterly breakup of demand-side components is not available yet.

The sectoral distribution of growth from supply-side showed that services sector continued to remain the bulwark of economic growth, posting an impressive growth of 7.5 per cent in the 2Q16. The industrial sec-tor grew by 6.3 per cent, while agriculture registered a growth of 3.1 per cent in 2Q16. With this, the first-half 2016 growth of agriculture, industry and services sector stood at 3.1, 6.1 and 7.5 per cent respectively.

From the demand-side, private sector invest-ment continues to remain anemic

ECONOMY MATTERS 8

GLOBAL TRENDS

In its monetary policy meeting held on 14th July, 2016, the Bank of England (BoE) kept its key policy rate and Asset Purchase Facility (APF) unchanged. The mon-etary policy committee (MPC) voted by a majority of 8-1 to maintain the Bank Rate at 0.5 per cent, with one member voting for a cut in Bank Rate by 25 basis points. The Committee voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.

Committee members made initial assessments of the impact of the vote to leave the European Union on de-mand, supply and the exchange rate. In the absence of a further worsening in the trade-off between sup-porting growth and returning inflation to target on a sustainable basis, most members of the Committee ex-pected monetary policy to be loosened in August 2016. Moreover, the Central Bank highlighted that the ‘resil-ience’ of UK’s financial system and the flexibility of the regulatory framework have cushioned the initial impact of Brexit on the markets.

Mixed signals on the economic front in UK

The economic backdrop for BoE’s monetary policy meeting provided a mixed picture. While macro-eco-nomic data prints for the period since Brexit are not yet available, early signs point towards softness in eco-nomic activity. UK’s GDP grew at a tepid 0.4 per cent

on quarter-on-quarter basis in first quarter of 2016 as against the previous print of 0.7 per cent on quarter-on-quarter basis. Further, industrial production in May 2016 contracted sharply and consumer confidence index re-mained in the negative territory for the third-straight month in June 2016. Business optimism in the UK re-ceded further into the negative territory in the second quarter of 2016, coming in at (-) 5.0 levels as against (-) 4.0 previously.

CPI inflation remains within BoE’s target levels

Coming to inflation, being an inflation targeting central bank, BoE accords utmost importance to adherence of inflation within target range. To be sure, CPI inflation stood at 0.3 per cent in May 2016, thus remaining well below the central bank’s 2 per cent inflation target. Measures of core inflation have been stable at a little over 1 per cent. The reduction in headline inflation num-ber much below the target range is predominantly due to unusually large drags from energy and food prices, which are expected to attenuate over the next year. It is perceived that the sharp depreciation in the exchange rate post Brexit will, in the short-run, put upward pres-sure on inflation as the prices of internationally traded commodities increase in sterling terms, and as import-ers pass on increases in their costs to domestic prices.

Bank of England Keeps Policy Rates Unchanged

Monetary Fund (IMF) has warned China’s policymakers that its corporate debt has raised the risks of sparking a bigger crisis if they fail to tackle it.

Policymakers have said that the economy remains largely steady, but with private investment shrinking, the government has had to do more of the heavy lift-ing. As per the World Bank, the key policy challenges in China are to ensure a gradual slowdown and sectoral rebalancing and to reduce the financial vulnerabilities arising from high debt. The reallocation of resources associated with rebalancing creates risks of a sharper-than-expected slowdown in overall activity, which would threaten to spill over to global economies as well.

Staggering high corporate debt remains a key fault line of Chinese economy

In addition to the weak private sector, another prob-lem which has been plaguing the Chinese economy has been that of its ballooning debt levels, which rose to a record 237 per cent of GDP in the first quarter of 2016 on the back of massive lending designed to boost eco-nomic growth. Additionally, Chinese banks issued Rmb 1.3 trillion in new loans in June 2016, a sign that policy-makers continue to prioritise short-term support for growth over tackling China’s debt load. In view of the massive rise in corporate debt levels, the International

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GLOBAL TRENDS

JUNE-JULY 2016

IMF Cuts Global Growth Forecast on Brexit

BoE looks for easing policy rates in August 2016

Looking further forward, the MPC has made it clear in its May Inflation Report, and again in the minutes of its June meeting, that a vote to leave the European Union could have material implications on the outlook for out-put and inflation. The Committee judged that a range

In its recently published update on World Economic Outlook, the International Monetary Fund (IMF) cut its forecast for global economic growth this year and next as the unexpected U.K. vote to leave the European Un-ion created a wave of uncertainty amid already-fragile business and consumer confidence. The global econo-my is projected to expand 3.1 per cent this year and 3.4 per cent in 2017, according to the IMF’s latest estimates. These forecasts represent a 0.1 percentage point reduc-tion in global growth for both the years relative to the IMF’s April 2016 World Economic Outlook.

As per the IMF, the economies of U.K. and Europe are likely to be hit the hardest by fallout from the June 23 referendum, which prompted a change of government in UK. The U.K. economy will expand 1.7 per cent this year, the IMF said, 0.2 percentage point less than fore-cast in April. Next year, the nation’s growth will slow to 1.3 per cent, down 0.9 point from the April estimate and the biggest reduction among advanced economies. For the Euro Area, the fund raised its forecast by 0.1 per cent this year, to 1.6 per cent, and lowered it by 0.2 per cent for 2017, to 1.4 per cent.

In its update, the IMF stated that the economic outlook has worsened for advanced economies (GDP forecast down by 0.1 percentage point in 2016 and 0.2 percentage points in 2017) while it remained broadly unchanged for emerging markets and developing economies. Among the major advanced economies, in the U.S., weaker-than-expected growth in the first quarter prompted the IMF to reduce its 2016 forecast to 2.2 per cent, 0.2

of influences on demand, supply and the exchange rate could lead to a significantly lower path for growth and a higher path for inflation than in the central projections set out in the May Report. The Committee will consider over the coming period how the outlook for the econ-omy has changed in light of the referendum result and will publish its new forecast in its forthcoming Inflation Report on 4th August, 2016.

percentage points less than the April outlook. The IMF left its 2017 forecast for U.S. growth unchanged at 2.5 per cent.

As per IMF’s latest update, China’s growth forecast for 2016 was increased by 0.1 percentage point to 6.6 per cent and it remained unchanged for 2017 at 6.2 per cent. As per IMF, Brexit fallout is likely to be muted for China, the world’s second-largest economy, because of its lim-ited trade and financial links with the U.K. In contrast, India’s growth forecast was marginally trimmed by 0.1 percentage point to 7.4 per cent in FY17-FY18 on slack investment recovery and risk of spread of Brexit con-tagion.

Brexit’s fallout is likely to be felt in Japan, where a stronger yen will limit growth, as per the IMF report. The IMF cut its 2016 growth forecast of Japan by 0.2 percentage point, to 0.3 per cent. However next year, IMF reported that Japan’s economy, the world’s third-largest, is expected to expand 0.1 per cent, which is 0.2 percentage points more than predicted in April 2016, due to postponement of the consumption tax increase.

In conclusion, the IMF stated that its forecasts were contingent on the “benign” assumptions that uncer-tainty following the U.K. referendum would gradually wane, the EU and U.K. would manage to avoid a large increase in economic barriers and that financial market fallout would be limited. In the same vein, it urged the advanced nations to avoid relying too heavily on mon-etary policy to spur their economies and to exploit syn-ergies among a range of policy tools.

