Economy Matters: June-July 2016

1
FOREWORD
JUNE-JULY 2016
B
oosted by buoyant government stimulus, China’s economy grew by 6.7 per cent in the second
quarter of the current year, unchanged from the previous quarter. Yet downward pressure on
the economy remains significant. Fixed-asset investment grew at its slowest pace since 2000 in
the first six months while corporate debt has ballooned to monstrous levels. Government has swung
into action to control excessive credit off-take and lent support when the private sector’s backing is
slowly waning in the face of bleak demand outlook. Post Brexit, when the uncertainties in the global
landscape have increased, a resilient Chinese economy is expected to offer much needed respite to the
investors. Meanwhile, in its first monetary policy review meeting post Brexit, Bank of England (BoE)
stayed pat on the interest rates, hinting that it would wait till August 2016 before biting the bullet
and reducing rates. However, BoE did highlight that Britain’s financial system proved to be resilient in
weathering the initial impact arising from Brexit.
On the domestic front, monsoon so far has progressed well both on spatial and temporal front. Con-
comitant with satisfactory progress in monsoons, the progress of sowing of the major kharif crops so
far has also been good. Bountiful monsoons augur well for the food inflation which has skyrocketed
in the recent months, lending upward momentum to overall inflation. Industrial production growth
has remained lacklustre, with the crucial capital goods sector posting contraction for the past seven
months. In contrast, external sector provided some cheer with merchandise exports posting its first
growth after contracting for 18 months. Adding to the optimism was the sharp increase in CII Business
Confidence Index (CII-BCI) for the first quarter of FY17 on the back of improvement in business expec-
tations. The CII-BCI increased to the level of 57.2, up from the level of 54.1 recorded in the previous
quarter. The index has been steadily climbing since the last three quarters.
In this issue, we also take a look at health indicators within the country, given that there is perhaps
nothing more important than the health and well-being of its citizens delivered through an effective,
comprehensive health system. However, assessments about India’s healthcare—stretching from ac-
cess, spending, and capacity are often bleak. Hence, it is imperative that systemic reform in healthcare
systems, wherein both the centre and states work in unison, gathers momentum. Augmenting public
expenditure on health especially by the centre as also improving the efficiency of healthcare delivery
at the state level is essential. It must be recognized that creating a healthy workforce is imperative for
a strong economy and society. We must seize the opportunity of creating a healthy India at all costs so
that people’s living standards can be raised to acceptable levels in the near-term.
Chandrajit Banerjee
Director General, CII

5
EXECUTIVE SUMMARY
JUNE-JULY 2016
Global Trends
China’s economy grew by 6.7 per cent in the second
quarter of 2016 (2Q16) as per preliminary estimates, un-
changed from the previous quarter, as a buoyant prop-
erty market and government stimulus boosted output.
But signs of steadier headline growth in China may con-
ceal an economy that is growing increasingly lopsided,
as growth becomes ever more reliant on government
spending and debt. As per IMF, Brexit fallout is likely to
be muted for China, the world’s second-largest econo-
my, because of its limited trade and financial links with
the U.K. In its monetary policy meeting held on 14th
July,
2016, the Bank of England (BoE) kept its key policy rate
and Asset Purchase Facility (APF) unchanged. Commit-
tee members made initial assessments of the impact of
the vote to leave the European Union on demand, sup-
ply and the exchange rate. In the absence of a further
worsening in the trade-off between supporting growth
and returning inflation to target on a sustainable basis,
most members of the Committee expected monetary
policy to be loosened in August 2016.
Domestic Trends
The importance of good monsoons this year cannot
be overemphasised particularly after two consecutive
years of deficient rainfall. So far, till mid of July 2016,
both temporal and spatial distribution of rainfall has
been satisfactory. For the country as a whole, cumula-
tive rainfall during this year’s monsoon, up to 13 July,
has been 4 per cent above LPA. Meanwhile, industrial
output moved to the positive territory in May 2016,
posting a growth of 1.2 per cent as compared to a con-
traction of 1.3 per cent in April 2016. Despite the mild ex-
pansion of industrial production, the underlying anemic
trend is still bothersome as it indicates that industry is
underperforming. Inflationary pressures have acceler-
ated in recent months with wholesale Price Index (WPI)
based inflation rising to its 20-month high of 1.6 per cent
in June 2016 as compared to 0.8 per cent posted in the
previous month. The main driver behind a surge in WPI
inflation was the sharp rise in total food inflation. On
the external front, merchandise exports grew by 1.8 per
cent to US$22.8 billion in June 2016 after 18 months of
contraction. The pickup in export growth is heartening
as it is a harbinger of improvement in external demand
scenario which is likely to cushion overall economic
growth in the near to medium term as well.
Policy Focus
The important policy announcements by the Govern-
ment in the months of June-July 2016 are covered in
this month’s Policy Focus. The Union Cabinet under the
Chairmanship of Prime Minister Shri Narendra Modi has
given approval to a special package for employment
generation and promotion of exports in the textile and
apparel sector. The steps will lead to a cumulative in-
crease of US$2.6 billion in exports and an investment
of US$7.0 billion over next 3 years. The second policy
document released was the National Mineral Explora-
tion Policy 2016 which primarily aims at accelerating ex-
ploration activity in the country through enhanced par-
ticipation of the private sector. In another significant
development, the Union Cabinet approved the Pradhan
Mantri Kaushal Vikas Yojana (PMKVY) with an outlay of
Rs.12000 crore to impart skilling to one crore people
over the next four years (2016-2020).
Focus of the Month: Transforming
Healthcare in India
The advantages of giving weightage to healthcare are
manifold. For one, a healthy society is crucial for improv-
ing the quality of life and enhancing the productivity of
the workforce in the country. The ability to leverage our
distinct demographic advantage and capitalize on the
large reservoir of knowledge capital would depend es-
sentially upon the priority accorded to healthcare as no
population can be productive without the security pro-
vided by health. However, preliminary observation indi-
cates that healthcare has yet to receive the attention
and primacy of place which it deserves. As per latest
data available for 2014, the country spent 4.7 per cent
of its GDP on health of which public expenditure on
health is 1.4 per cent of GDP. This means that healthcare
activity is primarily in the domain of the private sector
(3.3 per cent). This is also borne out from the fact that
only around 30 per cent of expenditure on healthcare is
undertaken by the government. The remaining 70 per
cent of healthcare expenditure is borne by the private
sector. Against this backdrop, this month’s Focus of the
Month would seek to discuss some key issues such as
the current status, our outlays and outcome on health
at the center and state levels, major policies of the gov-
ernment and the suggestions to rev up the healthcare
sector.

ECONOMY MATTERS 6
GLOBAL TRENDS
China’s Economic Growth Remains Steady
in 2Q16
C
hina’s economy grew by 6.7 per cent in the sec-
ond quarter of 2016 (2Q16) as per preliminary es-
timates, unchanged from the previous quarter,
as a buoyant property market and government stimulus
boosted output. But signs of steadier headline growth
in China may conceal an economy that is growing in-
creasingly lopsided, as growth becomes ever more reli-
ant on government spending and debt. While fears of a
hard landing have eased, investors worry that a further
slowdown in China and any major fallout from Brexit
would leave the world more vulnerable to the risk of
global recession.
Rebalancing of growth towards consump-
tion remains key challenge for China
China’s economy is in the midst of a major transition
from a growth model based on construction and heavy
industry to a system which would place greater reliance
on consumption and services. In a sign of progress
towards rebalancing, investment contributed only 2.5
percentage points to GDP growth in the first half, down
from 2.9 points last year, while consumption rose from
4.2 points to 4.9 points during this period. Net exports
declined by 0.7 points. Monthly data also showed good
news for consumption. Retail sales grew 10.6 per cent
in June 2016 from a year earlier, the fastest pace since
December 2015.

