Open letter to the Finance Minister

Open letter to the Finance Minister ahead of 2024 Budget 

Dr. B S Ajaikumar, Executive Chairman, HCG Hospitals 

I write this letter in my individual capacity as a honest tax payer. I am proud of the fact that I am one of the largest tax payers of the country.

 

I wish to highlight key concerns over the budgetary allocations for two critical areas: Health and Education as also the need to bridge the income and wealth inequality, the glaring, ever widening divide between the haves and the have nots of the country.

 

Talking of Health, there is a huge disparity in the quality and accessibility of health services between the metros on one end of the spectrum, and tier 2/tier 3 cities and rural areas on the other. Although as high as 76 per cent of India’s healthcare is run by the private sector, most of it is concentrated in urban areas.

 

The quality of healthcare penetration in Tier 2 and 3 cities has always been a huge concern in India. Today, if one looks at the doctor-patient ratio, it is heavily skewed in favour of urban areas which has led to a massive urbanization of healthcare. A minuscule percentage of doctors volunteer to work in Tier 2 and 3 cities despite the acute need for quality healthcare in non-metros and rural areas, both in communicable and non-communicable diseases. The advent of Covid only worsened the situation, as the footfalls in rural areas took a massive hit which in turn adversely affected outcomes in diseases like cancer where early detection is extremely crucial. The reasons for this disparity are purely economic, concerning the profitability and sustainability of healthcare enterprises.

 

Given that the Average Revenue Per Occupied Bed (ARPOB) in NCR region is Rs. 75,000, why should a private enterprise think of penetrating the deprived regions of the country where the ARPOB at best would hover in the meagre range of Rs. 10,000 to Rs. 12,000.

 

Clearly, if we have to improve the penetration of healthcare in rural and deprived areas, it is imperative that we improve the ARPOB in the hospitals of the vicinity.

 

This in turn calls for proper reimbursement of health spends by the people of these areas. Yes, there are schemes like Ayushman Bharat, CGHS, Pradhan Mantri Suraksha Bima Yojana and the like but the healthcare reimbursement processes need to be made more efficient in order to ensure healthy occupancy rates for healthcare establishments in rural areas which alone can ensure recruiting and retaining of best in class doctors, nurses and support staff as also the acquisition of advanced technology and infrastructure. There is an immediate need to set up a credible healthcare ecosystem in Tier 2 and 3 cities to make treatment equitable and accessible for all. Prudence calls for setting up well-equipped hospitals to create ample job opportunities for competent doctors, well-trained nurses, competent administrative and housekeeping staff, and conscientious healthcare activists in these deprived areas. This will have a beneficial impact on the demand-supply dynamic of healthcare in Tier 2 and 3 cities as both service providers and patients will not have to travel to metros, whether for seeking job opportunities or for availing medical treatment.

 

I am aware of the daunting nature of this task but better reimbursement models and smart incentivization of better performing private hospitals would be a key baby step towards the accomplishment of this crucial healthcare goal.

 

Another key area to be addressed in that of GST.

 

A ‘zero rate’ GST on healthcare services is the need of the hour towards easing compliance and protecting the input tax credit chain. The impact of revised rates on inputs and taxes on key medical equipment is adversely affecting the goal of affordable healthcare.

 

If hospitals can’t claim input credit despite the huge embedded GST costs, not to mention taxable services like training, consulting, pharmacy sales, and catering, how can they be expected to reduce the cost of healthcare services for the end user, who is a patient in need of treatment, not a customer making a discretionary purchase.

 

In fact, all forms of GST should be abolished for healthcare entities as they adversely impact the performance and prospects of healthcare players.

 

Talking of Education, we face another glaring disparity between urban and rural areas. Sadly, students of rural areas lose out on several employment opportunities despite the needful qualifications. This is because they don’t meet the standards of employment given the poor quality of education services in these regions. Although they may as competent and as sincere as their urban counterparts, they are not considered for plum positions almost by default.

 

So, how do we address this challenge? The solution is staring at us: why not incentivize the private sector penetrate rural and deprived regions to transform the primary and secondary education in a sustainable manner. The best way to go about it is to introduce a voucher system which will help poor students enroll into a private institution while the latter would be suitably incentivized for the enrolment. 

 

As the great economist and statistician Milton Friedman had rightly suggested, a radical restructuring of elementary and secondary educational system can be achieved only by privatising a major segment of the educational system providing a wide variety of learning opportunities. The most feasible way to bring about such a transfer from government to private enterprise is to enact in each state a voucher system that enables parents to choose freely the schools their children attend. The voucher must be universal, available to all parents, and large enough to cover the costs of a high-quality education. This move will bring parity in the education system which will also create equal opportunities of employment and entrepreneurship for all aspirants, irrespective of whether they are rural or urban. Rural unemployment will come down significantly which will also arrest the mindless migration of rural people to towns and cities in search of livelihoods.

 

In the context of income and wealth disparity, India is one of the most glaring examples of inequality in wealth creation and distribution alike. The rich are getting richer and the poor poorer. It is clear and evident that a doubling effect is at play, which in the absence of conscious capitalization to establish parity, is further widening the rich-poor divide.

