Content

1. Infrastructure push now, fiscal consolidation later
2. First steps in the journey to universal health care

Editorial: Infrastructure push now, fiscal consolidation later

Context:

• The fiscal year 2020-21 has been an extraordinary one, where India had to face an acute economic crisis triggered by a non-economic factor — a pandemic. The National Statistical Office has estimated that the economy would shrink by 7.7%. There are other estimates which put the shrinkage at an even higher level.

Relevance:

• GS Paper 3: Indian Economy (issues re: planning, mobilisation of resources, growth, development, employment); Inclusive growth and issues therein.

Mains Questions:

1. The Union Budget has provided reasonable stimulus to growth, but concerns remain about fiscal deficit. Discuss. 15 Marks

Dimensions of the Article:

Transparency versus stimulus

• Proposed growth in central expenditure, both in 2020-21 Revised Estimates (RE) and in 2021-22 Budget Estimates (BE), indicates the extent of contemplated fiscal stimulus. Since three quarters of 2020-21 have already passed, the expenditure push in 2020-21 RE over actual expenditure in 2019-20 has to be implemented in the last quarter.
• Controller General of Accounts data for expenditures already incurred in the first nine months of 2020-21 indicate that for reaching the projected RE levels, the growth required in the last quarter of the current fiscal year over the corresponding period of the previous year would be 102.9% for total expenditure, 109.9% for revenue expenditure, and 60.3% for capital expenditure.
• These upsurges appear extraordinary: This involves transferring on to the Budget, the accumulated food subsidies amounting to ₹2,54,600 crore given to the Food Corporation of India through National Small Savings Fund (NSSF) loans.
• The balance of subsidies amounting to ₹1,68,018 crore would be the food subsidy pertaining to 2020-21 (RE). This is a desirable change towards transparency. Taking revenue expenditure figures as budgeted, a contraction of 2.7% is seen in 2021-22 BE over 2020-21 (RE).
• However, after adjusting for the NSSF-accumulated food subsidy amount, the growth in revenue expenditure in 2021-22 (BE) is 6.7%. A good part of expenditure for the last quarter of 2020-21 may also pertain to clearing unpaid dues of various stakeholders including the private sector, autonomous bodies and government-aided institutions.
• Clearing these payments is desirable and would add to demand. It is these overdue expenditures which would enable the government to reach the high expenditure growth levels in the last quarter of this fiscal year.
• The main expenditure push comes through a budgeted growth of 26.2% in capital expenditure in 2021-22. Relative to GDP, capital expenditure is expected to increase from 1.6% in 2019-20 to 2.3% in 2020-21 RE and 2.5% in 2021-22 BE, signalling a significant change in priority.

Receipts augmentation

• Budgeted increase in the Centre’s gross tax revenues is dependent on nominal GDP growth of 14.4%, with a buoyancy of 1.6 for direct taxes and 0.8 for indirect taxes. The assumed high buoyancy of direct taxes appears optimistic although there would be a positive base effect. The nominal income growth projected may also be optimistic.
• Significant increases are planned in non-tax revenues and non-debt capital receipts: From a contraction of 35.6% in 2020-21 (RE), non-tax revenues are budgeted to grow by 15.4% in 2021-22. This increase is mainly predicated on higher dividends from non-departmental undertakings and spectrum sales.
• In the case of non-debt capital receipts, mainly covering disinvestment, a budgeted growth of 304.3% in 2021-22 stands in contrast with the contraction of 32.2% in 2020-21 (RE). Disinvestment initiatives have so far yielded minimal results.
• National Monetisation Pipeline: This would be the first practical step towards asset monetisation. The pipeline may eventually start yielding revenues, but the time lags involved remain unpredictable because of various potential disputes and claims associated particularly with government-owned land.
• A transparent auction process needs to be set up to facilitate suitable price discovery. Slippage in revenue estimates may not be ruled out on account of realisation of lower than anticipated increases in nominal GDP growth, direct tax buoyancy, and disinvestment targets.

Infrastructure and initiatives

• The budgeted increase in capital outlay would provide the central government’s share to the National Infrastructure Pipeline. However, success of the infrastructure expansion plan would depend on other stakeholders of the pipeline playing their due role. These include State governments and their public sector enterprises and the private sector.
• Some of the proposed Budget initiatives include setting up of a Development Finance Institution (DFI) with an initial capital of ₹20,000 crore, to serve as a catalyst for facilitating infrastructure investment.
• In order to manage non-performing assets of public sector banks, there is a proposal to set up an Asset Reconstruction Company and an Asset Management Company. These institutional initiatives may prove to be effective. Much depends upon the fine-tuning the operations of these institutions.
• In the action taken report, the Union government has accepted the recommended vertical share of 41% for the States in the shareable pool of central taxes.
• The government has accepted the Fifteenth Finance Commission’s recommendation for revenue deficit grants, local body grants and disaster-related grants. The scope of revenue deficit grants has been extended to cover 17 States in the initial years.
• The determination of these grants is not based on equalisation principle although some norms have been used in the assessment exercise. However, the government has put on hold the consideration of State-specific and sector-specific grants including performance-based incentives.
• The substantive issue pertains to the mode of transfers in terms of general-purpose unconditional transfers vis-à-vis specific purpose and conditional transfers. States had shown a preference for the former mode and it is for this reason that the 14th Finance Commission had raised the States’ share from 32% to 42%.
• The reduction from 42% to 41% is only on account of the consideration of 28 States excluding Jammu and Kashmir because of its new status. The increasing resort to the imposition of cesses which are almost permanent have reduced the shareable pool. In fact, the States’ share in the Centre’s gross tax revenues is only 30% in 2021-22 (BE).