7
GLOBAL TRENDS
JUNE-JULY 2016
From the demand-side, private sector investment fell
to a record low in the first half of 2016. Businesses
retrenched workers in the face of sluggish economic
outlook and weak exports. This slowdown has alarmed
investors and policymakers alike, as the private sector
accounts for over 60 per cent of China’s total invest-
ment and 80 per cent of its jobs. An anemic private sec-
tor makes it evident that the government may need to
provide additional stimulus this year to hit its growth
target of 6.5 to 7.0 per cent. The quarterly breakup of
demand-side components is not available yet.
The sectoral distribution of growth from supply-side
showed that services sector continued to remain the
bulwark of economic growth, posting an impressive
growth of 7.5 per cent in the 2Q16. The industrial sec-
tor grew by 6.3 per cent, while agriculture registered a
growth of 3.1 per cent in 2Q16. With this, the first-half
2016 growth of agriculture, industry and services sector
stood at 3.1, 6.1 and 7.5 per cent respectively.
From the demand-side, private sector invest-
ment continues to remain anemic

ECONOMY MATTERS 8
GLOBAL TRENDS
In its monetary policy meeting held on 14th
July, 2016,
the Bank of England (BoE) kept its key policy rate and
Asset Purchase Facility (APF) unchanged. The mon-
etary policy committee (MPC) voted by a majority of
8-1 to maintain the Bank Rate at 0.5 per cent, with one
member voting for a cut in Bank Rate by 25 basis points.
The Committee voted unanimously to maintain the
stock of purchased assets financed by the issuance of
central bank reserves at £375 billion.
Committee members made initial assessments of the
impact of the vote to leave the European Union on de-
mand, supply and the exchange rate. In the absence
of a further worsening in the trade-off between sup-
porting growth and returning inflation to target on a
sustainable basis, most members of the Committee ex-
pected monetary policy to be loosened in August 2016.
Moreover, the Central Bank highlighted that the ‘resil-
ience’ of UK’s financial system and the flexibility of the
regulatory framework have cushioned the initial impact
of Brexit on the markets.
Mixed signals on the economic front in UK
The economic backdrop for BoE’s monetary policy
meeting provided a mixed picture. While macro-eco-
nomic data prints for the period since Brexit are not
yet available, early signs point towards softness in eco-
nomic activity. UK’s GDP grew at a tepid 0.4 per cent
on quarter-on-quarter basis in first quarter of 2016 as
against the previous print of 0.7 per cent on quarter-on-
quarter basis. Further, industrial production in May 2016
contracted sharply and consumer confidence index re-
mained in the negative territory for the third-straight
month in June 2016. Business optimism in the UK re-
ceded further into the negative territory in the second
quarter of 2016, coming in at (-) 5.0 levels as against (-)
4.0 previously.
CPI inflation remains within BoE’s target
levels
Coming to inflation, being an inflation targeting central
bank, BoE accords utmost importance to adherence of
inflation within target range. To be sure, CPI inflation
stood at 0.3 per cent in May 2016, thus remaining well
below the central bank’s 2 per cent inflation target.
Measures of core inflation have been stable at a little
over 1 per cent. The reduction in headline inflation num-
ber much below the target range is predominantly due
to unusually large drags from energy and food prices,
which are expected to attenuate over the next year. It
is perceived that the sharp depreciation in the exchange
rate post Brexit will, in the short-run, put upward pres-
sure on inflation as the prices of internationally traded
commodities increase in sterling terms, and as import-
ers pass on increases in their costs to domestic prices.
Bank of England Keeps Policy Rates Unchanged
Monetary Fund (IMF) has warned China’s policymakers
that its corporate debt has raised the risks of sparking a
bigger crisis if they fail to tackle it.
Policymakers have said that the economy remains
largely steady, but with private investment shrinking,
the government has had to do more of the heavy lift-
ing. As per the World Bank, the key policy challenges in
China are to ensure a gradual slowdown and sectoral
rebalancing and to reduce the financial vulnerabilities
arising from high debt. The reallocation of resources
associated with rebalancing creates risks of a sharper-
than-expected slowdown in overall activity, which
would threaten to spill over to global economies as well.
Staggering high corporate debt remains a
key fault line of Chinese economy
In addition to the weak private sector, another prob-
lem which has been plaguing the Chinese economy has
been that of its ballooning debt levels, which rose to a
record 237 per cent of GDP in the first quarter of 2016
on the back of massive lending designed to boost eco-
nomic growth. Additionally, Chinese banks issued Rmb
1.3 trillion in new loans in June 2016, a sign that policy-
makers continue to prioritise short-term support for
growth over tackling China’s debt load. In view of the
massive rise in corporate debt levels, the International

9
GLOBAL TRENDS
JUNE-JULY 2016
IMF Cuts Global Growth Forecast on Brexit
BoE looks for easing policy rates in August
2016
Looking further forward, the MPC has made it clear in
its May Inflation Report, and again in the minutes of its
June meeting, that a vote to leave the European Union
could have material implications on the outlook for out-
put and inflation. The Committee judged that a range
In its recently published update on World Economic
Outlook, the International Monetary Fund (IMF) cut its
forecast for global economic growth this year and next
as the unexpected U.K. vote to leave the European Un-
ion created a wave of uncertainty amid already-fragile
business and consumer confidence. The global econo-
my is projected to expand 3.1 per cent this year and 3.4
per cent in 2017, according to the IMF’s latest estimates.
These forecasts represent a 0.1 percentage point reduc-
tion in global growth for both the years relative to the
IMF’s April 2016 World Economic Outlook.
As per the IMF, the economies of U.K. and Europe are
likely to be hit the hardest by fallout from the June 23
referendum, which prompted a change of government
in UK. The U.K. economy will expand 1.7 per cent this
year, the IMF said, 0.2 percentage point less than fore-
cast in April. Next year, the nation’s growth will slow
to 1.3 per cent, down 0.9 point from the April estimate
and the biggest reduction among advanced economies.
For the Euro Area, the fund raised its forecast by 0.1 per
cent this year, to 1.6 per cent, and lowered it by 0.2 per
cent for 2017, to 1.4 per cent.
In its update, the IMF stated that the economic outlook
has worsened for advanced economies (GDP forecast
downby0.1percentagepointin2016and0.2percentage
points in 2017) while it remained broadly unchanged for
emerging markets and developing economies. Among
the major advanced economies, in the U.S., weaker-
than-expected growth in the first quarter prompted
the IMF to reduce its 2016 forecast to 2.2 per cent, 0.2
of influences on demand, supply and the exchange rate
could lead to a significantly lower path for growth and a
higher path for inflation than in the central projections
set out in the May Report. The Committee will consider
over the coming period how the outlook for the econ-
omy has changed in light of the referendum result and
will publish its new forecast in its forthcoming Inflation
Report on 4th
August, 2016.
percentage points less than the April outlook. The IMF
left its 2017 forecast for U.S. growth unchanged at 2.5
per cent.
As per IMF’s latest update, China’s growth forecast for
2016 was increased by 0.1 percentage point to 6.6 per
cent and it remained unchanged for 2017 at 6.2 per cent.
As per IMF, Brexit fallout is likely to be muted for China,
the world’s second-largest economy, because of its lim-
ited trade and financial links with the U.K. In contrast,
India’s growth forecast was marginally trimmed by 0.1
percentage point to 7.4 per cent in FY17-FY18 on slack
investment recovery and risk of spread of Brexit con-
tagion.
Brexit’s fallout is likely to be felt in Japan, where a
stronger yen will limit growth, as per the IMF report.
The IMF cut its 2016 growth forecast of Japan by 0.2
percentage point, to 0.3 per cent. However next year,
IMF reported that Japan’s economy, the world’s third-
largest, is expected to expand 0.1 per cent, which is 0.2
percentage points more than predicted in April 2016,
due to postponement of the consumption tax increase.
In conclusion, the IMF stated that its forecasts were
contingent on the “benign” assumptions that uncer-
tainty following the U.K. referendum would gradually
wane, the EU and U.K. would manage to avoid a large
increase in economic barriers and that financial market
fallout would be limited. In the same vein, it urged the
advanced nations to avoid relying too heavily on mon-
etary policy to spur their economies and to exploit syn-
ergies among a range of policy tools.

ECONOMY MATTERS 10
DOMESTIC TRENDS
Monsoons 2016: So Far So Good
Above average monsoons so far, bodes well
for food inflation
The importance of good monsoons this year cannot
be overemphasised particularly after two consecutive
years of deficient rainfall. The economy, at present,
is grappling with high food inflation rates and normal
monsoons are expected to provide the much needed re-
lief by easing domestic supply-side pressures. The fore-
cast for the South-West (SW) monsoon, which occurs
between the months of June and September, was put
at 106 per cent of long period average (LPA) announced
by Indian Meteorological Department (IMD). So far, till
mid of July 2016, both temporal and spatial distribution
of rainfall has been satisfactory. For the country as a
whole, cumulative rainfall during this year’s monsoon,
up to 13 July, has been 4 per cent above LPA. Rainfall
activity was above normal over Central India. However,
East and Northeast parts of the country have received
deficient rainfall.
Gujarat records the highest rainfall deficien-
cy so far
Among the major states, rainfall deficiency has so far
been the highest for Gujarat, with the rainfall gap stand-
ing at 45 per cent. The states which have received boun-
tiful rainfall include- Andhra Pradesh (33 per cent above
LPA), Madhya Pradesh (86 per cent above LPA), Maha-
rashtra (40 per cent above LPA), Rajasthan (28 per cent
above LPA) and Telengana (31 per cent above LPA).