 

Let’s study this vicious loop though an example of three individuals with equal zest and zeal to make it big in life. However, they are given monetary help in varying amounts. The first individual is provided with a capital of Rs. 1 lac, the second is given funds to the tune of Rs. 10 lac, while a staggering amount of Rs. 1 crore is disbursed to the third.

 

Over time, all three make the most of their employment or entrepreneurship opportunities through a doubling of wealth. Although the effect is of the same magnitude and all three move up the value chain of affluence, the first person with Rs. 1 lac initial capital obviously can never catch up with the third person who had Rs. 1 crore to begin with. It is but obvious that this disparity widens with the doubling and gets even worse over time. We see this happen in real life; scores of competent, hardworking people fail to achieve the prosperity in line with their potential as they are languishing at the lowest end of the totem pole. In the absence of the basic availability of minimum credit to be able to reap the benefits of money multiplier effect, poor people have to make do with little and settle for way less than what they deserve.

 

If we don’t reverse this trend now, wealth will keep accumulating in the hands of the fewer and fewer individuals, a trend which we have been witnessing through the decades. Without the basic availability of minimum credit, the income gap is bound to widen and wealth concentration is going to increase. Measures like the Microcredit revolution started by Grameen Bank under Mohammad Yunus and the direct cash transfer schemes are some attempts to relieve the world of the most important social security problem in front of mankind: Income Inequality. Governments around the world have tried to resolve the issue of low income people with ventures like income redistribution, subsidies, reservation etc. but have been skeptical about the Direct Cash Transfers (DCT). The advantage of the Direct Cash Transfers is that the rich will continue having a great share of the world’s wealth but will help lift several poor individuals from poverty. The paper discussed the viability of the direct cash transfer mechanism to effectively tackle the issue of income inequality.

 

A good way to escape this trap is the channeling of tax collections for purposeful redistribution of wealth to deserving people of deprived regions via a direct cash transfer.

 

For instance, every family of a poor locality is given 20 lacs each and then the government monitors how they use the proceeds for achieving prosperity. Done right, this initial cushion of funds will help them with a level playing field to improve their economic status. Consequently, India’s per capita income will rise, easing our path towards becoming a developed country.

 

Clearly, poverty eradication will remain a distant dream unless we make the poor and deprived sections of our country an integral part of mainstream economic activity. To set the economy in motion, a significantly large population must participate in employment, entrepreneurship and market making, which means the participation of the poor is integral, given that they form the bulk of India’s population. To do so, they need immediate and direct monetary help today, such that they can contribute to tomorrow’s economic growth.

 

Without direct cash transfers, it is impossible to expect a radical change at the grassroots, merely on the wishful thinking of long-term measures. A case in point is the problem of migrant workers in India. If they are promised welfare though the winding route of engagement, based on a flow of income that is yet to be earned, they won’t buy the argument and prefer to return home, which is what they did during the pandemic.

 

The government should appoint a committee of economic and public policy experts to study various models and modes of direct cash transfers in line with the specific needs of India’s diverse issues across regions. Based on the study report, a pilot project can be implemented across say 1000 most vulnerable villages of India; the impact can be measured in terms of the quality and the sustainability of the outcomes. This effort will pave the way for needful tweaks and refinements, as also Pan-India large-scale implementation of direct cash transfer programs.

 

It is high time representatives of the private sector – industry champions, academic experts, healthcare crusaders, thought leaders, and activists - are made part of the collective brainstorm with government officials aimed at strengthening our tax collection and wealth distribution systems and processes for ensuring the greater good. How long are we going to exempt rich farmers and estate owners from paying tax? The time has come for stringent measures towards improving compliance, expanding tax base, and arresting widespread tax evasion and avoidance.

 

There is an urgent need to bring agricultural income within the ambit of taxation given the fact that many affluent farmers are availing of subsidies they don’t need, while many ‘non-agriculturists’ are abusing the exemption through colossal tax-free wealth generation, converting their black money into white. Countless rich farmers growing areacnut, coconut, betel nut, tea, coffee and the like have amassed massive wealth without having to pay a single rupee of tax, and without spending any money whatsoever for community development or improving the living conditions of the labourers working on their farms. Rich farmers and non-agriculturists get fertilizer at reduced rates, a subsidy that costs the government about $10 billion a year nationally, more than it spends on healthcare or higher education. They also get cheaper electricity than factories or homes. This subsidy abuse must be weeded out at the earliest. The 2014 Tax Administration Reforms Commission (TARC) report had righty highlighted the need for a “cross-subsidy” approach: of keeping small farmers out of tax purview, while taxing large farmers and closing a popular escape route for money laundering. The incremental tax collection can help the government lower the debt burden to construct roads, ports, power plants and other public projects. The TARC had recommended that farmers with agricultural income Rs 50 lakh-plus should pay income tax. The income tax threshold is only Rs 5 lakh which needlessly exempts the average Indian earning Rs 1.4 lakh a year from paying any income tax. The tax base needs to be expanded to include more people within the ambit, such people who are not averse to pay tax if asked to, as is otherwise assumed.

 

I am sure that a purposeful dialogue between all stakeholders of the society on the above-mentioned suggestions will pave the way for needful reforms aimed at serving the larger cause of Healthcare and Education, and bridging the income and inequality gap.