Health expenditure of Indians to surge, impact consumption spending
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Health expenditure of Indians is likely to surge from the current levels and impact the expenditure on items of discretionary consumption, according to an SBI Ecowrap report.
"Health expenditure, currently at 5 per cent of overall PFCE (private final consumption expenditure), could increase by at least 11 per cent from the current level. This is likely to also result in squeeze in expenditure on other items of discretionary consumption, a recipe for a cutback in consumption spending," it said.
It noted that although CPI inflation slowed to 4.29 per cent in April 2021 from 5.52 per cent in March 2021, primarily due to easing food prices, as the pandemic rages through India, it is worthwhile to look beyond the headline inflation.
In particular, rural core has now jumped to 6.4 per cent in April 2021 and would rise further in May 2021. Increasing health expenditure because of the pandemic is having a meaningful impact in rural areas. Item-wise inflation of Health CPI shows persistent month-on-month increase in inflation of non-institutional medicine, and X-ray, ECG, pathological tests.
Even hospital and nursing home charges have increased in April 2021. In the current pandemic, headline inflation may not be incorrect to look at, said the report.
"A more important price concept is the relative prices which are not a monetary phenomenon but their movements convey important information about the scarcity of particular goods and services as now like health," it said.
It noted that overall CPI declined in April 2021 because of significant decline in food CPI, but when the relative prices of food items is compared to overall CPI, the deceleration was not sharp as it was seen in actual food CPI. Similarly, for certain items like fuel and health, the increase in relative prices is maximum.
The core CPI, which was showing a decline of 57 bps, increased in relative terms by 18 points.
"We believe such distortions in relative prices must be looked through now as it could have an important impact on ratcheting up future inflationary expectations..," the report said.