11
DOMESTIC TRENDS
JUNE-JULY 2016
Kharif sowing starts on a good note
Kharif sowing starts with the onset of June and the crop
is harvested during September-October. Past experi-
ence has shown that July rainfall is critical since most
sowing takes place by July, although late sowing con-
tinues well into August. Total crops sown until 15th July,
2016 has been 2.1 per cent higher than last year on year-
on-year basis. Increase in area sown has been reported
under rice, maize, pulses and oilseeds. To be sure, sow-
ing of coarse cereals as a group has been 4.5 per cent
higher than last year. A sharp 39 per cent year-on-year
jump in the sowing of pulses is an encouraging develop-
ment as it bodes well for pulses production which has
With the Indian agriculture continuing to be driven by
the vagaries of monsoons, there is no gainsaying the im-
portance of normal monsoons for agricultural growth.
The performance of South West monsoon so far has
been satisfactory, with the country receiving above
been lagging behind in the last couple of years. A signifi-
cant increase in the pulses acreage has been reported
from Maharashtra, Rajasthan and Madhya Pradesh.
Acreage under oilseeds, as a group, stood at 130 lakh
hectares, up 2.4 per cent compared with last year, with
groundnut recording 14.8 per cent increase, chiefly due
to the higher plantings in Andhra Pradesh in wake of
good rains in early July. A key pressure point with re-
gard to the sowing of major kharif crops has been that
of cotton, whose acreage has fallen by a sharp 19.1 per
cent over the last year mainly due to poor rainfall in
Gujarat which happens to be one of the major cotton
growing states in the country.
average rainfall. However, the next few weeks will be
crucial as most of the sowing takes place by July. We
will keep a close tab on the progress of monsoons and
provide updates till the end of South West monsoon
2016 to our readers.

ECONOMY MATTERS 12
DOMESTIC TRENDS
Industrial Output Moves into Positive Territory in
May 2016
Industrial output moved to the positive territory in May
2016, posting a growth of 1.2 per cent as compared to
a contraction of 1.3 per cent in April 2016. Despite the
mild expansion of industrial production, the underlying
anaemic trend is still bothersome as it indicates that in-
dustry is underperforming. Going forward, we expect
Manufacturing output expands after a gap
of two months
On the sectoral front, the output of manufacturing sec-
tor, which constitutes over 75 per cent of the index,
moved into the positive territory in May 2016 after lan-
guishing in the negative territory for two consecutive
months. Manufacturing output grew, albeit moderate-
ly, at a rate of 0.7 per cent in May 2016 after declining
by an average -2.4 per cent in March-April 2016. Mean-
while, a slight pickup in growth was seen in mining sec-
tor, while electricity sector’s output moderated.
Though capital goods continue to underper-
form
According to the use-based classification, capital goods
output, witnessed the seventh straight month of con-
traction in May 2016, thus raising doubts about the
industrial output to expand at a higher pace cushioned
by the government’s pro-reform agenda. Overall in
FY17, we expect industrial production to grow at a high-
er rate as compared to the previous fiscal on the back of
policy aided domestic upturn and low global commod-
ity prices.
recovery of investment cycle in the country. The sec-
tor’s output contracted by 12.4 per cent in May 2016 as
compared to 25 per cent in the previous month. To be
sure, industrial production excluding the output of the
capital goods sector would stand at 3.0 per cent during
the month. Going forward, capital expenditure by the
Government will be crucial to support recovery in this
segment.
Consumer goods output moves to positive
territory
Consumer goods turned the corner in May 2016, partly
on the back of a weak base of last year. The sector’s
output expanded by 1.1 per cent after declining by 1.9
per cent in April 2016. Amongst its sub-sectors, con-
sumer durables maintained its strong footing (albeit at
a slightly lower pace) at 6 per cent as compared to 11.8

13
DOMESTIC TRENDS
JUNE-JULY 2016
per cent posted in the previous month. The concerns
over the non-durables sector continued to persist. For
the month of May 2016, the non-durables sector en-
tered deeper into the negative territory at (-2.2) per
cent in May 2016 as against a contraction of 10.8 per
Core sector output remains lacklustre
Mirroring the subdued performance of overall industri-
al sector in the month of May 2016, the core sector out-
put’s too remained lacklustre. Its growth rate sharply
nose-dived to 2.8 per cent from 8.5 per cent posted in
April 2016. The low growth in May 2016 was on account
of a contraction in output of crude oil (- 3.3 per cent ver-
sus 0.8 per cent growth in May 2015) and natural gas
(- 6.9 per cent as compared with –3.0 per cent in May
cent in April 2016. This is partly reflective of the cumu-
lative effect of two past years of drought and growing
distress in the rural economy. But a favourable mon-
soon prognosis this year augurs well for the growth of
this sector, going forward.
2015) in addition to a very marginal expansion regis-
tered by refinery products (1.2 per cent versus 7.8 per
cent in May 2015). Fertiliser was the lone sector to post
double-digit growth to the tune of 14.8 per cent (ver-
sus 1.3 per cent in May 2015), while steel sector produc-
tion grew by 3.2 per cent (as against 2.0 per cent in May
2015). The cumulative growth of the core sector during
April-May in FY17 stood at 5.5 per cent as against 2.1 per
cent during the same period in the previous fiscal.

ECONOMY MATTERS 14
DOMESTIC TRENDS
Outlook
Though there was a mild expansion of industrial production during May 2016 which was better than the contraction
in industrial output evidenced last month, the broad trend is still worrisome as it indicates that industry is perform-
ing much below its underlying potential. What is causing concern is that both investment goods and consumer
non-durables are witnessing a contraction in output implying that growth impulses are still weak. But we hope that
going forward, aggregate demand would pick up based on favourable monsoon scenario, pay rise of government
employees and the reform initiatives recently taken by the government to induce demand in the economy.
Inflationary Pressures Accelerate in June 2016
Wholesale Price Index (WPI) based inflation accelerated
to its 20-month high of 1.6 per cent in June 2016 as com-
pared to 0.8 per cent posted in the previous month. The
main driver behind the surge in WPI inflation was the
sharp rise in total food inflation (primary+ manufactur-
ing) to 8.2 per cent in June 2016 from an average 3.3 per
cent rise in the last one year. Rising food prices were re-
sponsible for thwarting the moderation in CPI Inflation
during the month as the price index remained largely
unchanged (though high) at 5.77 per cent in June 2016.

15
DOMESTIC TRENDS
JUNE-JULY 2016
Outlook
Both CPI and WPI inflation edged up in June 2016 on the back of higher food prices. However, favourable mon-
soons and higher minimum support prices provided by the government would restrain food prices from moving
upwards especially in items such as pulses which has witnessed high inflation in the past. This should spur RBI to
resume its rate easing cycle as investments continue to be sluggish.
WPI primary articles inflation rises for the 4th
consecutive month
Coming to WPI sub-categories, prices of primary arti-
cles rose for the fourth consecutive month to touch a
6-month high of 5.5 per cent in June 2016 as compared
to 4.5 per cent posted in May 2016 partly due to low
base of last year and partly due to high food prices. In-
flation in primary food items could be attributed to ris-
ing price pressures in vegetables inflation, which rose
to 16.9 per cent in June 2016 from 12.9 per cent in May
2016. Fruits and cereals too recorded a spurt in infla-
tion during the month. In contrast, pulses witnessed
some moderation in inflation. Primary non-food articles
inflation also hardened to 5.7 per cent in the reporting
month from 4.5 per cent in the previous month.
Magnitude of deflation decreases in fuel cat-
egory
Inflation in fuel group of WPI has gone up to -3.6 per
cent in June 2016 as compared to -6.1 per cent in the pre-
vious month. The deflationary trend in the group con-
tinued for the 20th consecutive month. Inflation in both
high speed diesel and petrol rose during the month.
With global crude oil prices recovering from their lows
in recent weeks due to ongoing political tensions in Ven-
ezuela, Libya and Nigeria, we can expect fuel category
to record some mild inflation in the months to come.
Manufacturing inflation also accelerates
Inflation in manufactured group quickened to 1.2 per
cent in June 2016 as compared to 0.9 per cent posted in
the previous month mainly due to surge in food prices.
Manufacturing food inflation accelerated to 8.3 per cent
during the month, while manufacturing non-food infla-
tion (popularly called as the core inflation and a proxy
for demand-side pressures in the economy) continued
to languish in the negative territory. Non-food manufac-
turing inflation has been in the red for 16th consecutive
months now, rekindling fears about lack of demand in
the economy.
Going forward, CII expects CPI inflation to lie within
the RBI’s target of 5 per cent for January 2017 as food
prices are expected to ease going forward on account
of a spate of reforms undertaken by the present gov-
ernment to address the supply bottlenecks and the
expectation that monsoon would be normal after two
consecutive years of drought.

