Business Today

Big Bonanza *Conditions Apply

Ambitious healthcare, insurance plans but implementation still not clear.
twitter-logoProsenjit Datta | Print Edition: February 25, 2018
Big Bonanza *Conditions Apply

The Union Finance Minister actually presents two different Budgets every year. The first is the Budget his speech is all about - it focuses on the policy or political messages he (or more accurately, the Prime Minister) wants to convey to his audience, both within the Parliament and among the citizens of the country. The second is the one which is contained in the minutiae and the fine print of the Budget documents that are tabled.

The first is easy to react to. The second takes hours of poring over the figures and the changes to fully understand the implications. For some finance ministers, there is a broad match between the two. That is, the major initiatives that the minister talks about in his speech are also the ones that find the biggest allocations in the expenditure. Equally often though, there is a sharp divergence. All the things the finance minister tom toms are very different from the "real" message conveyed in the revenue and expenditure parts of the budget documents or even the other details of the different documents.

When Finance Minister Arun Jaitley presented the Budget on February 1, the political messaging of his speech could not have been sharper. But the budget papers themselves don't necessarily tally with all the messages he was seeking to convey.

The first quarter of his speech was about all initiatives for farmers and other rural poor. This was necessary because despite two consecutive good monsoons, rural distress in most parts of the country was at an all-time high - and the anger in the farming community was palpable. It showed itself in the Gujarat assembly elections where rural voters moved sharply away from the BJP. It is expressing itself in Rajasthan and Madhya Pradesh, both states which the BJP rules and which are headed for elections later this year. (Interestingly, even as the Budget speech was going on, the elections results came in for the three by elections in Rajasthan with the BJP losing all three). And it was absolutely imperative to address the farming community given that general elections are scheduled just a year and a half later, and this was the last full Budget of this government.

It was even more important given that while the Prime Minister has talked about doubling farmer incomes by 2022, the Economic Survey brought out by chief economic advisor Arvind Subramanian pointed out that farming incomes had not only remained stagnant for the year, real incomes would actually come down over the next few years by as much as a quarter because of climate change. Many of the schemes that he talked about for rural areas had already existed for several years (this included irrigation, micro irrigation, rural housing and others). The big announcement was about the minimum support price which was to be extended to all crops, and would be set at 50 per cent over the cost price of production. It was also the budget promise of the BJP in 2014, but one this government had stayed away from implementing for the first three years because of its inflationary implications and its potential to wreck government finances.

After rural components, the speech focused on education, especially educational initiatives for the poor, and even more specifically for the Scheduled Caste and Scheduled Tribe children through Eklavya Schools and other measures. This was interesting because there have been accusations that the BJP had not done much for Dalits, and accusations by its detractors that it was essentially an upper caste dominated party.

But the big announcement came in the middle of the finance minister's speech. It was the most ambitious health care coverage to be rolled out for the poor, covering 10 crore families (and calculated to have 50 crore beneficiaries if each family was supposed to have five members) for a sum of Rs 5 lakh. The National Health Protection Scheme, to give it the formal name or "Modicare" as people have already started calling it, was not detailed in the speech, but it was a huge political message being sent out for a government preparing for a re-election. The Finance Minister's speech did not dwell on the details, and neither was much to be gleaned from perusing the budget documents because it would be a huge break away from the traditional way Indian governments have tried to address healthcare (through government hospitals, government run healthcare centres) and would now depend on insurance and private sector hospitals for delivery.

The other major focus was on the Micro, Small and Medium Scale Industries (MSMEs), where corporate tax was reduced to 25 per cent for those with a turnover up to Rs 250 crore (the FM estimated this would cover 99 per cent of all companies in the country), and an enhanced credit scheme. That leaves out 7,000 companies with turnover over Rs 250 crore. The MSMEs were another group that was unhappy because they had been hit by the twin disruptions of demonetisation and GST which were unleashed less than a year apart.

And then finally, there was infrastructure. He announced that the government spending on infrastructure was going up by Rs 1 lakh crore to Rs 5.97 lakh crore during 2018/19.