ECONOMY MATTERS 10

DOMESTIC TRENDS

Monsoons 2016: So Far So Good

Above average monsoons so far, bodes well for food inflation

The importance of good monsoons this year cannot be overemphasised particularly after two consecutive years of deficient rainfall. The economy, at present, is grappling with high food inflation rates and normal monsoons are expected to provide the much needed re-lief by easing domestic supply-side pressures. The fore-cast for the South-West (SW) monsoon, which occurs between the months of June and September, was put at 106 per cent of long period average (LPA) announced by Indian Meteorological Department (IMD). So far, till

mid of July 2016, both temporal and spatial distribution of rainfall has been satisfactory. For the country as a whole, cumulative rainfall during this year’s monsoon, up to 13 July, has been 4 per cent above LPA. Rainfall activity was above normal over Central India. However, East and Northeast parts of the country have received deficient rainfall.

Gujarat records the highest rainfall deficien-cy so far

Among the major states, rainfall deficiency has so far been the highest for Gujarat, with the rainfall gap stand-ing at 45 per cent. The states which have received boun-tiful rainfall include- Andhra Pradesh (33 per cent above LPA), Madhya Pradesh (86 per cent above LPA), Maha-rashtra (40 per cent above LPA), Rajasthan (28 per cent above LPA) and Telengana (31 per cent above LPA).

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DOMESTIC TRENDS

JUNE-JULY 2016

Kharif sowing starts on a good note

Kharif sowing starts with the onset of June and the crop is harvested during September-October. Past experi-ence has shown that July rainfall is critical since most sowing takes place by July, although late sowing con-tinues well into August. Total crops sown until 15th July, 2016 has been 2.1 per cent higher than last year on year-on-year basis. Increase in area sown has been reported under rice, maize, pulses and oilseeds. To be sure, sow-ing of coarse cereals as a group has been 4.5 per cent higher than last year. A sharp 39 per cent year-on-year jump in the sowing of pulses is an encouraging develop-ment as it bodes well for pulses production which has

With the Indian agriculture continuing to be driven by the vagaries of monsoons, there is no gainsaying the im-portance of normal monsoons for agricultural growth. The performance of South West monsoon so far has been satisfactory, with the country receiving above

been lagging behind in the last couple of years. A signifi-cant increase in the pulses acreage has been reported from Maharashtra, Rajasthan and Madhya Pradesh.

Acreage under oilseeds, as a group, stood at 130 lakh hectares, up 2.4 per cent compared with last year, with groundnut recording 14.8 per cent increase, chiefly due to the higher plantings in Andhra Pradesh in wake of good rains in early July. A key pressure point with re-gard to the sowing of major kharif crops has been that of cotton, whose acreage has fallen by a sharp 19.1 per cent over the last year mainly due to poor rainfall in Gujarat which happens to be one of the major cotton growing states in the country.

average rainfall. However, the next few weeks will be crucial as most of the sowing takes place by July. We will keep a close tab on the progress of monsoons and provide updates till the end of South West monsoon 2016 to our readers.

ECONOMY MATTERS 12

DOMESTIC TRENDS

Industrial Output Moves into Positive Territory in May 2016 Industrial output moved to the positive territory in May 2016, posting a growth of 1.2 per cent as compared to a contraction of 1.3 per cent in April 2016. Despite the mild expansion of industrial production, the underlying anaemic trend is still bothersome as it indicates that in-dustry is underperforming. Going forward, we expect

Manufacturing output expands after a gap of two months

On the sectoral front, the output of manufacturing sec-tor, which constitutes over 75 per cent of the index, moved into the positive territory in May 2016 after lan-guishing in the negative territory for two consecutive months. Manufacturing output grew, albeit moderate-ly, at a rate of 0.7 per cent in May 2016 after declining by an average -2.4 per cent in March-April 2016. Mean-while, a slight pickup in growth was seen in mining sec-tor, while electricity sector’s output moderated.

Though capital goods continue to underper-form

According to the use-based classification, capital goods output, witnessed the seventh straight month of con-traction in May 2016, thus raising doubts about the

industrial output to expand at a higher pace cushioned by the government’s pro-reform agenda. Overall in FY17, we expect industrial production to grow at a high-er rate as compared to the previous fiscal on the back of policy aided domestic upturn and low global commod-ity prices.

recovery of investment cycle in the country. The sec-tor’s output contracted by 12.4 per cent in May 2016 as compared to 25 per cent in the previous month. To be sure, industrial production excluding the output of the capital goods sector would stand at 3.0 per cent during the month. Going forward, capital expenditure by the Government will be crucial to support recovery in this segment.

Consumer goods output moves to positive territory

Consumer goods turned the corner in May 2016, partly on the back of a weak base of last year. The sector’s output expanded by 1.1 per cent after declining by 1.9 per cent in April 2016. Amongst its sub-sectors, con-sumer durables maintained its strong footing (albeit at a slightly lower pace) at 6 per cent as compared to 11.8

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DOMESTIC TRENDS

JUNE-JULY 2016

per cent posted in the previous month. The concerns over the non-durables sector continued to persist. For the month of May 2016, the non-durables sector en-tered deeper into the negative territory at (-2.2) per cent in May 2016 as against a contraction of 10.8 per

Core sector output remains lacklustre

Mirroring the subdued performance of overall industri-al sector in the month of May 2016, the core sector out-put’s too remained lacklustre. Its growth rate sharply nose-dived to 2.8 per cent from 8.5 per cent posted in April 2016. The low growth in May 2016 was on account of a contraction in output of crude oil (- 3.3 per cent ver-sus 0.8 per cent growth in May 2015) and natural gas (- 6.9 per cent as compared with –3.0 per cent in May

cent in April 2016. This is partly reflective of the cumu-lative effect of two past years of drought and growing distress in the rural economy. But a favourable mon-soon prognosis this year augurs well for the growth of this sector, going forward.

2015) in addition to a very marginal expansion regis-tered by refinery products (1.2 per cent versus 7.8 per cent in May 2015). Fertiliser was the lone sector to post double-digit growth to the tune of 14.8 per cent (ver-sus 1.3 per cent in May 2015), while steel sector produc-tion grew by 3.2 per cent (as against 2.0 per cent in May 2015). The cumulative growth of the core sector during April-May in FY17 stood at 5.5 per cent as against 2.1 per cent during the same period in the previous fiscal.

ECONOMY MATTERS 14

DOMESTIC TRENDS

OutlookThough there was a mild expansion of industrial production during May 2016 which was better than the contraction in industrial output evidenced last month, the broad trend is still worrisome as it indicates that industry is perform-ing much below its underlying potential. What is causing concern is that both investment goods and consumer non-durables are witnessing a contraction in output implying that growth impulses are still weak. But we hope that going forward, aggregate demand would pick up based on favourable monsoon scenario, pay rise of government employees and the reform initiatives recently taken by the government to induce demand in the economy.

Inflationary Pressures Accelerate in June 2016Wholesale Price Index (WPI) based inflation accelerated to its 20-month high of 1.6 per cent in June 2016 as com-pared to 0.8 per cent posted in the previous month. The main driver behind the surge in WPI inflation was the sharp rise in total food inflation (primary+ manufactur-

ing) to 8.2 per cent in June 2016 from an average 3.3 per cent rise in the last one year. Rising food prices were re-sponsible for thwarting the moderation in CPI Inflation during the month as the price index remained largely unchanged (though high) at 5.77 per cent in June 2016.