ECONOMY MATTERS 16
DOMESTIC TRENDS
Exports register a turnaround in growth in
June 2016, boding well for overall growth
Merchandise exports grew by 1.8 per cent to US$22.8
billion in June 2016 after 18 months of contraction. The
pickup in export growth is heartening as it is a harbinger
of improvement in external demand scenario which is
likely to cushion overall economic growth in the near to
medium term as well. Seventeen of the top 30 export
sectors witnessed positive growth during the month of
June2016.Thekeysectorswhichpostedpositivegrowth
during the month were coffee, spices, oil seeds, marine
products, iron ore, chemicals and electronic goods.
Meanwhile, meat and poultry, jute manufactures, pe-
troleum etc were some of the segments that recorded
negative growth during the month. On a cumulative ba-
sis, for the period April-June 2016, merchandise exports
As a result, merchandise trade deficit stood at a high of
US$8.1 billion in June 2016 as compared to US$6.3 billion
in the previous month. Going forward, while improving
domestic competitiveness through structural reforms
stood at US$65.3 billion, registering a contraction to the
tune of 2.1 per cent on a year-on-year basis.
In contrast, imports continue to post a de-
cline during the month
Imports on the other hand posted a contraction to the
tune of 7.3 per cent to US$30.7 billion in June 2016 as
compared to a decline of 13.2 per cent in May 2016.
Though oil imports slowed by 16.4 per cent in June 2016
on a year-on-year basis to US$7.2 billion, it increased by
a whopping 22.1 per cent on a month-on-month basis
due a sharp surge in prices witnessed during the ear-
lier months. Non-oil imports too moderated by 4.1 per
cent to U$23.4 billion during the reporting month. Dur-
ing April-June FY17, India’s cumulative merchandise im-
ports stood at US$84.5 billion, registering a negative
growth of 14.5 per cent on a year-on-year basis.
is crucial to improve export performance; we believe
that this can only materialize in the medium-term. In
the near-term, a weaker rupee can act as a catalyst to
revive competitiveness.
Exports Post Positive Growth after Contracting for 18
Months

17
DOMESTIC TRENDS
JUNE-JULY 2016
Some of the highlights of the Survey
are as under:
As per survey results, Inflation to lie within
RBI’s forecasted range, raising expectations
of a rate cut
As per the survey results, a significant proportion of
the respondents (61 per cent) expected the domestic
economy to record 7.0-8.0 per cent growth in 2016-17,
of which a major share (36 per cent) expected GDP
growth to lie above 7.5 per cent, while 25 per cent felt
that the economy may slow down from the previous fi-
nancial year and grow between 7.0-7.5 per cent. On the
inflation front, despite the recent uptick in inflationary
pressures, a significant number of the respondents (78
per cent) expected the CPI inflation to hover around 5
per cent in 2016-17, in line with the RBI’s expectation
for the financial year. Consequently, majority of the re-
spondents (64 per cent) were optimistic about a cut in
interest rate by the RBI in order to support the domes-
tic economy amidst waning inflationary pressures.
Most of respondents (40 per cent) felt that a
turnaround in the global economy will help
jumpstart private investment cycle
Despite various attempts by the government to revive
demand, the investment cycle is yet to recover and had
slowed down further in 2015-16. Private sector invest-
ment continues to crawl and stalled projects remain
high in Q1FY17, as companies continued to postpone
CII Business Confidence Index Surges Ahead in 1QFY17
Giving more proof that economic recovery is currently
underway, the CII Business Confidence Index (CII- BCI)
for April-June 2016 quarter rose to 57.2 as against the
level of 54.1 recorded in the previous quarter.
The BCI has been on an uptrend since the last two quar-
ters owing to an improvement in both the Current Situ-
ation Index and the Expectation Index. The respond-
ents in the survey were asked to provide a view on the
performance of their firm, sector and the economy
based on their perceptions for the previous and cur-
rent quarter on a scale of 0 to 100. The CII-BCI was then
constructed as a weighted average of the Current Situa-
tions Index (CSI) and the Expectation Index (EI). A score
above 50 indicates positive confidence while a score
above 75 would indicate strong positive confidence. On
the contrary, a score of less than 50 indicates a weak
confidence index.

ECONOMY MATTERS 18
DOMESTIC TRENDS
new investments on account of global economic un-
certainty, unforthcoming demand, delays in regulatory
clearances and inadequate supply of inputs. In this con-
text, most of the respondents (40 per cent) felt that a
recovery in the global economy would be helpful in kick
starting the private investment cycle. Additionally, a big
share of the respondents (37 per cent) were of the view
that an upturn in the consumption cycle can also help in
boosting private investment.
Existing unutilized capacity and unforthcoming demand
have prompted nearly half of the firms (49.7 per cent)
to maintain a status-quo on their domestic investment
while the uncertainty in the global economic environ-
ment has forced larger share of firms (60.5 per cent) to
keep their international investment plans unchanged.
Majority of the respondents foresee an im-
provement in corporate performance
As regards the corporate sector performance, a signifi-
cant proportion of the respondents (43 per cent) felt
that the turnaround in corporate sector earnings in
Q4FY16 was mainly on account of the increased govern-
ment spending. Another 41 per cent of the respondents
attributed this recovery to increased consumption de-
mand (private consumption expenditure). Regarding
their top-line performance, firms seemed to be upbeat
about their sales and new order projections for the Apr-
Jun 2016 quarter with 61 per cent of the respondents
expecting an increase in sales, while only 42 per cent of
the respondents experienced sales to remain the same
as in the previous quarter.
The prognosis for firms bottom-line seemed fairly opti-
mistic as well, with most of the respondents (48.7) ex-
pecting an increase in profits after tax as compared to
29.2 per cent who expected their profits to rise in the
previous quarter. Low domestic demand (35 per cent of
respondents) and fragile global economic recovery (25
per cent of respondents) emerged as the top concerns
of members during the first quarter.
The survey was conducted from April-June 2016, cover-
ing more than 200 firms of varying sizes. Around 44 per
cent of the respondents belonged to small-scale and
micro sector, while 42 per cent were large-scale firms
and about 14 per cent were from medium-scale indus-
try. A sectoral break up shows that 62 per cent of the
respondents were from the manufacturing sector while
32 per cent were from services sector and 6 per cent
from primary sector.

19
POLICY FOCUS
POLICY FOCUS
JUNE-JULY 2016
1. Special Package for Textile and Ap-
parel Sector
The Union Cabinet under the Chairmanship of Prime
Minister Shri Narendra Modi has given approval for a
special package for employment generation and pro-
motion of exports in the Textile and Apparel sector. The
move comes in the backdrop of the package of reforms
announced by the Government for generation of one
crore jobs in the textile and apparel industry over the
next 3 years. The package includes a slew of measures
which are labour friendly and would promote employ-
ment generation, economies of scale and boost ex-
ports. The steps will lead to a cumulative increase of
US$2.6 billion in exports and investment of US$7.0 bil-
lion over next 3 years.
The majority of new jobs are likely to go to women since
the garment industry employs nearly 70 per cent wom-
en workforce. Thus, the package would help in social
transformation through women empowerment.
Salient features of the package announced are:
A. Employee Provident Fund Scheme Re-
forms
• Govt. of India shall bear the entire 12 per cent of the
employers’ contribution of the Employers Provi-
dent Fund Scheme for new employees of garment
industry for first 3 years who are earning less than
Rs. 15,000 per month.
• At present, 8.33 per cent of employer’s contribu-
tion is already being provided by Government under
Pradhan Mantri Rozgar Protsahan Yojana (PMRPY).
Ministry of Textiles shall provide additional 3.67 per
cent of the employer’s contribution amounting to
Rs. 1,170 crores over next 3 years.
• EPF shall be made optional for employees earning
less than Rs. 15,000 per month.
B. Introduction of fixed term employment
• Looking to the seasonal nature of the industry,
fixed term employment shall be introduced for the
garment sector.
• A fixed term workman will be considered at par with
permanent workman in terms of working hours,
wages, allowanced and other statutory dues.
The important policy announcements by the Government in the months of June-July 2016 are covered in this month’s
Policy Focus. Our endeavor through this section is to keep our readers abreast of the latest happenings on the policy
front so that they can take an informed decision accordingly.