The Finance Minister quickly mentioned that he was going to miss the fiscal deficit target (he estimated the fiscal deficit for the year to be 3.5 per cent, instead of the 3.2 per cent set earlier, and set himself a softer fiscal deficit target for the next year (3.3 per cent instead of the 3 per cent in the original FRBM target). He had nothing major for the salaried middle class though he mentioned that he was making life easier by giving a Rs 40,000 standard deduction while removing medical reimbursements and transport allowance. He did not focus on the fact that the increased education and health cess would actually take away whatever benefit that came because of the standard deduction. He announced he was reintroducing the Long Term Capital Gains Tax (the message being that those with investible surplus should be taxed more if the poor were to benefit). And he mentioned casually, almost in passing, that he would increase some customs duties to encourage Make in India.

Now let us look at how his speech tallied with the details given in the Budget documents. First, despite all the emphasis put on farming incomes, rural projects, education and the huge announcement on healthcare, not many details are forthcoming in the documents. The budgetary allocations for the agricultural and allied, education, health and rural development sectors in 2018/19 has gone up by 12.8 per cent, 3.8 per cent, 2.8 per cent and 1.8 per cent, respectively, from the revised estimates.

Take in to account inflation, they have not moved much at all. More importantly, the ongoing projects of 10 different ministries were linked together in the speech to make it sound like a huge jump in spending. Equally, a lot of the spending was in terms of credit which would be decided by banks, not direct spending by the government. In essence, the government's actual allocations were fairly low.

The infrastructure allocations did go up significantly but again much of this spending will remain off budget. (For roads, for example, the government expects NHAI to raise the resources). The spend on tax administration jumped sharply (possibly because of implementation of the GST and the spending on the GST Network).

In fact, many of the schemes that the finance minister spent a lot of time on in his speech would not happen through direct central government action and spending. Much would be implemented or tailored to be delivered through off-budget means - through banks, through insurance companies, through private medical facilities, through partnerships with private companies.

In principle, this is not necessarily bad because everything does not have to be done by the government. But in practice in India, they merely amount to passing the burden of execution from the government to others, in essence abdicating its responsibilities for delivering social justice but making the announcements in order to take credit for them. To give it credit, the government manages to implement some of them reasonably well (NHAI road building for example, or the Jan Dhan scheme that was implemented through banks). But in other cases, the implementation poses problems because of the sheer complexities involved. (An earlier health insurance scheme with a lower limit failed because the government was not able to put all the pieces together).

The other big problem was that the biggest announcement of the budget - the Modicare initiative - would be fleshed out and detailed only much later. And this is also where most questions come from. The cover of Rs 5 lakh per family is a pretty decent cover and insurance companies charge a hefty annual premium to provide what is termed a "family floater medical insurance policy". The premium ranges from Rs 20,000 plus a year for young families to Rs 45,000 or more for those in older age groups, and those with existing medical problems. Even these policies come with many riders - including no claim periods, specific exclusions, and limits for all sorts of diseases. Assuming the government's scheme is to be implemented as a medical insurance, who will bear the cost of the premiums. Will the government bear the entire lot, or only part of it? What all will it cover? Will it be cashless claims? Will a poor family get treated in any private hospital? (Currently, a number of big hospital chains actively discourage CGHS scheme patients because of disputes with getting bills reimbursed from the government). What happens to primary healthcare issues?

Answers need to be detailed out for the scheme to work successfully.

The other big problem with the budget was that it had no ideas to spur growth. The government is largely depending on the global economic improvement and domestic consumption growth to take care of growth along with the massive spends on infrastructure to spur growth in the short term. There was also the subliminal message that protectionism was back in a big way (through major changes in the custom duties of a host of products ostensibly for encouraging Make in India).

To a great extent, this budget was reminiscent of the old Congress era budgets with all the attendant problems, and not of a government that believes in pushing for growth, less regulation, encouragement of big industries, and globalisation.

It was a Budget aimed squarely at winning elections - never mind if it meant giving growth, inflation management, and prudent fiscal management a short shrift. At least that was the combined message that came out of the putting together the Finance Minister's speech and the details available in the Budget documents.


  • Print

A    A   A