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DOMESTIC TRENDS

JUNE-JULY 2016

OutlookBoth CPI and WPI inflation edged up in June 2016 on the back of higher food prices. However, favourable mon-soons and higher minimum support prices provided by the government would restrain food prices from moving upwards especially in items such as pulses which has witnessed high inflation in the past. This should spur RBI to resume its rate easing cycle as investments continue to be sluggish.

WPI primary articles inflation rises for the 4th

consecutive month

Coming to WPI sub-categories, prices of primary arti-cles rose for the fourth consecutive month to touch a 6-month high of 5.5 per cent in June 2016 as compared to 4.5 per cent posted in May 2016 partly due to low base of last year and partly due to high food prices. In-flation in primary food items could be attributed to ris-ing price pressures in vegetables inflation, which rose to 16.9 per cent in June 2016 from 12.9 per cent in May 2016. Fruits and cereals too recorded a spurt in infla-tion during the month. In contrast, pulses witnessed some moderation in inflation. Primary non-food articles inflation also hardened to 5.7 per cent in the reporting month from 4.5 per cent in the previous month.

Magnitude of deflation decreases in fuel cat-egory

Inflation in fuel group of WPI has gone up to -3.6 per cent in June 2016 as compared to -6.1 per cent in the pre-vious month. The deflationary trend in the group con-tinued for the 20th consecutive month. Inflation in both high speed diesel and petrol rose during the month.

With global crude oil prices recovering from their lows in recent weeks due to ongoing political tensions in Ven-ezuela, Libya and Nigeria, we can expect fuel category to record some mild inflation in the months to come.

Manufacturing inflation also accelerates

Inflation in manufactured group quickened to 1.2 per cent in June 2016 as compared to 0.9 per cent posted in the previous month mainly due to surge in food prices. Manufacturing food inflation accelerated to 8.3 per cent during the month, while manufacturing non-food infla-tion (popularly called as the core inflation and a proxy for demand-side pressures in the economy) continued to languish in the negative territory. Non-food manufac-turing inflation has been in the red for 16th consecutive months now, rekindling fears about lack of demand in the economy.

Going forward, CII expects CPI inflation to lie within the RBI’s target of 5 per cent for January 2017 as food prices are expected to ease going forward on account of a spate of reforms undertaken by the present gov-ernment to address the supply bottlenecks and the expectation that monsoon would be normal after two consecutive years of drought.

ECONOMY MATTERS 16

DOMESTIC TRENDS

Exports register a turnaround in growth in June 2016, boding well for overall growth

Merchandise exports grew by 1.8 per cent to US$22.8 billion in June 2016 after 18 months of contraction. The pickup in export growth is heartening as it is a harbinger of improvement in external demand scenario which is likely to cushion overall economic growth in the near to medium term as well. Seventeen of the top 30 export sectors witnessed positive growth during the month of June 2016. The key sectors which posted positive growth during the month were coffee, spices, oil seeds, marine products, iron ore, chemicals and electronic goods. Meanwhile, meat and poultry, jute manufactures, pe-troleum etc were some of the segments that recorded negative growth during the month. On a cumulative ba-sis, for the period April-June 2016, merchandise exports

As a result, merchandise trade deficit stood at a high of US$8.1 billion in June 2016 as compared to US$6.3 billion in the previous month. Going forward, while improving domestic competitiveness through structural reforms

stood at US$65.3 billion, registering a contraction to the tune of 2.1 per cent on a year-on-year basis.

In contrast, imports continue to post a de-cline during the month

Imports on the other hand posted a contraction to the tune of 7.3 per cent to US$30.7 billion in June 2016 as compared to a decline of 13.2 per cent in May 2016. Though oil imports slowed by 16.4 per cent in June 2016 on a year-on-year basis to US$7.2 billion, it increased by a whopping 22.1 per cent on a month-on-month basis due a sharp surge in prices witnessed during the ear-lier months. Non-oil imports too moderated by 4.1 per cent to U$23.4 billion during the reporting month. Dur-ing April-June FY17, India’s cumulative merchandise im-ports stood at US$84.5 billion, registering a negative growth of 14.5 per cent on a year-on-year basis.

is crucial to improve export performance; we believe that this can only materialize in the medium-term. In the near-term, a weaker rupee can act as a catalyst to revive competitiveness.

Exports Post Positive Growth after Contracting for 18 Months

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DOMESTIC TRENDS

JUNE-JULY 2016

Some of the highlights of the Survey are as under:

As per survey results, Inflation to lie within RBI’s forecasted range, raising expectations of a rate cut

As per the survey results, a significant proportion of

the respondents (61 per cent) expected the domestic

economy to record 7.0-8.0 per cent growth in 2016-17,

of which a major share (36 per cent) expected GDP

growth to lie above 7.5 per cent, while 25 per cent felt

that the economy may slow down from the previous fi-

nancial year and grow between 7.0-7.5 per cent. On the

inflation front, despite the recent uptick in inflationary

pressures, a significant number of the respondents (78

per cent) expected the CPI inflation to hover around 5

per cent in 2016-17, in line with the RBI’s expectation

for the financial year. Consequently, majority of the re-

spondents (64 per cent) were optimistic about a cut in

interest rate by the RBI in order to support the domes-

tic economy amidst waning inflationary pressures.

Most of respondents (40 per cent) felt that a turnaround in the global economy will help jumpstart private investment cycle

Despite various attempts by the government to revive

demand, the investment cycle is yet to recover and had

slowed down further in 2015-16. Private sector invest-

ment continues to crawl and stalled projects remain

high in Q1FY17, as companies continued to postpone

CII Business Confidence Index Surges Ahead in 1QFY17

Giving more proof that economic recovery is currently underway, the CII Business Confidence Index (CII- BCI) for April-June 2016 quarter rose to 57.2 as against the level of 54.1 recorded in the previous quarter. The BCI has been on an uptrend since the last two quar-ters owing to an improvement in both the Current Situ-ation Index and the Expectation Index. The respond-ents in the survey were asked to provide a view on the

performance of their firm, sector and the economy based on their perceptions for the previous and cur-rent quarter on a scale of 0 to 100. The CII-BCI was then constructed as a weighted average of the Current Situa-tions Index (CSI) and the Expectation Index (EI). A score above 50 indicates positive confidence while a score above 75 would indicate strong positive confidence. On the contrary, a score of less than 50 indicates a weak confidence index.

ECONOMY MATTERS 18

DOMESTIC TRENDS

new investments on account of global economic un-

certainty, unforthcoming demand, delays in regulatory

clearances and inadequate supply of inputs. In this con-

text, most of the respondents (40 per cent) felt that a

recovery in the global economy would be helpful in kick

starting the private investment cycle. Additionally, a big

share of the respondents (37 per cent) were of the view

that an upturn in the consumption cycle can also help in

boosting private investment.

Existing unutilized capacity and unforthcoming demand

have prompted nearly half of the firms (49.7 per cent)

to maintain a status-quo on their domestic investment

while the uncertainty in the global economic environ-

ment has forced larger share of firms (60.5 per cent) to

keep their international investment plans unchanged.

Majority of the respondents foresee an im-provement in corporate performance

As regards the corporate sector performance, a signifi-

cant proportion of the respondents (43 per cent) felt

that the turnaround in corporate sector earnings in

Q4FY16 was mainly on account of the increased govern-

ment spending. Another 41 per cent of the respondents

attributed this recovery to increased consumption de-

mand (private consumption expenditure). Regarding

their top-line performance, firms seemed to be upbeat

about their sales and new order projections for the Apr-

Jun 2016 quarter with 61 per cent of the respondents

expecting an increase in sales, while only 42 per cent of

the respondents experienced sales to remain the same

as in the previous quarter.