ECONOMY MATTERS 20
POLICY FOCUS
C. Additional incentives under ATUFS
• The package breaks new ground in moving from
input to outcome based incentives by increasing
subsidy under Amended-TUFS from 15 per cent to
25 per cent for the garment sector as a boost to em-
ployment generation.
D. Enhanced duty drawback coverage
• In a first of its kind move, a new scheme will be in-
troduced to refund the state levies which were not
refunded so far.
• Drawback at All Industries Rate to be given for do-
mestic duty paid inputs even when fabrics are im-
ported under Advance Authorization Scheme.
E. Enhancing scope of Section 80JJAA of In-
come Tax Act
• Looking at the seasonal nature of garment indus-
try, the provision of 240 days under Section 80JJAA
of Income Tax Act would be relaxed to 150 days for
garment industry.
CII Reaction
The new policy measures unveiled by the Government for the Indian Textiles and Apparel industry will give a much-
needed impetus to the Indian apparel industry and spur growth, employment and investment. The package con-
tains several measures which have been highlighted in the preliminary findings of the CII-BCG study on the Apparel,
made-ups and Textiles sectors and we are indeed delighted that our recommendations have found resonance with
policy makers. It is absolutely imperative that India nurture a robust value chain, a game-changing advantage that
India possesses. The slew of measures announced by the government are a very positive first step in this journey
for creating a new growth story for the Indian apparel, made-ups and textiles industry.
2. National Mineral Exploration
Policy 2016
The Union Cabinet chaired by the Prime Minister Shri
Narendra Modi approved the National Mineral Explora-
tion Policy (NMEP) on 29th June, 2016. The NMEP pri-
marily aims at accelerating the exploration activity in
the country through enhanced participation of the pri-
vate sector. There is a need for comprehensive mineral
exploration of the country to uncover its full mineral po-
tential so as to put the nation’s mineral resources (non-
fuel and non-coal) to best use and thereby maximize
sectoral contribution to the Indian economy.
NMEP has the following main features for facilitating
exploration in the country:-
i. The Ministry of Mines will carry out auctioning of
identified exploration blocks for exploration by pri-
vate sector on revenue sharing basis in case their
exploration leads to auctionable resources. The
revenue will be borne by the successful bidder of
those auctionable blocks.
ii. If the explorer agencies do not discover any auc-
tionable resources, their exploration expenditure
will be reimbursed on normative cost basis.
iii. Creation of baseline geoscientific data as a public
good for open dissemination free of charge.
iv. Government will carry out a National Aerogeophysi-
cal Program for acquiring state-of-the-art baseline
data for targeting concealed mineral deposits.
v. A National Geoscientific Data Repository is pro-
posed to be set up to collate all baseline and min-
eral exploration information generated by various
central & state government agencies and also min-
eral concession holders and to maintain these on
geospatial database.
vi. Government proposes to establish a not-for-profit
autonomous institution that will be known as the
National Centre for Mineral Targeting (NCMT) in
collaboration with scientific and research bodies,
universities and industry for scientific and techno-
logical research to address the mineral exploration
challenges in the country.
vii. Provisions for inviting private investment in explo-
ration through attractive revenue sharing models.
viii. On the lines of UNCOVER project of Australia, the
government intends to launch a special initiative to
probe deep-seated/ concealed minerals deposits in
the country in collaboration with National Geophys-
ical Research Institute and the proposed NCMT and

21
POLICY FOCUS
JUNE-JULY 2016
Geoscience Australia.
The major impact of NMEP as per the Ministry of Mines
is as follows: -
1) The pre-competitive baseline geoscientific data will
be created as a public good and will be fully avail-
able for open dissemination free of charge. This is
expected to benefit public and private exploration
agencies.
2) The collaboration with scientific and research bod-
ies, universities and industry for the scientific and
technological development necessary for explora-
tion in public- private partnership.
3) Government will launch a special initiative to probe
deep-seated/concealed mineral deposits in the
country.
4) A National Aerogeophysical Mapping program will
be launched to map the entire country with low al-
titude and close space flight to delineate the deep-
seated and concealed mineral deposits.
5) Government will engage private agencies for carry-
ing out exploration in identified blocks / areas with
the right to certain share in the revenue accruing to
the State government through auction.
6) Public expenditure on regional and detailed explo-
ration will be prioritized and subject to periodical
review based on assessment of criticality and stra-
tegic interests.
3. Cabinet approves Pradhan Mantri
Kaushal Vikas Yojana
Inasignificantdevelopment,the UnionCabinetchaired
by Prime Minister Shri Narendra Modi has approved
the Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
with an outlay of Rs.12000 crore to impart skilling to
one crore people over the next four years (2016-2020).
MKVY will impart fresh training to 60 lakh youths and
certify skills of 40 lakh persons acquired non-formally
under the Recognition of Prior Learning (RPL). The tar-
get allocation between fresh trainings and RPL will be
flexible and interchangeable depending on functional
and operational requirements.
Financial support to trainees will be provided in the
form of travel allowance, boarding and lodging costs.
Post placement support would be given directly to the
beneficiaries through Direct Benefit Transfer (DBT).
Disbursement of training cost to training partners will
be linked to Aadhaar and biometrics for better trans-
parency and targeting. Skill training would be done
based on industry led standards aligned to the National
Skill Qualification Framework (NSQF).
Taking into account the recommendations of the sub-
group of Chief Ministers on skill development on the
importance of addressing the unique skill require-
ments of various states, the state governments will get
involved through a project based approach under the
PMKVY. States would be required to meet 25 per cent
of the total training targets being allocated under this
stream of the scheme.

23
FOCUS OF THE MONTH
Transforming Healthcare in India
JUNE-JULY 2016
2. Healthcare Sector: The Current Status
Preliminary observation indicates that healthcare
has yet to receive the attention and primacy of place
which it deserves. As per latest data available for 2014,
the country spent 4.7 per cent of its GDP on health of
which public expenditure on health is 1.4 per cent of
GDP. This means that healthcare activity is primarily in
the domain of the private sector (3.3 per cent). This is
also borne out from the fact that only around 30 per
cent of expenditure on healthcare is undertaken by the
government. The remaining 70 per cent of healthcare
expenditure is borne by the private sector. Every house-
hold, on an average, spends up to 10 per cent of annual
household consumption in meeting health care needs.
Furthermore, household expenditure on healthcare as a
percentage of total consumption expenditure has been
rising over the years. The increase is more pronounced
in rural areas where the paucity of healthcare facilities
is even more explicit.
Most households have to bear medical expenses out of
their own pockets. In fact, out of pocket expenses as a
proportion of total expenditure on health, are as high
1 Introduction
The advantages of giving weightage to healthcare are
manifold. For one, a healthy society is crucial for improv-
ing the quality of life and enhancing the productivity of
the workforce in the country. Our ability to leverage our
distinct demographic advantage and capitalize on the
large reservoir of knowledge capital would depend es-
sentially upon the priority accorded to healthcare as no
population can be productive without the security pro-
vided by health. This includes not only access to health-
care during times of sickness but also a strong public
health policy to prevent disease.
Against this backdrop, the paper would seek to discuss
some key issues such as the current status, our health
indicators vis-a-vis the world, our outlays and outcome
on health at the center and state levels, major policies
of the government and the suggestions to rev up the
healthcare sector.

ECONOMY MATTERS 24
FOCUS OF THE MONTH
as 62 per cent. And around 70 per cent of the out of
pocket expenses are on medicines and drugs. Not sur-
prisingly, it is estimated that each year, more than 40
million people, mostly in rural areas, are impoverished
and run into massive debts to access healthcare facili-
ties.
Being a country with growing population, our per capita
expenditure on healthcare has been going up over the
years. According to World Health Organization Global
Health Expenditure database, our per capita health
expenditure rose at a CAGR of around 2 per cent -from
US$20 in 2000 to US$31 in 2005-in the five-year period.
The figure perked up further to US$59 in 2010 notching
up the growth of around 14 per cent over the next five
years. The latest figures show that per capita expendi-
ture on healthcare amounts to US$75 in 2014 showing
a slower CAGR growth of 6 per cent during the subse-
quent four year period. The generally rising trend in per
capita spending on healthcare is in sharp contrast with
the almost stagnant share of healthcare expenses with
respect to GDP. This points towards greater responsive-
ness of healthcare to changes in population as com-
pared to a change in GDP.
3. India and the World
In order to assess our priorities in terms of healthcare
spending, it is important to compare our healthcare
No doubt, over the years there has been a moderate
rise in government expenditure on healthcare as a
percentage of GDP in India. But this is much below the
healthcare requirements of the country. This is indicat-
ed in Figure 1.
system with the practices prevailing in the rest of the
world. Here the first round of observations show that
India is far from being considered as a country with a ro-
bust and progressive healthcare system. In fact, accord-
ing to the Universal health Coverage (UHC) Index de-
veloped by the World Bank, which is meant to measure
the progress made in health sector across select coun-
tries of the world, India has been bracketed along with
the cluster of a low-performing countries like Ethiopia,
Guatemala, Indonesia and Vietnam with UHC scores in
the range 35–57. A cluster of high-performing countries
emerges with UHC scores of between 79 and 84 and
includes countries such as Brazil, Colombia, Costa Rica,
Mexico and South Africa.
According to Economic Survey 2015-16, India ranks 143
out of 190 countries in terms of per capita expenditure
on health and 157th
position according to per capita gov-
ernment spending on health. The world average on per
capita health expenditure at US$ 1061 in 2014 is around
fifteen times that of India where per capita health ex-
penditure is US$75.

