Financial Spending on Healthcare and its impact on the economy

– By Phani Kumar

“One of the factors a country’s economy depends on is human capital. If you don’t provide citizens with adequate access to healthcare, education and employment, you lose at least half of your potential. So, gender equality, empowerment and healthcare bring huge economic benefits.” – Michelle Bachelet

Healthcare plays crucial role in every country’s economy. Developed countries like America and France lay high emphasis on healthcare spending. Global average of financial spending on healthcare is 6% of GDP, whereas government spending in Indian healthcare sector is 1.3% of GDP. China’s expenditure on healthcare is 3.1% and the United States spends 8.3% of GDP. This shows the importance needed to be given for healthcare by emerging economies.

Holistically, healthcare means hospitals, pharmaceutical, diagnostics, medical equipment & supplies, medical insurance and telemedicine. At present, India has 0.7 doctors and 1.1 beds for every 1000 citizens. It implies that there is a lot of under-development in the Indian hospitals. Recent incidents in Uttar Pradesh government hospital portray the alarming situation of government hospitals. This shows that there is an urgent need for increase in financial spending on healthcare.

Average hospitalization costs increased 11% CAGR in last ten years but mortality rate remains high. It shows the increasing difference in quality of treatment of patients between private and public hospitals. Thus, there is an immediate necessity for the government to increase spending on hospitals and healthcare. It must increase the budget allocation from $4.5 billion to $10 billion in the coming years keeping in view the population growth of the country.

Pharmaceuticals in India are facing headwinds because of strict US FDA norms. There should be stricter government regulations to deal with issues of generic products. It boosts exports and improves country’s GDP. Proper regulations on generic products improve quality and will help in achieving the target of $50 billion exports by 2020.

Recent IPOs from diagnostic and insurance companies will provide necessary capital for their capex plans. This would help them expand into tier 3 cities and towns. SEBI support is necessary for further listing of companies from these segments.

Telemedicine is the next big thing in healthcare sector. At present, telemedicine has a $15 million market. It is expected to grow at a CAGR of 20% during FY 16-20. Proper support from government in PPPs can help the sector reach $32 million market by 2020.

100% FDI, National Health Policy 2017, incentives in the medical travel industry, tax incentives and encouraging investments in rural areas are future growth drivers in Indian health care industry.

Implementation of social insurance policies for people below poverty line and increase in allocation of government budget will improve health conditions of citizens in emerging nations. This, in turn will improve productivity of the people and increase their contribution to the economy.

Proper attention by government (of countries like India) on Telemedicine and Pharma sector will increase their contribution to export % of the country’s GDP.