The prognosis for firms bottom-line seemed fairly opti-

mistic as well, with most of the respondents (48.7) ex-

pecting an increase in profits after tax as compared to

29.2 per cent who expected their profits to rise in the

previous quarter. Low domestic demand (35 per cent of

respondents) and fragile global economic recovery (25

per cent of respondents) emerged as the top concerns

of members during the first quarter.

The survey was conducted from April-June 2016, cover-

ing more than 200 firms of varying sizes. Around 44 per

cent of the respondents belonged to small-scale and

micro sector, while 42 per cent were large-scale firms

and about 14 per cent were from medium-scale indus-

try. A sectoral break up shows that 62 per cent of the

respondents were from the manufacturing sector while

32 per cent were from services sector and 6 per cent

from primary sector.

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POLICY FOCUS

POLICY FOCUS

JUNE-JULY 2016

1. Special Package for Textile and Ap-parel Sector

The Union Cabinet under the Chairmanship of Prime Minister Shri Narendra Modi has given approval for a special package for employment generation and pro-motion of exports in the Textile and Apparel sector. The move comes in the backdrop of the package of reforms announced by the Government for generation of one crore jobs in the textile and apparel industry over the next 3 years. The package includes a slew of measures which are labour friendly and would promote employ-ment generation, economies of scale and boost ex-ports. The steps will lead to a cumulative increase of US$2.6 billion in exports and investment of US$7.0 bil-lion over next 3 years.

The majority of new jobs are likely to go to women since the garment industry employs nearly 70 per cent wom-en workforce. Thus, the package would help in social transformation through women empowerment.

Salient features of the package announced are:

A. Employee Provident Fund Scheme Re-forms

• Govt. of India shall bear the entire 12 per cent of the employers’ contribution of the Employers Provi-dent Fund Scheme for new employees of garment industry for first 3 years who are earning less than Rs. 15,000 per month.

• At present, 8.33 per cent of employer’s contribu-tion is already being provided by Government under Pradhan Mantri Rozgar Protsahan Yojana (PMRPY). Ministry of Textiles shall provide additional 3.67 per cent of the employer’s contribution amounting to Rs. 1,170 crores over next 3 years.

• EPF shall be made optional for employees earning less than Rs. 15,000 per month.

B. Introduction of fixed term employment

• Looking to the seasonal nature of the industry, fixed term employment shall be introduced for the garment sector.

• A fixed term workman will be considered at par with permanent workman in terms of working hours, wages, allowanced and other statutory dues.

The important policy announcements by the Government in the months of June-July 2016 are covered in this month’s Policy Focus. Our endeavor through this section is to keep our readers abreast of the latest happenings on the policy

front so that they can take an informed decision accordingly.

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POLICY FOCUS

C. Additional incentives under ATUFS

• The package breaks new ground in moving from input to outcome based incentives by increasing subsidy under Amended-TUFS from 15 per cent to 25 per cent for the garment sector as a boost to em-ployment generation.

D. Enhanced duty drawback coverage

• In a first of its kind move, a new scheme will be in-troduced to refund the state levies which were not refunded so far.

• Drawback at All Industries Rate to be given for do-mestic duty paid inputs even when fabrics are im-ported under Advance Authorization Scheme.

E. Enhancing scope of Section 80JJAA of In-come Tax Act

• Looking at the seasonal nature of garment indus-try, the provision of 240 days under Section 80JJAA of Income Tax Act would be relaxed to 150 days for garment industry.

CII ReactionThe new policy measures unveiled by the Government for the Indian Textiles and Apparel industry will give a much-needed impetus to the Indian apparel industry and spur growth, employment and investment. The package con-tains several measures which have been highlighted in the preliminary findings of the CII-BCG study on the Apparel, made-ups and Textiles sectors and we are indeed delighted that our recommendations have found resonance with policy makers. It is absolutely imperative that India nurture a robust value chain, a game-changing advantage that India possesses. The slew of measures announced by the government are a very positive first step in this journey for creating a new growth story for the Indian apparel, made-ups and textiles industry.

2. National Mineral Exploration Policy 2016

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi approved the National Mineral Explora-tion Policy (NMEP) on 29th June, 2016. The NMEP pri-marily aims at accelerating the exploration activity in the country through enhanced participation of the pri-vate sector. There is a need for comprehensive mineral exploration of the country to uncover its full mineral po-tential so as to put the nation’s mineral resources (non-fuel and non-coal) to best use and thereby maximize sectoral contribution to the Indian economy.

NMEP has the following main features for facilitating exploration in the country:-

i. The Ministry of Mines will carry out auctioning of identified exploration blocks for exploration by pri-vate sector on revenue sharing basis in case their exploration leads to auctionable resources. The revenue will be borne by the successful bidder of those auctionable blocks.

ii. If the explorer agencies do not discover any auc-tionable resources, their exploration expenditure will be reimbursed on normative cost basis.

iii. Creation of baseline geoscientific data as a public

good for open dissemination free of charge.

iv. Government will carry out a National Aerogeophysi-cal Program for acquiring state-of-the-art baseline data for targeting concealed mineral deposits.

v. A National Geoscientific Data Repository is pro-posed to be set up to collate all baseline and min-eral exploration information generated by various central & state government agencies and also min-eral concession holders and to maintain these on geospatial database.

vi. Government proposes to establish a not-for-profit autonomous institution that will be known as the National Centre for Mineral Targeting (NCMT) in collaboration with scientific and research bodies, universities and industry for scientific and techno-logical research to address the mineral exploration challenges in the country.

vii. Provisions for inviting private investment in explo-ration through attractive revenue sharing models.

viii. On the lines of UNCOVER project of Australia, the government intends to launch a special initiative to probe deep-seated/ concealed minerals deposits in the country in collaboration with National Geophys-ical Research Institute and the proposed NCMT and

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Geoscience Australia.

The major impact of NMEP as per the Ministry of Mines is as follows: -

1) The pre-competitive baseline geoscientific data will be created as a public good and will be fully avail-able for open dissemination free of charge. This is expected to benefit public and private exploration agencies.

2) The collaboration with scientific and research bod-ies, universities and industry for the scientific and technological development necessary for explora-tion in public- private partnership.

3) Government will launch a special initiative to probe deep-seated/concealed mineral deposits in the country.

4) A National Aerogeophysical Mapping program will be launched to map the entire country with low al-titude and close space flight to delineate the deep-seated and concealed mineral deposits.

5) Government will engage private agencies for carry-ing out exploration in identified blocks / areas with the right to certain share in the revenue accruing to the State government through auction.

6) Public expenditure on regional and detailed explo-ration will be prioritized and subject to periodical review based on assessment of criticality and stra-tegic interests.

3. Cabinet approves Pradhan Mantri Kaushal Vikas Yojana

In a significant development, the Union Cabinet chaired by Prime Minister Shri Narendra Modi has approved the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) with an outlay of Rs.12000 crore to impart skilling to one crore people over the next four years (2016-2020). MKVY will impart fresh training to 60 lakh youths and certify skills of 40 lakh persons acquired non-formally under the Recognition of Prior Learning (RPL). The tar-get allocation between fresh trainings and RPL will be flexible and interchangeable depending on functional and operational requirements.