25
FOCUS OF THE MONTH
JUNE-JULY 2016
Similarly, the average world spending on healthcare as
a percentage of GDP and public expenditure is twice
that of India. As mentioned earlier, India spends 1.4 per
cent of its GDP on public health which is much lower
than other BRIC countries i.e 3.1 per cent in China, 3.8
per cent for Brazil, 4.2 per cent for South Africa and 3.7
per cent for Russia. Among the developed countries,
the USA spends a significant 8.3 per cent of GDP on
healthcare while Germany spends 8.7 per cent. In fact,
India is ranked almost at the bottom in terms of its pub-
lic spending on healthcare as a proportion of GDP. The
inadequacy of expenditure on healthcare has adversely
impacted the availability of health infrastructure in the
country which is quite pathetic as compared to most de-
veloped and even some developing countries. Studies
show that the US has one bed for every 350 patients
while the ratio for Japan is 1 for 85. The WHO stipulation
is 3.5 beds per 1000 population. In India, there are 1.3
beds for every 1000 population. Similarly, as per World
Bank, India had 0.7 physician per 1000 population in
2012 which is much below 1.9 for China and Brazil, 1.8 for
Singapore and 2.8 for United Kingdom during this year.
Besides, there are disparities in healthcare infrastruc-
ture at the state, district and village level and between
rural and urban areas.
Besides, around 21 per cent of the world’s share of dis-
ease accrue in India. India has 70 million people with
rare diseases, 205 million cancer patients, 30 million
diabetics, 60 million with mental ailments and a very
large number of cardiac cases. More such instances can
be cited which show that the healthcare outcomes and
quality of our healthcare sector is much below that pre-
vailing in our peer nations.
The next section analyses in detail the trends of ex-
penditure on healthcare, both at the centre and the
state level.
4. Funding of Public Health Expenditure in
India
Health in India essentially comes within the purview of
the states, under the 7th Schedule of the Constitution
with the state governments making allocations in their
individual Budgets on healthcare programmes to ful-
fill their obligation of catering to the healthcare needs
of the population. The states are duly supported by
the Central government through Centrally Sponsored
Schemes on healthcare which again are implemented
through the State Budgets and the funds are trans-
ferred to the states either through direct (full grant)
or partial means (matching grants). Additionally, local
bodies also incur health expenditure through fund allo-
cation to them.
Meanwhile the investments made by states in health-
care have gone up steadily over the years. But there
is still a long way to go to fulfill the requirements of
healthcare for all at affordable cost, which is of utmost
importance for a populous country like India.
5. Trends in Central Government Expendi-
ture on Healthcare
(i) Actual Expenditure undershooting Budget Allocation
Central government expenditure on healthcare has
moved within the narrow band of 1.9 to 2.2 per cent of
total expenditure during the periods 2005-06 to 2014-15.
In fact, expenditure on healthcare has been so miniscule
and underfinanced that the allocation has remained
largely unaffected by upswings and downswings in
economic growth. No wonder, many of the projects
planned for the health sector have yet to materialize.
An analysis on the allocation for healthcare sector
Budget across Ministries and Departments pertaining
to healthcare is further revealing. A perusal of data from
2005 onwards up to 2014-15 at current prices shows that
the revised estimates for healthcare have been consist-
ently lower than the Budget estimates while the actual
spending has mostly been even lower. In the next year,
the budget estimates are once again enhanced only for
the actual spending to be pushed downwards in the fi-
nal estimates. This is illustrated in Table 1.

ECONOMY MATTERS 26
FOCUS OF THE MONTH
All this points to the fact that government’s involve-
ment in provisioning for healthcare does not get the
priority it deserves.
However, as per the latest data available in 2015-16, the
revised estimates on healthcare have been higher than
the budget estimates. The data on actual expenditure
is awaited.
(ii) Improvement in Health Outcomes
One could infer that public spending on healthcare has
led to an improvement in health outcomes though oth-
er factors may also count. For one, there has been some
improvement in life expectancy at birth of the Indian
population since the beginning of the new millennium.
Besides, there has been a decline in infant mortality rate
(IMR) –from 66.4 years in 2000 to 37.9 years in 2015.
Maternal mortality rates (MMR) have also gone down –
from 212 during 2007-09 to 167 during 2011-13. This could
probably be due to increased education and awareness
among women resulting in preventive measures to sty-
mie the trend.
6. Trends in State Government Expenditure
on Healthcare
(i) Trends in Revenue Expenditure on Health
Being a state subject, almost three quarters of expendi-
ture on health-care is incurred by the states while only
a quarter is met by the Centre. At the state level, the to-
tal budgetary outlay broadly consists of expenditure on
medical and public health and includes family welfare.
And medical health covers allocations for urban health
services, rural health services and medical education
and training.
In this context, according to data given by RBI, the rev-
enue expenditure of the State governments and Union
Territories on medical and public health has gone up –
from Rs. 131 billion in 2000-01 to Rs.564 billion in 2013-
14 recording a four-fold increase during this time-frame
and is budgeted to rise further to Rs. 879 billion in 2015-
16, a more than six-fold rise over the sixteen year pe-
riod. This is commensurate with the rise in total revenue
expenditure incurred by the state government during
this period. As a result, the share of healthcare spend-
ing as a proportion of aggregate state expenditure re-
mains almost the same. The next section provides the
details.
(ii) Share of Expenditure by states on medical and public
health and family welfare as a Proportion of Aggre-
gate Expenditure
As is the case with Central government expenditure,
the share of expenditure of states on healthcare as a
proportion of aggregate expenditure has remained al-

27
FOCUS OF THE MONTH
JUNE-JULY 2016
most stagnant with only minor variations of between
3.4 per cent and 4.9 per cent during the years 2000-01
and 2015-16 (See Figure 2). Similarly, the share of states’
health expenditure in GDP also varies between 0.6 per
cent and 0.9 per cent during this period.
Among individual states, figures for 2013-14 show that
public expenditure on healthcare by the states as a ratio
of aggregate state level expenditure varies between 3.2
per cent and 6.6 per cent. The north-eastern states have
taken a lead when it comes to expenditure on medical
and public health and family welfare. For instance, the
share of Meghalaya on public health and family welfare
as a percentage of aggregate state expenditure at 6.6
per cent is the highest. This is followed by Manipur, Sik-
kim and Goa (5.7 per cent each) and Tamil Nadu (5.4 per
cent). The lowest proportion of public health expendi-
ture to aggregate state expenditure is for Bihar at 3.2
per cent (Figure 3).

ECONOMY MATTERS 28
FOCUS OF THE MONTH
(iii) Comparison of Outlay and Expenditure at State Level
The scenario on outlay and actual expenditure on
healthcare among states has been mixed and follows
no particular trend. Figures for 2012-13 indicate that
while a handful of states have reported higher actual
expenditure as compared to outlay, there are many
others where the outlay is much higher. Among the
North Eastern states, in the middle income category-
Arunachal Pradesh, Meghalaya, Mizoram, Sikkim- it was
found that actual expenditure either exceeds or is mar-
ginally below outlay. In the poorer states of Assam, Bi-
har, Chhattisgarh, Madhya Pradesh, Jharkhand, Odissa,
among others, actual expenditure is much below out-
lay. The exception is Uttar Pradesh where expenditure
exceeds outlay. Among the middle and high income
states the situation is mixed. States like Delhi, Gujarat,
Tamil Nadu, Uttarakhand, Chandigarh and West Ben-
gal have reported higher expenditure as against outlay
but Maharashtra, Punjab, Haryana, Himachal Pradesh,
Andhra Pradesh, Karnataka, Kerala, Goa, among others
have actual expenditure trailing outlays. This is evident
from Table 2.

