In India those who can afford to buy healthcare from the market generally get free healthcare and those who do not have resources are left to the mercy of the market. This happens because the public health system in India is grossly inadequate to meet the healthcare demands of the population and hence those in poverty or living on subsistence (less than $2 per day, about 80% of the population) are forced to buy healthcare from the market and often this is done by selling assets or borrowing money. Most of those above subsistence are in the organized sector and have reasonable protection for healthcare through various social security provisions. For education, housing, pension and other welfare the same is true.
For example if you work or have worked in the armed forces, the social security package is indeed very liberal. Both during active service as well as a pensioner you get free comprehensive healthcare, quotas and fee waivers for children’s education, free rations, tax free commodities through canteen services, free housing while in service and subsidies for purchase of house at retirement, travel concessions etc.. Most other government employees also get a more or less similar range of benefits. Many in the organized private sector are also covered by various social security legislations and receive various benefits. But such social security in India covers only an estimated 15% of the population and another 2% – 3% use their own surplus resources to arrange for their social security. The remaining 82% of the population has to fend for itself because social security initiatives for the general population are very fragmented. From time to time the Central and State governments come up with social security schemes, especially for those below the poverty line or select vulnerable groups below the poverty line like widows, elderly or for scheduled castes and tribes etc.. But these schemes are only populist measures usually implemented during an election year and then forgotten, or even if some of them are sustained getting access to the benefits is a tardy and bureaucratic one.
The question here is whether universal social security is possible in India? Not an easy question to answer. With a tax:GDP ratio of less than 15% this is indeed difficult because countries which have universal or near universal social security have tax:GDP ratios of over 30%. Over the last two decades India has averaged a growth rate of around 8% with huge increases in its GDP but the governments have been unable to rake in the resources from this windfall because of massive reductions in tax rates. One has however seen some significant changes in the last decade. Realizing that the GDP growth comes largely from the service sector, including the financial sector, the introduction of service tax and the security transaction tax was an important maneuver which has largely contributed to the 2% - 3% of additional GDP being netted through public revenues over the last decade. But this is not adequate if the Indian State has to become a strong welfare state. We have to virtually double the tax:GDP ratio if any significant social security has to be provided to the entire population. This is the great challenge for the Indian State.
Let us illustrate this with an example for the health sector. The present government at the Centre had committed to spending upto 3% of GDP on healthcare in its Common Minimum Program Declaration but in their previous 5 years of governance the public health spending stagnated below 1% of GDP whereas private health expenditure zoomed from 4% of GDP to 5.5% of GDP. Now that they are back in power they have another opportunity to pursue this (as well as the other flagship programs of employment, education, rural infrastructure etc..) To achieve these alternative sources will have to be tapped in order to generate more resources. Employers and employees of the organised sector are an important source (ESIS, CGHS and other such health schemes should be merged with general health services) for payroll deductions towards social insurance payments. There should be no income ceilings for membership – any one who is employed in a registered establishment, whether private or public must be compulsorily a member and the employer and employee should contribute. There could also be a proviso to register self-employed persons who want to become members of such a social health insurance scheme. The agricultural sector is the largest sector in terms of employment and population and at least one-fourth to one-third of this population has the means to contribute to a health scheme. Some mechanism, either linked to land revenue or land ownership, will have to be evolved to facilitate receiving their contributions. Similarly self-employed persons like professionals, traders, shopkeepers, etc. who can afford to contribute can pay out in a similar manner to the payment of profession tax in some states. Further, resources could be generated through other innovative methods - health cess collected by local governments as part of the municipal/house taxes, proportion of sales turnover and/or excise duties of health degrading products like alcohol, cigarettes, paan-masalas, guthkas etc.. should be earmarked for the health sector, voluntary collection through collection boxes at hospitals or health centres or through community collections by panchayats, municipalities etc... Given the increasing domination of the service sector economy, especially financial services, Tobin tax or the STT kind of taxes must be used more extensively to generate revenues from all financial transactions in trade, stock markets, commodity markets, futures and options, foreign currency exchange, banking, credit card etc.
It is not very difficult to raise additional resources if the government has some commitment to the social sectors. For instance a health cess of 2% on sales turnover of health degrading products like alcohol, tobacco products like cigarettes, guthka, beedis, pan masalas etc. which together have a turnover estimated at Rs.2000 billion would itself generate Rs. 40 billion which would contribute a 10% addition to the existing health budgets of central and state governments combined. Similarly, the financial transaction tax (STT) introduced in the 2004-05 budget needs to be expanded and earmarked for social sector expenditures only (this should be an additional allocation and should not entail reductions from existing allocations out of present tax revenues). India is a rapidly growing financial sector economy and daily transactions in securities (Government and stock market, commodities, forex, including futures and options) alone are estimated at over Rs. 1000 billion per day and other cheque and financial instruments another Rs. 300 billion daily and as per the present STT rate of 0.15% this would generate over Rs. 500 billion annually and if the rate is doubled to 0.3% with the proviso that the increased rate would fund social sector budgets like health and education then we are looking at over Rs.1000 billion (3% of GDP) of additional taxes. And this would not hurt those transacting as it would be merely Re. 3 per Rs. 1000 transacted and there would be a return on this contribution in the form of improved health and education services. Apart from this there are other transactions like credit card transactions, commodities trading etc. which can contribute substantially. There are also other avenues for raising resources for the health sector, for example a health tax similar to profession tax, a health cess on land revenues and agricultural trade so that the rural economy can also contribute to revenues for public health, health cess on personal vehicles using fossil fuels, on luxury goods like air conditioners, on house rents and property taxes above a certain value or size etc. The bottom line is that these additional resources should be strictly earmarked for the health and other social sectors and should not find their way into the general pool – with this caveat and evidence of its use for strengthening social sectors like health and education people will not protest against such levies.