Financial support to trainees will be provided in the form of travel allowance, boarding and lodging costs. Post placement support would be given directly to the beneficiaries through Direct Benefit Transfer (DBT). Disbursement of training cost to training partners will be linked to Aadhaar and biometrics for better trans-parency and targeting. Skill training would be done based on industry led standards aligned to the National Skill Qualification Framework (NSQF).

Taking into account the recommendations of the sub-group of Chief Ministers on skill development on the importance of addressing the unique skill require-ments of various states, the state governments will get involved through a project based approach under the PMKVY. States would be required to meet 25 per cent of the total training targets being allocated under this stream of the scheme.

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Transforming Healthcare in India

JUNE-JULY 2016

2. Healthcare Sector: The Current Status

Preliminary observation indicates that healthcare has yet to receive the attention and primacy of place which it deserves. As per latest data available for 2014, the country spent 4.7 per cent of its GDP on health of which public expenditure on health is 1.4 per cent of GDP. This means that healthcare activity is primarily in the domain of the private sector (3.3 per cent). This is also borne out from the fact that only around 30 per cent of expenditure on healthcare is undertaken by the government. The remaining 70 per cent of healthcare expenditure is borne by the private sector. Every house-hold, on an average, spends up to 10 per cent of annual household consumption in meeting health care needs. Furthermore, household expenditure on healthcare as a percentage of total consumption expenditure has been rising over the years. The increase is more pronounced in rural areas where the paucity of healthcare facilities is even more explicit.

Most households have to bear medical expenses out of their own pockets. In fact, out of pocket expenses as a proportion of total expenditure on health, are as high

1 Introduction

The advantages of giving weightage to healthcare are manifold. For one, a healthy society is crucial for improv-ing the quality of life and enhancing the productivity of the workforce in the country. Our ability to leverage our distinct demographic advantage and capitalize on the large reservoir of knowledge capital would depend es-sentially upon the priority accorded to healthcare as no population can be productive without the security pro-vided by health. This includes not only access to health-care during times of sickness but also a strong public health policy to prevent disease.

Against this backdrop, the paper would seek to discuss some key issues such as the current status, our health indicators vis-a-vis the world, our outlays and outcome on health at the center and state levels, major policies of the government and the suggestions to rev up the healthcare sector.

ECONOMY MATTERS 24

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as 62 per cent. And around 70 per cent of the out of pocket expenses are on medicines and drugs. Not sur-prisingly, it is estimated that each year, more than 40 million people, mostly in rural areas, are impoverished and run into massive debts to access healthcare facili-ties.

Being a country with growing population, our per capita expenditure on healthcare has been going up over the years. According to World Health Organization Global Health Expenditure database, our per capita health expenditure rose at a CAGR of around 2 per cent -from US$20 in 2000 to US$31 in 2005-in the five-year period. The figure perked up further to US$59 in 2010 notching up the growth of around 14 per cent over the next five years. The latest figures show that per capita expendi-ture on healthcare amounts to US$75 in 2014 showing a slower CAGR growth of 6 per cent during the subse-quent four year period. The generally rising trend in per capita spending on healthcare is in sharp contrast with the almost stagnant share of healthcare expenses with respect to GDP. This points towards greater responsive-ness of healthcare to changes in population as com-pared to a change in GDP.

3. India and the World

In order to assess our priorities in terms of healthcare spending, it is important to compare our healthcare

No doubt, over the years there has been a moderate rise in government expenditure on healthcare as a percentage of GDP in India. But this is much below the healthcare requirements of the country. This is indicat-ed in Figure 1.

system with the practices prevailing in the rest of the world. Here the first round of observations show that India is far from being considered as a country with a ro-bust and progressive healthcare system. In fact, accord-ing to the Universal health Coverage (UHC) Index de-veloped by the World Bank, which is meant to measure the progress made in health sector across select coun-tries of the world, India has been bracketed along with the cluster of a low-performing countries like Ethiopia, Guatemala, Indonesia and Vietnam with UHC scores in the range 35–57. A cluster of high-performing countries emerges with UHC scores of between 79 and 84 and includes countries such as Brazil, Colombia, Costa Rica, Mexico and South Africa.

According to Economic Survey 2015-16, India ranks 143 out of 190 countries in terms of per capita expenditure on health and 157th position according to per capita gov-ernment spending on health. The world average on per capita health expenditure at US$ 1061 in 2014 is around fifteen times that of India where per capita health ex-penditure is US$75.

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Similarly, the average world spending on healthcare as a percentage of GDP and public expenditure is twice that of India. As mentioned earlier, India spends 1.4 per cent of its GDP on public health which is much lower than other BRIC countries i.e 3.1 per cent in China, 3.8 per cent for Brazil, 4.2 per cent for South Africa and 3.7 per cent for Russia. Among the developed countries, the USA spends a significant 8.3 per cent of GDP on healthcare while Germany spends 8.7 per cent. In fact, India is ranked almost at the bottom in terms of its pub-lic spending on healthcare as a proportion of GDP. The inadequacy of expenditure on healthcare has adversely impacted the availability of health infrastructure in the country which is quite pathetic as compared to most de-veloped and even some developing countries. Studies show that the US has one bed for every 350 patients while the ratio for Japan is 1 for 85. The WHO stipulation is 3.5 beds per 1000 population. In India, there are 1.3 beds for every 1000 population. Similarly, as per World Bank, India had 0.7 physician per 1000 population in 2012 which is much below 1.9 for China and Brazil, 1.8 for Singapore and 2.8 for United Kingdom during this year. Besides, there are disparities in healthcare infrastruc-ture at the state, district and village level and between rural and urban areas.

Besides, around 21 per cent of the world’s share of dis-ease accrue in India. India has 70 million people with rare diseases, 205 million cancer patients, 30 million diabetics, 60 million with mental ailments and a very large number of cardiac cases. More such instances can be cited which show that the healthcare outcomes and quality of our healthcare sector is much below that pre-vailing in our peer nations.

The next section analyses in detail the trends of ex-penditure on healthcare, both at the centre and the state level.

4. Funding of Public Health Expenditure in India

Health in India essentially comes within the purview of

the states, under the 7th Schedule of the Constitution with the state governments making allocations in their individual Budgets on healthcare programmes to ful-fill their obligation of catering to the healthcare needs of the population. The states are duly supported by the Central government through Centrally Sponsored Schemes on healthcare which again are implemented through the State Budgets and the funds are trans-ferred to the states either through direct (full grant) or partial means (matching grants). Additionally, local bodies also incur health expenditure through fund allo-cation to them.

Meanwhile the investments made by states in health-care have gone up steadily over the years. But there is still a long way to go to fulfill the requirements of healthcare for all at affordable cost, which is of utmost importance for a populous country like India.

5. Trends in Central Government Expendi-ture on Healthcare

(i) Actual Expenditure undershooting Budget Allocation

Central government expenditure on healthcare has moved within the narrow band of 1.9 to 2.2 per cent of total expenditure during the periods 2005-06 to 2014-15. In fact, expenditure on healthcare has been so miniscule and underfinanced that the allocation has remained largely unaffected by upswings and downswings in economic growth. No wonder, many of the projects planned for the health sector have yet to materialize.