29
FOCUS OF THE MONTH
JUNE-JULY 2016
Apart from income, the differences in health expendi-
ture across states could be attributed to fiscal capac-
ity, priority accorded by the individual government to
healthcare and other demographic factors.
A comparison of outlay and expenditure of the states
between the periods 2002-03 and 2012-13 shows that
most of the states where actual expenditure was be-
low the outlay in 2002-03 continued with the practice
in 2012-13. However, there were exceptions as well. For
instance, states like Gujarat, Rajasthan and Mizoram
reported a rise in actual expenditure as compared to
outlay unlike the case in the previous period. But Ker-
ala, Madhya Pradesh and Delhi showed a decline in ex-
penditure as against outlay in 2012-13 as against a rise
in 2002-03. Nevertheless, healthcare continues to get a
low priority in the majority of the States irrespective of
whether these are in the high, middle or the low income
category.
7. Government policies on Healthcare
(i) Government Policies on Health: The Last Two Years
The last two years have also seen the launch of a num-
ber of schemes by the government to augment health-
care facilities in the country. Among the major schemes
is Mission Indradhanush which was launched on Decem-
ber 25, 2014 with the aim of immunizing children against
seven vaccine preventable diseases namely diphtheria,
whooping cough, tetanus, polio, tuberculosis, measles
and hepatitis B by 2020.
Apart from the Healthcare Missions adopted by the Cen-
tral Government, both the Center and the States make
allocations and announce new schemes in the Budgets
for spending on healthcare. In this context, the Union
Budget 2015-16, announced a number of schemes such
as the strengthening of Jan Aushadhi Stores for provid-
ing generic medicines at affordable cost; healthcare
cover for senior citizens, proposed National Insurance
Programme providing healthcare cover up to Rs. one
lakh per family; national dialysis services through PPP,
among others. Fund allocation in the Union Budget
2016-17 for meeting expenditure for the health scheme
has gone up by over 20 per cent over the allocations
made last year. Besides, the Budget also relies on pub-
lic-private partnership to augment healthcare facilities
in the country.
Similarly, the individual state governments have also
made separate allocations on medical and public health
and family welfare for their respective states which, on
an average, rose by over 8 per cent for 2015-16 and are
utilized to improve healthcare outcomes at the state
level.
In the meanwhile, the National Health Policy (NHP) 2015
is in the works. Under the policy, the government has
suggested making health a fundamental right, similar
to education. The States could voluntarily opt to adopt
this by a resolution of their Legislative Assembly. The
draft policy has addressed the critical issue of poor
public health spending by championing an increase in
government spending to 2.5 per cent of GDP (Rs. 3,800
per capita) in the next five years, explore creation of a
health cess and ensure universal access to free drugs,
among others
(ii) The Rashtriya Swasthya Bima Yojana: Addressing the
Needs of Health Insurance
To address the medical insurance needs of the citi-
zens, the Rashtriya Swasthya Bima Yojana (RSBY) was
launched in 2008. This was a Health Insurance Scheme
for the Below Poverty Line families with the objective to
reduce Out of Pocket (OOP) expenditure on health and
increase access to health care. This has been expanded
to cover other defined categories of unorganised work-
ers. Since 1st
April, 2015, the Rashtriya Swasthya Bima
Yojana (RSBY) or National Health Protection Scheme
(NHPS), a new nomenclature for RSBY, has been trans-

ECONOMY MATTERS 30
FOCUS OF THE MONTH
ferred to Ministry of Health & Family Welfare on “as is
where is” basis.
8. Suggestions for Augmenting Healthcare
Indices for the country
There is a growing recognition that in order to realise
our vision of a prosperous and resurgent India, which
would match its strides with the leading nations of the
world, it has become imperative that the government
takes the lead in the challenging journey to transform
the healthcare sector, an effort which is ably aided by
and partnered with a responsive private sector. Indeed,
it is important to have in place affordable healthcare
options which would ensure universal health coverage
and provide health for all at cost effective terms. Some
of the ways in which this can be achieved are mentioned
hereunder:
Enhance Public Spending on Healthcare; Improve Qual-
ity of Healthcare
As per World Bank Report, India’s total healthcare
spending has been a meager 4.7 per cent of GDP in 2014.
A break-up shows that government spending on health-
care is a miniscule 1.4 per cent of GDP while 3.3 per cent
comes from the private sector. In this context, the Draft
National Health Policy, citing global evidence on health
spending, contends that unless a country spends at
least 5–6 per cent of its GDP on health and the major
part of it is from Government expenditure, basic health
care needs are seldom met.
Raise tax to GDP Ratio for funding social sector spending
including healthcare
India’s tax to GDP ratio continues to be low and is de-
clining. Gross tax revenue as a percentage of GDP de-
clined from 11.9 per cent in 2007-08 to 10.0 per cent in
2014-15. Besides, when compared with other countries,
India’s tax to GDP ratio at around 18 per cent is much
below 19 per cent for China, 35 per cent for Brazil as well
as OECD. We need to expand the tax base to generate
revenues which could be used to fund social sector
schemes including health.
Plugging the Infrastructure Gaps
It is necessary that healthcare infrastructure in the
country is scaled up to optimum levels. For instance, to-
tal bed density should go up from 1.3 per 1000 people
to 2.1 per 1000 in the next decade. This would include
1.0-1.2 beds per 1000 people in rural areas and 3.8-4.2
per 1000 population in urban areas.
Provide Infrastructure Status to Healthcare
It is found that that our healthcare system is capital
intensive with many projects having a long gestation
period. For example, in the case of hospitals, cost of
land and material accounts for 60-70 per cent of project
costs. Besides, maintenance, upgradation and replace-
ment cost of equipment is also high.
To mitigate the situation, it is recommended that health-
care should be notified as an infrastructure sector with
concomitant benefits and incentives. This would enable
investors in healthcare services to access the various in-
frastructure funds designed to suit long gestation pro-
jects and access to low-cost loans.
Provide Wider Coverage to Health Insurance
Insurance coverage is a meager 25 per cent of which 5
per cent comes from the private sector. Some of the
specific insurance schemes include the state-level em-
ployee insurance for industrial workers, Central Govern-
ment’s healthcare scheme for civil servants, employee
health insurance policies by companies, among others.
However, despite this, a large segment of our popula-
tion is outside the purview of health insurance cover-
age. This puts a financial burden on the residents, espe-
cially of the deprived segment, leading to a rise in OOP
expenses and destitution.
Greater Private Sector Participation in Healthcare
At a time when resource constraint within the gov-
ernment is a matter of concern and there are limits
to expanding public expenditure on healthcare, the
government should consider outsourcing some speci-
fied healthcare programmes to the private sector or
upgrade the healthcare system through a fillip to the
public-private partnership approach. The role of gov-
ernment should be to identify areas in National Health
Programmes and consider innovative models where pri-
vate sector partnership could be envisaged in primary,
secondary and tertiary healthcare. Besides, to address
the funding shortfall, the private sector should be en-
couraged to contribute to healthcare through corpo-
rate social responsibility funding.
Nodal agency for Regulating healthcare
In order to achieve and maintain quality standards
of healthcare, there is need for setting up a national

31
FOCUS OF THE MONTH
JUNE-JULY 2016
Health Regulatory and Development Authority to moni-
tor both government and private-sector healthcare
providers, as suggested by the erstwhile Planning Com-
mission. Furthermore, a National Health and Medical
Facilities Accreditation Authority (NHMFA) should be
established for regulating healthcare standards.
Creating a Holistic Healthcare Policy Framework
There is need for a comprehensive health policy which
should address issues such as finance as well as capac-
ity building in infrastructure and human resources. Simi-
larly, information technology should be leveraged to re-
duce costs, bring efficiency, reduce response time and
human error and ameliorate the quality of life.
Further, there is need to implement Hospital Informa-
tion Systems (HIS), facilitate digitization, take recourse
to automated supply chain management, enhance rural
access by collecting data via handheld devices etc. to
improve healthcare delivery.
Other Suggestions
Creation of physical infrastructure for medical educa-
tion: With an average of one medical college for 38.4
lakhs population, the government should consider in-
creasing the medical facilities by allocating funds for
setting up of new medical colleges for providing doc-
tors, dentists, nurses and paramedics. Recognising the
logistical challenges, it is recommended that existing
government hospitals should be converted into medical
colleges. The government should also invest in preven-
tive and social medicine by promoting health education
and preventive healthcare.
Promoting indigenous manufacturing for healthcare
equipment&devices:Indigenousmanufacturingshould
be encouraged as it would make India self-sufficient and
make healthcare treatment services affordable. There is
need for providing concessions to the sector by way of
duty free import of raw material, excise duty exemp-
tion, among others.
Creation of National Innovation Fund: To support R&D
activities dedicated for manufacturing of medical de-
vices & equipment.
Medical Device Regulation Bill: The bill, which is aimed
at enforcing uniform and effective standards of medical
devices throughout the country, should be passed as it
will ensure growth of industry and invite FDI.
Conclusion
The analysis of the paper shows that while, over the
years, there have been some improvements in health-
care facilities in the country, this has been unequal to
match the growing needs of a populous country like
India. Our country has a low ranking when it comes to
benchmarking our health systems to world standards
and even emerging economies. One of the reasons for
the prevailing scenario, is that health spending, at both
the central and state level, is proving to be inadequate
to meet the resource requirements for providing the
basic healthcare facilities in the country. Besides, there
are wide variations across states in terms of health-
care spending which has led to inadequate provision of
health infrastructure in the country.
No doubt, a number of policy initiatives have been un-
dertaken to address the deficiencies in the health sec-
tor. But this is not enough to meet the developmen-
tal priorities of our country in the area of healthcare.
Hence, it is imperative that systemic reform in health-
care systems, wherein both the center and states work
in unison, gathers momentum. Besides, augmenting
public expenditure on health especially by the Center as
also improving the efficiency of healthcare delivery at
the state level is essential.
It must be recognized that creating a healthy workforce
is imperative for a strong economy and society. Hence,
we must seize the opportunity of creating a healthy In-
dia at all costs so that people’s living standards can be
raised to acceptable levels in the near term.

