Actually, the relationship between India’s health sector and GDP growth is much more complex.
Two goals of the Narendra Modi government make for an interesting comparison. One is of course the overarching goal of taking the Indian economy to the level of $5 trillion by 2024-25 and the other is doubling the share of public health spending to 2.5 per cent of GDP by 2024-25. To achieve the $5 trillion goal, the economy will need to grow at the rate of eight per cent every year between now and then, as noted in the recent Economic Survey. However, to achieve the goal of 2.5 per cent, public health spending needs to grow at a much faster pace — by more than 20 per cent per annum in real terms.
At $5 trillion, India’s per-person GDP will be $3,420 — representing a nearly 60 per cent increase over the current level of $2,100. Whereas at 2.5 per cent of GDP, India’s per-person public health spending will be $86 — representing a nearly 200 per cent increase over the current level of $30. At $5 trillion, India’s economy may turn into be the third-largest economy in the world but India will continue to be a lower-middle income country as per the World Bank classification (entry into higher middle-income category requires per-person GDP to be over $3,995), and the size of its public health spending will still be way below that of many countries.
Any relationship between these two goals? Yes, of course. While the $5 trillion goal is defined in absolute terms, the public health spending goal is not. In fact, by defining the public health spending goal in terms of the size of the economy, the achievement of the first goal has a direct bearing on the achievement of the second. Quite ironically, while the achievement of the $5 trillion goal makes funding of public health easier, it also makes the goal that much more difficult to achieve. In the last 15 years or so, India achieved real GDP growth between seven and eight per cent for a number of years. Yet, the share of its public health spending has remained sticky. In other words, changes in its public health spending has not been very responsive to changes in its GDP. This implies that there is a greater likelihood of the goal of public health spending being achieved when the size of GDP is lower than $5 trillion. For example, at a $4 trillion economy by 2024-25, public health spending would need to grow only by around 15 per cent in real terms, instead of over 20 per cent.
Besides the relationship between the two goals, India’s health sector has a more direct relationship with GDP, that is, it’s a significant source of GDP growth. The health sector — consisting of hospitals, pharmaceuticals, diagnostics, medical equipment and supplies, medical insurance and telemedicine — is a part of both the service sector and the manufacturing sector. Both the service and manufacturing sides of the health sector are growing rapidly. And these will continue to grow in future too in response to the growing demand for healthcare in the country due to rising incomes, growing health awareness, the growing burden of lifestyle diseases, increasing access to health insurance and so forth. The service side of the health sector is also a significant creator of jobs. For example, Indian government is committed to setting up 150,000 Health and Wellness Centres (HWCs) across the country by 2022. If eight people are deployed in each of these centres, this will lead to the creation of 1.2 million jobs.
A complex relationship
Actually, the relationship between India’s health sector and GDP growth is much more complex. This is because India is also eying to become an important player in the global healthcare industry. In pharmaceuticals, India is already a key global player, accounting for 50 per cent of global demand for vaccines and 20 per cent of global exports in generics. India is already a hotbed of medical innovations and is attracting significant foreign direct investments. Further, India is aspiring to emerge as a hub for medical tourism, to become manufacturer-cum-exporter of medical devices, and exporter of healthcare personnel. At the moment, this all appears to be futuristic as India is currently struggling to meet the healthcare needs of its own people. And this is partly linked to low government spending on healthcare. In this context, the public health spending goal of 2.5 per cent of GDP becomes quite important.
As and when this goal is achieved, at least 75 per cent of public health spending would be directed at primary healthcare as the government is already committed to it. As for secondary and tertiary care, the government has made it free for the poor and the vulnerable people under its Pradhan Mantri Jan Arogya Yojana (PMJAY). As for the non-poor, the government is planning to bring them also under the ambit of PMJAY upon payment of premium. That people have decent access to healthcare is important from the human capital perspective too, which again has a direct relationship with GDP growth. But this will take a long time to show its effects.
We need to think big
Even thinking only about the next five years, achieving the two goals seems a little difficult. While the $5 trillion goal critically hinges on the growth of India’s exports and private investments, achieving the health spending goal is critically dependent on states stepping up their health spending as they contribute nearly two-third of India’s total public health spending. Both these seem a little challenging in the prevailing economic scenario, both globally and within India.
Still, there is some merit in thinking big. As Prime Minister Narendra Modi rightly mentioned in his recent Independence Day speech, that if we don’t take up difficult challenges, how will we develop a mindset to move forward?