A health check-up for the Union Budget

Feb 16, 2022 11:53 AM IST

Much of economics has grappled with these trade-offs between well-being and prosperity, as do governments. And in this context, the Union Budget 2022 stands out

When the first global Human Development Report, whose theoretical framework was conceived by economists Amartya Sen and Mahbub ul Haq, was unveiled, Haq put out a brilliant example to drive home its importance.

Adjusted for inflation, the cut to the health sector, even as a pandemic is on, is the unkindest of all. (PTI File) PREMIUM
Adjusted for inflation, the cut to the health sector, even as a pandemic is on, is the unkindest of all. (PTI File)

In the report, Costa Rica’s life expectancy turned out to be way higher than many other nations with much higher Gross Domestic Product (GDP) growth but shorter lifespans. Haq argued that if an alien were to think of settling on Earth, which country would it pick? Costa Rica, where life would be longer and healthier, or a richer country where people die younger?

Much of economics has grappled with these trade-offs between well-being and prosperity, as do governments. Economic growth is necessary but not a sufficient condition to achieve the larger goals of health, well-being and exercise of choice, which Sen theorised as the “capabilities approach”.

After a severe GDP contraction of -7.83% in 2019-20, there’s no argument that India urgently needs to get its growth back. This is critical for jobs and incomes to grow amid the pandemic, which wrecked the economy, jobs, education and health of all Indians.

It is in this context that the government presented the Union Budget 2022-23, which stands out for a strong focus on capital investments, which refers to spending on machinery, ports, highways, airports and logistics infrastructure. An economy cannot grow without investments. Given our income-poverty levels, fast growth is indeed required.

The Budget projects a nearly 35% increase in capital expenditure. It targets 7.5 trillion of capex spending in FY23, which is substantial. However, this includes 1 trillion in long-term, interest-free loans to states for infrastructure development. Since 60% of public spending is done by the states, this is a wise move. So, the Centre’s own capex share is 6.5 trillion. The Budget has relied heavily on a “multiplier effect” to materialise from higher capital spending, from jobs to incomes.

Yet, the Budget may be less ambitious than it seems. Social spending, primarily in health care and education, which are crucial in any developing economy, have seen very meagre allocations.

Budgets have never been mere statements of accounts, nor have they been investment blueprints alone. Budgeting in India is an articulation of a government’s economic ideology. And what comes out in this Budget is the government’s belief in dubious trickle-down economics.

Adjusted for inflation, the cut to the health sector, even as a pandemic is on, is the unkindest of all. The Budget makes it apparent that India, which spends the lowest in public healthcare, will never achieve its goal (National Health Policy 2017) of spending upwards of 2.5% of its GDP on health. What contribution can a health-deprived or ill-fed workforce make to the economy? Education and health spending have a significant impact on economic growth with strong empirical interlinkages between human capital and growth.

There can be nothing more salient than the health of citizens. The Budget allocated 83,000 crore to the ministry of health and family welfare. This is a marginal increase of just 0.1% when compared to the revised estimates of 82920 crore in 2021-22 in a country which still has the largest proportion of undernourished children and highest out-of-pocket private health expenditure.

India’s poorest states are witnessing a faster transition to non-communicable disease burdens. Our immunisation rates continue to be one of the lowest globally. Except for the BCG vaccine, India’s inoculation rates are uniformly lower than corresponding averages for sub-Saharan Africa (Sen and Dreze).

Another questionable aspect of the Budget is its over-reliance on a digital health ecosystem. Health cards are no replacement for real and affordable health care. There is already evidence that public health insurance is proving to be a trap, causing healthcare services to become supply-driven when it needs to be driven by demand.

Capital expenditure is necessary for growth. But it’s important to remember that what matters most is the quality of growth. The Soviet economy collapsed despite astounding levels of capital investment because the economy reached a so-called “steady state”; it neither grew nor shrunk as all new capital went into making good the depreciation of assets. Higher capex increases the capital-to-output ratio, which can lead to fewer jobs being created as automation takes over.

The question ultimately is about balancing the trade-offs. What good is growth that is jobless, unequal or growth that is generated by 10-20% of the economy, all of which are likely when social spending gets neglected.

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    Zia Haq reports on public policy, economy and agriculture. Particularly interested in development economics and growth theories.

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