ECONOMY MATTERS 32
FOCUS OF THE MONTH
Connecting the Dots in Indian Healthcare
The broken healthcare delivery chain
Primary health provision was recognized as a tool for at-
tainment of ‘health for all’ more than three decades ago
by the Alma-Ata declaration. While looking for answers
to why it has not yet been attained, it is realized that
we need a multi-dimensional approach to provide de-
livery to 1.2 billion people, with varied disease patterns
and medical needs. Today patients in the villages often
travel over 100 kms to access basic healthcare services.
Access to care is also limited by the low affordability in
the population.
For a common citizen in India, the basic needs of food,
water, shelter, sanitation and basic healthcare have be-
come a far-fetched dream. There are 24.7 crore house-
holds in India, out of which 68 per cent reside in rural
India and the remaining account for urban population.
It is alarming that out of the total households, 23.7 per
cent stays in mud houses and 53 per cent do not have
access to toilet facilities within the household. Only 43.5
per cent of Indian population has access to safe drink-
ing water and the World Bank estimates that 21 per cent
of communicable diseases in India are related to unsafe
water. Adding to this issue is the sanitation crisis; 814
million Indians do not have access to sanitation services.
In order to provide for these basic rights, India needs to
address issues at each level of the healthcare delivery
chain in terms of infrastructure and manpower.
To meet the basic healthcare needs, the National Rural
health Mission (NRHM) was launched in 2005. ASHA
(Accredited Social Health Activist) workers were envis-
aged under the NRHM to create awareness and pro-
vide information to the community on determinants of
health such as nutrition, basic sanitation and hygiene
practices, community mobilization, provision of pri-
mary medical care, etc. The Ministry of Health and Fam-
ily welfare recommends mandatory training for ASHA
workers, however almost half of them are educated be-
low secondary school level and have poor knowledge
regarding immediate referral conditions. While, they
were enrolled to act as a bridge between the commu-
nity and the available healthcare system, due to these
shortcomings, they have not been able to fill the void
in the system.
Though the network of delivery settings is in place, each
of them is working in isolation, leading to increased
medical cost burden and an imbalance in the patient
inflow catered by these healthcare facilities. Availabil-
ity of skilled medical, nursing, paramedical and allied
workforce is another roadblock which is adding to the
challenge of the broken healthcare delivery chain in In-
dia. There is a need to streamline the value chain of the
delivery system in order to provide a comprehensive
delivery system.
The way forward
While devising a prescription for Indian healthcare,
it becomes inevitable to look at the challenges of the
sector holistically and address issues not just relevant
to hospitals, but create an enabling environment which
can propel growth. Due to the massive reach of the
Government and availability of manpower & infrastruc-
ture at rural level, primary care needs can be addressed
by the government economically and PPP models can

33
FOCUS OF THE MONTH
JUNE-JULY 2016
be implemented where expertise and resources of the
private sector could be utilized.
Augmenting and building the capacity of existing work-
force can offset a significant amount of the disease
burden at the primary level and result in better health
outcomes. For instance, ASHA workers which have a
massive outreach to the population can act as eyes and
ears for the health systems. Imparting requisite skill set
to them can act as a change agent for improving the
health outcomes.
In continuation with the skill development process, the
Healthcare Sector Skill Council (HSCC), was launched
and started recently in partnership with CII and Public
& Private providers. It aims at developing curriculum
and content for the allied health workforce. This would
aid in providing the right skill sets to paramedical work-
force and ensure that quality medical treatment is deliv-
ered to the patient.
Public Private Partnership models could be leveraged
in strengthening the secondary and tertiary care levels
of the healthcare value chain by bringing together the
operational and managerial efficiencies of the private
sector. This will aid in better utilization of already exist-
ing infrastructure of the public sector and result in im-
proved utilization of assets and services.
The recent spurt in public health insurance schemes will
act as a catalyst in improving the accessibility of tertiary
care to a large segment of underserved population. The
government’s role of being a payer has the dual advan-
tage of allowing patients the choice of treatment in the
private sector and also provides the government the
flexibility to focus on primary healthcare infrastructure.
The need of the hour is also to identify and strengthen
the support pillars of healthcare delivery system which
is so far missing from the larger discourse. These in-
clude production of quality manpower, technology ena-
bled solutions like mobile health, and adoption of low
cost drugs and vaccines. While some such models have
already been implemented, the scale at which they can
be utilized needs to be tapped by the country. Many pi-
lot studies are already being done on usage of mobile
and information technologies to increase accessibility in
rural areas and Tier-I and Tier-II cities. What is also en-
couraging is that most of the medical innovation is now
taking place in the smaller cities and towns where the
need for quality healthcare is most acute.
Going forward the action agenda is to foster a multi
stakeholder collaborative approach with a common ob-
jective of providing affordable healthcare to masses. To
achieve this, we need to collectively think beyond the
traditional approach and implement unconventional so-
lutions in the Indian health system.

ECONOMY MATTERS 34
FOCUS OF THE MONTH
Enablers and Barriers in Medical Device Pricing
D
rugs and devices are inherently different in their
composition as well as the medical challenges
they address. Identical policy measures for
drugs and devices would be detrimental to the device
industry.
The innovation, R&D, manufacturing, physician train-
ings and post market surveillance cost is very high for
certain medical devices vis-à-vis pharmaceuticals. For
example, the orthopedics industry provides joint and
hip replacement surgery to 150,000 people every year.
One surgery can comprise of several sizes and permu-
tations of inputs required to fit the unique surgical
needs of each patient. This means that over 100 implant
boxes are sent free of cost by companies to hospitals
located in small towns across the country. During the
surgery, the surgeon will assess the types of devices
and implants required, where upon only 3-4 implants
are utilized and the rest are sent back. The transporta-
tion costs are borne by the manufacturer and the usage
varies from patient to patient. Therefore, prices vary
across distances.
Similarly, there are several other costs that are borne
by the manufacturer to successfully deliver the device
to the patient. Unlike drugs, the medical device compa-
nies’ role does not end at the point of sale. Medical de-
vices are constantly evolving with an average shelf life
of two years, requiring large investments in research
and development. Implantation of medical devices re-
quires complex surgeries that are extremely skill inten-
sive. Most companies have set up education centres at
their own cost to provide hands on training to 1000s of
public and private sector surgeons across the country
each year. The unique skills and training required to suc-
cessfully position and operationalize a medical device
in the body are not covered in standard tertiary educa-
tion programs. Price controls would hamper the private
sectors’ ability to continue to dedicate vast amounts of
technical and manpower resources required to provide
value add services.
Local medical device manufacturing requires large
amounts of investment of capital and technology to
incentivize local manufacturers to start investing in the
sector which requires large gestation periods to deliver
returns. While the policy incentives will help to boost
the sector, any price controls at this nascent stage will
prove to be counterproductive to attracting local and
global investors.
The current market size for medical devices is very small
with a 7 per cent penetration, thereby devoid of the
large volumes required to offset any major price reduc-
tions. The government needs to focus on demand gen-
eration as a precondition to grow the sector to a scale
where it becomes economical for manufacturers to op-
erate at lower price points. Further efforts to increase
state and central government reimbursement and in-
surance coverage will help to expand coverage and ac-
cessibility. This could be complemented by partnering
with the private sector to scale up innovative patient ac-
cess and risk sharing pilots that can mobilize public and
private sector funding for health financing.

35
FOCUS OF THE MONTH
JUNE-JULY 2016
A close examination of the market shows that afford-
ability is not the key barrier to accessing medical tech-
nologies in India. For example, most MNC orthopedic
companies are selling their implants in India at the low-
est prices in the world, thereby expanding access to
high quality products at affordable prices.
Recently stent pricing has captured the attention of me-
dia and parliamentarians. Around 1/3rd
of total coronary
stents sold in the country are already being provided to
beneficiaries of Central and State Government schemes
at subsidized prices. In 2014, approximately 300,000
drug eluting stents were sold in India, of which over
100,000 were made available at a price bracket of Rs.
20,000 - 25000, thereby ensuring access and affordabil-
ity to needy patients.
The real barriers to accessing medical technology are
the lack of disease awareness, screening and diagno-
sis, referral pathways and trained nurses, doctors and
implanters. For example in rural India, we lack health-
care professionals to screen and diagnose symptoms
of heart disease, diabetes and hypertension, let alone
trained specialists to implant the devices in the patients.
There is need for transparent, predictable, evidence
based reimbursement and pricing policies, which reflect
the core principle of “value for money.” This principle
means that an innovative technology, which improves
healthoutcomesorhealthcareefficiency,shouldreceive
better pricing and reimbursement treatment, in order
to create the environment of appropriate incentives
for innovators. It also means that dramatic and heavy-
handed pricing and reimbursement policies should be
avoided, since regulatory unpredictability and lack of a
transparent “value-for-money” methodology strongly
discourages innovators from not only investing in new
technologies but also introducing any such technology
in the Indian market.

37
ECONOMY MONITOR
JUNE-JULY 2016

ECONOMY MATTERS 38
ECONOMY MONITOR

39
ECONOMY MONITOR
JUNE-JULY 2016

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