An analysis on the allocation for healthcare sector Budget across Ministries and Departments pertaining to healthcare is further revealing. A perusal of data from 2005 onwards up to 2014-15 at current prices shows that the revised estimates for healthcare have been consist-ently lower than the Budget estimates while the actual spending has mostly been even lower. In the next year, the budget estimates are once again enhanced only for the actual spending to be pushed downwards in the fi-nal estimates. This is illustrated in Table 1.

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All this points to the fact that government’s involve-ment in provisioning for healthcare does not get the priority it deserves.

However, as per the latest data available in 2015-16, the revised estimates on healthcare have been higher than the budget estimates. The data on actual expenditure is awaited.

(ii) Improvement in Health Outcomes

One could infer that public spending on healthcare has led to an improvement in health outcomes though oth-er factors may also count. For one, there has been some improvement in life expectancy at birth of the Indian population since the beginning of the new millennium. Besides, there has been a decline in infant mortality rate (IMR) –from 66.4 years in 2000 to 37.9 years in 2015. Maternal mortality rates (MMR) have also gone down –from 212 during 2007-09 to 167 during 2011-13. This could probably be due to increased education and awareness among women resulting in preventive measures to sty-mie the trend.

6. Trends in State Government Expenditure on Healthcare

(i) Trends in Revenue Expenditure on Health

Being a state subject, almost three quarters of expendi-

ture on health-care is incurred by the states while only a quarter is met by the Centre. At the state level, the to-tal budgetary outlay broadly consists of expenditure on medical and public health and includes family welfare. And medical health covers allocations for urban health services, rural health services and medical education and training.

In this context, according to data given by RBI, the rev-enue expenditure of the State governments and Union Territories on medical and public health has gone up – from Rs. 131 billion in 2000-01 to Rs.564 billion in 2013-14 recording a four-fold increase during this time-frame and is budgeted to rise further to Rs. 879 billion in 2015-16, a more than six-fold rise over the sixteen year pe-riod. This is commensurate with the rise in total revenue expenditure incurred by the state government during this period. As a result, the share of healthcare spend-ing as a proportion of aggregate state expenditure re-mains almost the same. The next section provides the details.

(ii) Share of Expenditure by states on medical and public health and family welfare as a Proportion of Aggre-gate Expenditure

As is the case with Central government expenditure, the share of expenditure of states on healthcare as a proportion of aggregate expenditure has remained al-

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most stagnant with only minor variations of between 3.4 per cent and 4.9 per cent during the years 2000-01 and 2015-16 (See Figure 2). Similarly, the share of states’

health expenditure in GDP also varies between 0.6 per cent and 0.9 per cent during this period.

Among individual states, figures for 2013-14 show that public expenditure on healthcare by the states as a ratio of aggregate state level expenditure varies between 3.2 per cent and 6.6 per cent. The north-eastern states have taken a lead when it comes to expenditure on medical and public health and family welfare. For instance, the share of Meghalaya on public health and family welfare

as a percentage of aggregate state expenditure at 6.6 per cent is the highest. This is followed by Manipur, Sik-kim and Goa (5.7 per cent each) and Tamil Nadu (5.4 per cent). The lowest proportion of public health expendi-ture to aggregate state expenditure is for Bihar at 3.2 per cent (Figure 3).

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(iii) Comparison of Outlay and Expenditure at State Level

The scenario on outlay and actual expenditure on healthcare among states has been mixed and follows no particular trend. Figures for 2012-13 indicate that while a handful of states have reported higher actual expenditure as compared to outlay, there are many others where the outlay is much higher. Among the North Eastern states, in the middle income category- Arunachal Pradesh, Meghalaya, Mizoram, Sikkim- it was found that actual expenditure either exceeds or is mar-ginally below outlay. In the poorer states of Assam, Bi-

har, Chhattisgarh, Madhya Pradesh, Jharkhand, Odissa, among others, actual expenditure is much below out-lay. The exception is Uttar Pradesh where expenditure exceeds outlay. Among the middle and high income states the situation is mixed. States like Delhi, Gujarat, Tamil Nadu, Uttarakhand, Chandigarh and West Ben-gal have reported higher expenditure as against outlay but Maharashtra, Punjab, Haryana, Himachal Pradesh, Andhra Pradesh, Karnataka, Kerala, Goa, among others have actual expenditure trailing outlays. This is evident from Table 2.

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Apart from income, the differences in health expendi-ture across states could be attributed to fiscal capac-ity, priority accorded by the individual government to healthcare and other demographic factors.

A comparison of outlay and expenditure of the states between the periods 2002-03 and 2012-13 shows that most of the states where actual expenditure was be-low the outlay in 2002-03 continued with the practice in 2012-13. However, there were exceptions as well. For instance, states like Gujarat, Rajasthan and Mizoram reported a rise in actual expenditure as compared to outlay unlike the case in the previous period. But Ker-ala, Madhya Pradesh and Delhi showed a decline in ex-penditure as against outlay in 2012-13 as against a rise in 2002-03. Nevertheless, healthcare continues to get a low priority in the majority of the States irrespective of whether these are in the high, middle or the low income category.

7. Government policies on Healthcare

(i) Government Policies on Health: The Last Two Years

The last two years have also seen the launch of a num-ber of schemes by the government to augment health-care facilities in the country. Among the major schemes is Mission Indradhanush which was launched on Decem-ber 25, 2014 with the aim of immunizing children against seven vaccine preventable diseases namely diphtheria, whooping cough, tetanus, polio, tuberculosis, measles and hepatitis B by 2020.

Apart from the Healthcare Missions adopted by the Cen-tral Government, both the Center and the States make allocations and announce new schemes in the Budgets for spending on healthcare. In this context, the Union Budget 2015-16, announced a number of schemes such as the strengthening of Jan Aushadhi Stores for provid-ing generic medicines at affordable cost; healthcare cover for senior citizens, proposed National Insurance

Programme providing healthcare cover up to Rs. one lakh per family; national dialysis services through PPP, among others. Fund allocation in the Union Budget 2016-17 for meeting expenditure for the health scheme has gone up by over 20 per cent over the allocations made last year. Besides, the Budget also relies on pub-lic-private partnership to augment healthcare facilities in the country.

Similarly, the individual state governments have also made separate allocations on medical and public health and family welfare for their respective states which, on an average, rose by over 8 per cent for 2015-16 and are utilized to improve healthcare outcomes at the state level.

In the meanwhile, the National Health Policy (NHP) 2015 is in the works. Under the policy, the government has suggested making health a fundamental right, similar to education. The States could voluntarily opt to adopt this by a resolution of their Legislative Assembly. The draft policy has addressed the critical issue of poor public health spending by championing an increase in government spending to 2.5 per cent of GDP (Rs. 3,800 per capita) in the next five years, explore creation of a health cess and ensure universal access to free drugs, among others

(ii) The Rashtriya Swasthya Bima Yojana: Addressing the Needs of Health Insurance

To address the medical insurance needs of the citi-zens, the Rashtriya Swasthya Bima Yojana (RSBY) was launched in 2008. This was a Health Insurance Scheme for the Below Poverty Line families with the objective to reduce Out of Pocket (OOP) expenditure on health and increase access to health care. This has been expanded to cover other defined categories of unorganised work-ers. Since 1st April, 2015, the Rashtriya Swasthya Bima Yojana (RSBY) or National Health Protection Scheme (NHPS), a new nomenclature for RSBY, has been trans-

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ferred to Ministry of Health & Family Welfare on “as is where is” basis.

