India’s already stiff healthcare costs get a pandemic boost
Premium- Healthcare inflation in India is unlikely to cool in the coming months. Economists at State Bank of India believe that healthcare expenditure will rise to form 11% of private consumption expenditure from the current 5%
MUMBAI: The cost of healthcare during a pandemic is bound to rise, and in that the recent surge in India’s ever climbing healthcare inflation should not come as a surprise.
But India’s healthcare inflation has been rising faster even before the pandemic was triggered last year. As such, health inflation has been several percentage points higher than the headline number for many years now. In fact, healthcare inflation had shown a sharp rise during FY19 and the rate of inflation during the current pandemic time is less than that year. Healthcare inflation was 8.87% in December 2018 led by a sharp rise in select medicine prices.
Healthcare inflation rose to 7.76% in April, much higher than the headline number. Yet, the headline healthcare inflation which touched a near 20-month high in April at the retail level does not capture the full extent of the rise in costs to the average individual. One explanation could be that social spending by the government prevents any sharp increase in healthcare costs during crisis. Healthcare subsidies go a long way to keep the price rise under check.
On the other hand, the state’s healthcare facilities are precisely the factors that may hide the actual healthcare inflation in the country. The data for computing inflation is collected from a sample of both private and public facilities. During the pandemic, private facilities are likely to have increased their costs significantly. The increase in cost is more in smaller outfits as they struggle to achieve economies of scale. Ergo, the headline healthcare inflation doesn’t reflect the full extent of the pinch to the consumer’s pocket.
Then there is also the black market. During a crisis, nefarious practices tend to flourish and some evidence of this was visible earlier this month when the capital New Delhi turned for the worse. Shortage of most items, from hospital beds to medicines and oxygen cylinders led to instances where individuals had to procure this by paying exorbitant prices. To be sure, these instances may rise exponentially during a health crisis but are not the norm.
Be that as it may, healthcare inflation in India is unlikely to cool in the coming months. Economists at State Bank of India (SBI) believe that healthcare expenditure will rise to form 11% of private consumption expenditure from the current 5%. “First, health expenditure currently at 5% of overall PFCE (private final consumption expenditure), could increase by at least 11% from the current level. This is likely to also result in a squeeze in expenditure on other items of discretionary consumption, a recipe for a cutback in consumption spending," they wrote in a 17 May note.
India is one of the worst hit by the covid-19 pandemic. It is also facing a surge in healthcare costs at a time when the pandemic has hurt household earnings as well.