A road map

• The COVID-19 shock has fortified the sharp upsurge in fiscal deficits in 2020-21 and 2021-22. The Fifteenth Finance Commission has also proposed a revised fiscal consolidation road map for the Centre and States.
• The Fifteenth Finance Commission has recommended the setting up of a High-Powered Intergovernmental Group to re-examine the fiscal responsibility legislations of the Centre and States. In the context of COVID-19, some economists have gone to the extent of advocating almost giving up the prudential norms. This will be a wrong lesson to learn from the crisis.
• The Centre has indicated taking the fiscal deficit to 4.5% of GDP by 2025-26. The Finance Commission has also indicated a similar figure.

Conclusion

The issue of debt sustainability can be certainly re-examined by taking into account the evolving profiles of debt, interest payments, and primary deficits relative to GDP. Fiscal deficit must be related to household savings in financial assets and the interest payments to revenue receipts. It should not be forgotten that in fiscal 2021-22, interest payments to total revenue receipts will be 45.3%, pre-empting a significant proportion of revenue receipts. We must be conscious of the burden of the rising stock of debt.

Editorial: First steps in the journey to universal health care

Context:

• About 20 years ago, Thailand rolled out universal health coverage for its population at a per capita GDP similar to today’s India. What made this possible was a three decade-long tradition of investing gradually but steadily in public health infrastructure and manpower.

Relevance:

• GS Paper 2: Social Sector & Social Services (health, education, human resources – issues in development, management);

Mains Questions:

1. The lesson of COVID-19 is to go on a steady, incremental path given the weak fund capacities in the backward States. Discuss. 15 Marks

Dimensions of the Article:

• Budgetary allocations
• Universal insurance
• Comprehensive primary care
• Issues with funds
• Conclusion

Budgetary allocations

• The Union Ministry of Health and Family Welfare budget for 2021-22, viz. ₹73,932 crore, saw a 10.2% increase over the Budget estimate (BE) of 2020-21 — a modest increase even nominally.
• PM Atma Nirbhar Swasth Bharat Yojana, (PMANSBY): A corpus of ₹64,180 crore over six years has been set aside under the PM Atma Nirbhar Swasth Bharat Yojana, (PMANSBY) for strengthening health institutions, and ₹13,192 crore has been allocated as a Finance Commission grant.
• While the allocations still leave a lot to be desired, these could make the first steps of a journey that steadily builds towards sustainable universal health coverage through incremental strengthening of grass-root-level institutions and processes. Two important and prominent arms of universal health coverage in India merit discussion here.

Universal insurance

• The BE for the Pradhan Mantri Jan Arogya Yojana (PM-JAY), which covers over 50 crore poor Indians for hospital expenses up to ₹5 lakh per annum, has stagnated at ₹6,400 crore for the current and the preceding couple of years.
• Large expenditure projections and time constraints involved in input-based strengthening of public health care have inspired the shift to the insurance route for achieving universal health coverage.
• However, insurance does not provide a magic formula for expanding health care with measly levels of public spending. Available estimates have pegged the costs to be between ₹62,000 crore and ₹1,08,000 crore for 2021, if PM-JAY is to meet its stated commitments. Beyond low allocations, poor budget reliability merits attention.
• Another related issue is the persistent and large discrepancies between official coverage figures and survey figures across Indian States, indicating that official public health insurance coverage fails to translate into actual coverage on the ground.
• Rich vs poor states: This is particularly intriguing for forward States such as Maharashtra, Gujarat, and Karnataka, where state-level public health insurance schemes have been operational for around a decade. Robust research into the implementational issues responsible for such discrepancies and addressing them is warranted.

Comprehensive primary care

• Health and Wellness Centres — 1,50,202 of them — offering a comprehensive range of primary health-care services are to be operationalised until December 2022. Of these, 1,19,628 would be upgraded sub health centres and the remaining would be primary health centres and urban primary health centres.
• Initially, most States prioritised primary health centres/urban primary health centres for upgradation over sub health centres, since the former required fewer additional investments.
  • This offers huge cost projections — as per early (conservative) estimates, turning a sub health centre into a health and wellness centre would require around ₹17.5 lakh, and around ₹8 lakh annually to run it thereafter.

Issues with funds

• Two untoward implications could result from under-investing and spreading funds too thinly. Continuing the expansion of health and wellness centres without enough funding would mean that the full range of promised services will not be available, thus rendering the mission to be more of a re-branding exercise.
• Second, under-funding would squander an opportunity for the health and wellness centre initiative to at least partially redress the traditional rural-urban dichotomy by bolstering curative primary care in rural areas.
• This opportunity arises on account of the expanded array of services that health and wellness centres are supposed to provide, and the fact that an overwhelming majority of them will be in rural areas.
• Since curative care implies larger costs, they could be largely confined to delivering merely preventive, wellness, and referral services without adequate funding.

Conclusion

COVID-19 has prodded us to make a somewhat stout beginning in terms of investing in health. The key, and the most difficult part, would be to keep the momentum going unswervingly.