8. Suggestions for Augmenting Healthcare Indices for the country

There is a growing recognition that in order to realise our vision of a prosperous and resurgent India, which would match its strides with the leading nations of the world, it has become imperative that the government takes the lead in the challenging journey to transform the healthcare sector, an effort which is ably aided by and partnered with a responsive private sector. Indeed, it is important to have in place affordable healthcare options which would ensure universal health coverage and provide health for all at cost effective terms. Some of the ways in which this can be achieved are mentioned hereunder:

Enhance Public Spending on Healthcare; Improve Qual-ity of Healthcare

As per World Bank Report, India’s total healthcare spending has been a meager 4.7 per cent of GDP in 2014. A break-up shows that government spending on health-care is a miniscule 1.4 per cent of GDP while 3.3 per cent comes from the private sector. In this context, the Draft National Health Policy, citing global evidence on health spending, contends that unless a country spends at least 5–6 per cent of its GDP on health and the major part of it is from Government expenditure, basic health care needs are seldom met.

Raise tax to GDP Ratio for funding social sector spending including healthcare

India’s tax to GDP ratio continues to be low and is de-clining. Gross tax revenue as a percentage of GDP de-clined from 11.9 per cent in 2007-08 to 10.0 per cent in 2014-15. Besides, when compared with other countries, India’s tax to GDP ratio at around 18 per cent is much below 19 per cent for China, 35 per cent for Brazil as well as OECD. We need to expand the tax base to generate revenues which could be used to fund social sector schemes including health.

Plugging the Infrastructure Gaps

It is necessary that healthcare infrastructure in the country is scaled up to optimum levels. For instance, to-tal bed density should go up from 1.3 per 1000 people to 2.1 per 1000 in the next decade. This would include

1.0-1.2 beds per 1000 people in rural areas and 3.8-4.2 per 1000 population in urban areas.

Provide Infrastructure Status to Healthcare

It is found that that our healthcare system is capital intensive with many projects having a long gestation period. For example, in the case of hospitals, cost of land and material accounts for 60-70 per cent of project costs. Besides, maintenance, upgradation and replace-ment cost of equipment is also high.

To mitigate the situation, it is recommended that health-care should be notified as an infrastructure sector with concomitant benefits and incentives. This would enable investors in healthcare services to access the various in-frastructure funds designed to suit long gestation pro-jects and access to low-cost loans.

Provide Wider Coverage to Health Insurance

Insurance coverage is a meager 25 per cent of which 5 per cent comes from the private sector. Some of the specific insurance schemes include the state-level em-ployee insurance for industrial workers, Central Govern-ment’s healthcare scheme for civil servants, employee health insurance policies by companies, among others. However, despite this, a large segment of our popula-tion is outside the purview of health insurance cover-age. This puts a financial burden on the residents, espe-cially of the deprived segment, leading to a rise in OOP expenses and destitution.

Greater Private Sector Participation in Healthcare

At a time when resource constraint within the gov-ernment is a matter of concern and there are limits to expanding public expenditure on healthcare, the government should consider outsourcing some speci-fied healthcare programmes to the private sector or upgrade the healthcare system through a fillip to the public-private partnership approach. The role of gov-ernment should be to identify areas in National Health Programmes and consider innovative models where pri-vate sector partnership could be envisaged in primary, secondary and tertiary healthcare. Besides, to address the funding shortfall, the private sector should be en-couraged to contribute to healthcare through corpo-rate social responsibility funding.

Nodal agency for Regulating healthcare

In order to achieve and maintain quality standards of healthcare, there is need for setting up a national

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Health Regulatory and Development Authority to moni-tor both government and private-sector healthcare providers, as suggested by the erstwhile Planning Com-mission. Furthermore, a National Health and Medical Facilities Accreditation Authority (NHMFA) should be established for regulating healthcare standards.

Creating a Holistic Healthcare Policy Framework

There is need for a comprehensive health policy which should address issues such as finance as well as capac-ity building in infrastructure and human resources. Simi-larly, information technology should be leveraged to re-duce costs, bring efficiency, reduce response time and human error and ameliorate the quality of life.

Further, there is need to implement Hospital Informa-tion Systems (HIS), facilitate digitization, take recourse to automated supply chain management, enhance rural access by collecting data via handheld devices etc. to improve healthcare delivery.

Other Suggestions

Creation of physical infrastructure for medical educa-tion: With an average of one medical college for 38.4 lakhs population, the government should consider in-creasing the medical facilities by allocating funds for setting up of new medical colleges for providing doc-tors, dentists, nurses and paramedics. Recognising the logistical challenges, it is recommended that existing government hospitals should be converted into medical colleges. The government should also invest in preven-tive and social medicine by promoting health education and preventive healthcare.

Promoting indigenous manufacturing for healthcare equipment & devices: Indigenous manufacturing should be encouraged as it would make India self-sufficient and make healthcare treatment services affordable. There is need for providing concessions to the sector by way of duty free import of raw material, excise duty exemp-tion, among others.

Creation of National Innovation Fund: To support R&D

activities dedicated for manufacturing of medical de-vices & equipment.

Medical Device Regulation Bill: The bill, which is aimed at enforcing uniform and effective standards of medical devices throughout the country, should be passed as it will ensure growth of industry and invite FDI.

Conclusion

The analysis of the paper shows that while, over the years, there have been some improvements in health-care facilities in the country, this has been unequal to match the growing needs of a populous country like India. Our country has a low ranking when it comes to benchmarking our health systems to world standards and even emerging economies. One of the reasons for the prevailing scenario, is that health spending, at both the central and state level, is proving to be inadequate to meet the resource requirements for providing the basic healthcare facilities in the country. Besides, there are wide variations across states in terms of health-care spending which has led to inadequate provision of health infrastructure in the country.

No doubt, a number of policy initiatives have been un-dertaken to address the deficiencies in the health sec-tor. But this is not enough to meet the developmen-tal priorities of our country in the area of healthcare. Hence, it is imperative that systemic reform in health-care systems, wherein both the center and states work in unison, gathers momentum. Besides, augmenting public expenditure on health especially by the Center as also improving the efficiency of healthcare delivery at the state level is essential.

It must be recognized that creating a healthy workforce is imperative for a strong economy and society. Hence, we must seize the opportunity of creating a healthy In-dia at all costs so that people’s living standards can be raised to acceptable levels in the near term.

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Connecting the Dots in Indian Healthcare

The broken healthcare delivery chain

Primary health provision was recognized as a tool for at-tainment of ‘health for all’ more than three decades ago by the Alma-Ata declaration. While looking for answers to why it has not yet been attained, it is realized that we need a multi-dimensional approach to provide de-livery to 1.2 billion people, with varied disease patterns and medical needs. Today patients in the villages often travel over 100 kms to access basic healthcare services. Access to care is also limited by the low affordability in the population.

For a common citizen in India, the basic needs of food, water, shelter, sanitation and basic healthcare have be-come a far-fetched dream. There are 24.7 crore house-holds in India, out of which 68 per cent reside in rural India and the remaining account for urban population. It is alarming that out of the total households, 23.7 per cent stays in mud houses and 53 per cent do not have access to toilet facilities within the household. Only 43.5 per cent of Indian population has access to safe drink-ing water and the World Bank estimates that 21 per cent of communicable diseases in India are related to unsafe water. Adding to this issue is the sanitation crisis; 814 million Indians do not have access to sanitation services.

