The sharp and unexpected fall in WTI crude prices, slumping to a negative territory for May 20 contract can have significant bearing on the Indian economy. Let us analyse its implications and what can be done to utilise this windfall.
Indian crude price is not directly related to US WTI crude price, but price is benchmarked to international benchmark like Brent and prices of other oil producing countries. However, crude oil prices in general have been on sharp decline, as given in the paragraph below, both due to demand destruction following projected negative growth in most parts of the globe and a supply glut.
For the year 2020-21, India had budgeted a $105 billion crude import bill at an estimated average price of $66 per barrel. The estimated price at the time of budget in February 2020 was based on prevailing price then. For example, Brent prices for December 2019 was $69, and for January 2020 was $64. But when coronavirus broke out in China and was quickly followed in the rest of the world, crude prices started sliding. For February 2020, it stood at $56, March 2020 at $32 and April so far at $21. Even if the average price of crude starts bouncing back upwards, triggered through supply cuts and improvement in economy after a few months, the average price for the year will remain around $40 per barrel, and our import bill will be around $64 billion. In other words, reduction in our import bill would translate to at least $40 billion, without factoring our demand reduction. This is almost twice the fiscal stimulus of $23 billion announced by the Finance Minister to fight COVID-19. Or to put it differently, this year we have a health budget of Rs 69,000 crore, approximately $9 billion. So, thanks to the sharp fall in crude price, we will have savings of more than 4 times our health annual budget.
So, this is a windfall for the Indian government. I have three suggestions, which I believe can be met from approximate Rs 3 lakh crore savings due to reduced crude import bill. We have a poor health infrastructure, and spend less than 1 per cent of our GDP on health. That is precisely one of the reasons why we stand at 129th in terms of Human Development Index, with 364 million poor people out of the total 1.3 billion poor people in the world. As pointed out by a McKinsey book, Reimagining India, one of the reasons why poor people cannot come up above the poverty line is unexpected illness or hospitalisation, which takes away all their savings. As per India 2020 handbook, in-patient hospitalisation cost has increased 300 per cent during the last 10 years and more than 80 per cent of expenditure are met from out of pocket (OOP) in absence of any meaningful health care. However, there has been a beginning now with Pradhan Mantri Jan Arogya Yojana.
My suggestions to step up health infrastructure in the background of current health pandemic would be:1. Let us try to have one Primary Health Centre (PHC), a mini hospital, in every Panchayat, to be managed by the Gram Panchayats. We may have to step up personnel requirements in terms of the number of medical and para medical staff in a phased manner in, say, the next 5-6 years.
2. Let all Indians be covered under a medical insurance scheme for an amount that is sufficient to cover even expensive treatment like heart operation, cancer etc which take away lives or life-long savings. Things are not encouraging now, because we cannot even afford to make COVID-19 tests free for all, let alone treatment.
3. Let us step up expenses in research, innovation and facilities to meet mass pandemic like COVID-19 at each state and may be district level.
Health is wealth. If we want to become wealthy, a $5 trillion economy, we need to have healthy people to contribute to the health of the economy. We need to seriously bridge this great divide -- 5th in terms of GDP and an abysmal world ranking of 129 in terms of Human Development Index.(The author is a public policy commentator. Views are personal)
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