In order to provide for these basic rights, India needs to address issues at each level of the healthcare delivery chain in terms of infrastructure and manpower.

To meet the basic healthcare needs, the National Rural health Mission (NRHM) was launched in 2005. ASHA (Accredited Social Health Activist) workers were envis-aged under the NRHM to create awareness and pro-

vide information to the community on determinants of health such as nutrition, basic sanitation and hygiene practices, community mobilization, provision of pri-mary medical care, etc. The Ministry of Health and Fam-ily welfare recommends mandatory training for ASHA workers, however almost half of them are educated be-low secondary school level and have poor knowledge regarding immediate referral conditions. While, they were enrolled to act as a bridge between the commu-nity and the available healthcare system, due to these shortcomings, they have not been able to fill the void in the system.

Though the network of delivery settings is in place, each of them is working in isolation, leading to increased medical cost burden and an imbalance in the patient inflow catered by these healthcare facilities. Availabil-ity of skilled medical, nursing, paramedical and allied workforce is another roadblock which is adding to the challenge of the broken healthcare delivery chain in In-dia. There is a need to streamline the value chain of the delivery system in order to provide a comprehensive delivery system.

The way forward

While devising a prescription for Indian healthcare, it becomes inevitable to look at the challenges of the sector holistically and address issues not just relevant to hospitals, but create an enabling environment which can propel growth. Due to the massive reach of the Government and availability of manpower & infrastruc-ture at rural level, primary care needs can be addressed by the government economically and PPP models can

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be implemented where expertise and resources of the private sector could be utilized.

Augmenting and building the capacity of existing work-force can offset a significant amount of the disease burden at the primary level and result in better health outcomes. For instance, ASHA workers which have a massive outreach to the population can act as eyes and ears for the health systems. Imparting requisite skill set to them can act as a change agent for improving the health outcomes.

In continuation with the skill development process, the Healthcare Sector Skill Council (HSCC), was launched and started recently in partnership with CII and Public & Private providers. It aims at developing curriculum and content for the allied health workforce. This would aid in providing the right skill sets to paramedical work-force and ensure that quality medical treatment is deliv-ered to the patient.

Public Private Partnership models could be leveraged in strengthening the secondary and tertiary care levels of the healthcare value chain by bringing together the operational and managerial efficiencies of the private sector. This will aid in better utilization of already exist-ing infrastructure of the public sector and result in im-proved utilization of assets and services.

The recent spurt in public health insurance schemes will act as a catalyst in improving the accessibility of tertiary care to a large segment of underserved population. The government’s role of being a payer has the dual advan-tage of allowing patients the choice of treatment in the private sector and also provides the government the flexibility to focus on primary healthcare infrastructure.

The need of the hour is also to identify and strengthen the support pillars of healthcare delivery system which is so far missing from the larger discourse. These in-clude production of quality manpower, technology ena-bled solutions like mobile health, and adoption of low cost drugs and vaccines. While some such models have already been implemented, the scale at which they can be utilized needs to be tapped by the country. Many pi-lot studies are already being done on usage of mobile and information technologies to increase accessibility in rural areas and Tier-I and Tier-II cities. What is also en-couraging is that most of the medical innovation is now taking place in the smaller cities and towns where the need for quality healthcare is most acute.

Going forward the action agenda is to foster a multi stakeholder collaborative approach with a common ob-jective of providing affordable healthcare to masses. To achieve this, we need to collectively think beyond the traditional approach and implement unconventional so-lutions in the Indian health system.

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Enablers and Barriers in Medical Device Pricing

Drugs and devices are inherently different in their

composition as well as the medical challenges

they address. Identical policy measures for

drugs and devices would be detrimental to the device

industry.

The innovation, R&D, manufacturing, physician train-

ings and post market surveillance cost is very high for

certain medical devices vis-à-vis pharmaceuticals. For

example, the orthopedics industry provides joint and

hip replacement surgery to 150,000 people every year.

One surgery can comprise of several sizes and permu-

tations of inputs required to fit the unique surgical

needs of each patient. This means that over 100 implant

boxes are sent free of cost by companies to hospitals

located in small towns across the country. During the

surgery, the surgeon will assess the types of devices

and implants required, where upon only 3-4 implants

are utilized and the rest are sent back. The transporta-

tion costs are borne by the manufacturer and the usage

varies from patient to patient. Therefore, prices vary

across distances.

Similarly, there are several other costs that are borne

by the manufacturer to successfully deliver the device

to the patient. Unlike drugs, the medical device compa-

nies’ role does not end at the point of sale. Medical de-

vices are constantly evolving with an average shelf life

of two years, requiring large investments in research

and development. Implantation of medical devices re-

quires complex surgeries that are extremely skill inten-

sive. Most companies have set up education centres at

their own cost to provide hands on training to 1000s of

public and private sector surgeons across the country

each year. The unique skills and training required to suc-

cessfully position and operationalize a medical device

in the body are not covered in standard tertiary educa-

tion programs. Price controls would hamper the private

sectors’ ability to continue to dedicate vast amounts of

technical and manpower resources required to provide

value add services.

Local medical device manufacturing requires large

amounts of investment of capital and technology to

incentivize local manufacturers to start investing in the

sector which requires large gestation periods to deliver

returns. While the policy incentives will help to boost

the sector, any price controls at this nascent stage will

prove to be counterproductive to attracting local and

global investors.

The current market size for medical devices is very small

with a 7 per cent penetration, thereby devoid of the

large volumes required to offset any major price reduc-

tions. The government needs to focus on demand gen-

eration as a precondition to grow the sector to a scale

where it becomes economical for manufacturers to op-

erate at lower price points. Further efforts to increase

state and central government reimbursement and in-

surance coverage will help to expand coverage and ac-

cessibility. This could be complemented by partnering

with the private sector to scale up innovative patient ac-

cess and risk sharing pilots that can mobilize public and

private sector funding for health financing.

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A close examination of the market shows that afford-

ability is not the key barrier to accessing medical tech-

nologies in India. For example, most MNC orthopedic

companies are selling their implants in India at the low-

est prices in the world, thereby expanding access to

high quality products at affordable prices.

Recently stent pricing has captured the attention of me-

dia and parliamentarians. Around 1/3rd of total coronary

stents sold in the country are already being provided to

beneficiaries of Central and State Government schemes

at subsidized prices. In 2014, approximately 300,000

drug eluting stents were sold in India, of which over

100,000 were made available at a price bracket of Rs.

20,000 - 25000, thereby ensuring access and affordabil-

ity to needy patients.

The real barriers to accessing medical technology are

the lack of disease awareness, screening and diagno-

sis, referral pathways and trained nurses, doctors and

implanters. For example in rural India, we lack health-

care professionals to screen and diagnose symptoms

of heart disease, diabetes and hypertension, let alone

trained specialists to implant the devices in the patients.

There is need for transparent, predictable, evidence

based reimbursement and pricing policies, which reflect

the core principle of “value for money.” This principle

means that an innovative technology, which improves

health outcomes or healthcare efficiency, should receive

better pricing and reimbursement treatment, in order

to create the environment of appropriate incentives

for innovators. It also means that dramatic and heavy-

handed pricing and reimbursement policies should be

avoided, since regulatory unpredictability and lack of a

transparent “value-for-money” methodology strongly

discourages innovators from not only investing in new

technologies but also introducing any such technology

in the Indian market.

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ECONOMY MATTERS 38

ECONOMY MONITOR

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