All these methods are used in different countries to enhance health and social sector finances. Many more methods appropriate to the local situation can be evolved for raising resources. The effort should be directed at assuring that at least 50% of the families are covered under some statutory contribution scheme. Since there will be no user-charges on services rendered people will be willing to contribute as per their capacity to social security funding pools and because they are making a dedicated contribution (similar to an insurance premium) they will also demand accountability in the use of those funds and the services provided. For the remaining 50% of the population which cannot contribute the government would provide the resources through the general tax pool.
The grapevine says that the Finance Ministry is likely to review or scrap the STT and look at alternate means for netting resources from the stock markets. This may not be such a good idea because if you remember the STT in the first place was a replacement for capital gains tax. Its implementation scrapped the long terms capital gains tax and reduced the short term capital gains to 10% from 33%. Infact the Finance Ministry needs to extend the application of the STT as a broader financial transaction tax covering all kinds of speculative financial transactions as well as other high end financial transactions. In the last 5 years the STT has averaged about Rs.6000 crores per year but has the potential even with the present rate if extended to all financial transactions to net in over Rs. 50,000 crores annually. Also as suggested above a doubling of the rate to 0.3% would help the government improve its tax:GDP ratio substantially. So the SENSEX, NIFTY et.al. has a great untapped potential in contributing to India’s social security. Given the fact that the market capitalization of just the BSE listed shares is equal to or more than the GDP of India the potential of the stock market transaction contributing to social security of the country is enormous. In a booming stock market such contributions would also boom, and when it is known that a booming SENSEX or NIFTY will contribute to peoples health and education there will be a vested interest to assure that the stock market is also healthy and robust.
Ravi Duggal
For example if you work or have worked in the armed forces, the social security package is indeed very liberal. Both during active service as well as a pensioner you get free comprehensive healthcare, quotas and fee waivers for children’s education, free rations, tax free commodities through canteen services, free housing while in service and subsidies for purchase of house at retirement, travel concessions etc.. Most other government employees also get a more or less similar range of benefits. Many in the organized private sector are also covered by various social security legislations and receive various benefits. But such social security in India covers only an estimated 15% of the population and another 2% – 3% use their own surplus resources to arrange for their social security. The remaining 82% of the population has to fend for itself because social security initiatives for the general population are very fragmented. From time to time the Central and State governments come up with social security schemes, especially for those below the poverty line or select vulnerable groups below the poverty line like widows, elderly or for scheduled castes and tribes etc.. But these schemes are only populist measures usually implemented during an election year and then forgotten, or even if some of them are sustained getting access to the benefits is a tardy and bureaucratic one.
The question here is whether universal social security is possible in India? Not an easy question to answer. With a tax:GDP ratio of less than 15% this is indeed difficult because countries which have universal or near universal social security have tax:GDP ratios of over 30%. Over the last two decades India has averaged a growth rate of around 8% with huge increases in its GDP but the governments have been unable to rake in the resources from this windfall because of massive reductions in tax rates. One has however seen some significant changes in the last decade. Realizing that the GDP growth comes largely from the service sector, including the financial sector, the introduction of service tax and the security transaction tax was an important maneuver which has largely contributed to the 2% - 3% of additional GDP being netted through public revenues over the last decade. But this is not adequate if the Indian State has to become a strong welfare state. We have to virtually double the tax:GDP ratio if any significant social security has to be provided to the entire population. This is the great challenge for the Indian State.
Let us illustrate this with an example for the health sector. The present government at the Centre had committed to spending upto 3% of GDP on healthcare in its Common Minimum Program Declaration but in their previous 5 years of governance the public health spending stagnated below 1% of GDP whereas private health expenditure zoomed from 4% of GDP to 5.5% of GDP. Now that they are back in power they have another opportunity to pursue this (as well as the other flagship programs of employment, education, rural infrastructure etc..) To achieve these alternative sources will have to be tapped in order to generate more resources. Employers and employees of the organised sector are an important source (ESIS, CGHS and other such health schemes should be merged with general health services) for payroll deductions towards social insurance payments. There should be no income ceilings for membership – any one who is employed in a registered establishment, whether private or public must be compulsorily a member and the employer and employee should contribute. There could also be a proviso to register self-employed persons who want to become members of such a social health insurance scheme. The agricultural sector is the largest sector in terms of employment and population and at least one-fourth to one-third of this population has the means to contribute to a health scheme. Some mechanism, either linked to land revenue or land ownership, will have to be evolved to facilitate receiving their contributions. Similarly self-employed persons like professionals, traders, shopkeepers, etc. who can afford to contribute can pay out in a similar manner to the payment of profession tax in some states. Further, resources could be generated through other innovative methods - health cess collected by local governments as part of the municipal/house taxes, proportion of sales turnover and/or excise duties of health degrading products like alcohol, cigarettes, paan-masalas, guthkas etc.. should be earmarked for the health sector, voluntary collection through collection boxes at hospitals or health centres or through community collections by panchayats, municipalities etc... Given the increasing domination of the service sector economy, especially financial services, Tobin tax or the STT kind of taxes must be used more extensively to generate revenues from all financial transactions in trade, stock markets, commodity markets, futures and options, foreign currency exchange, banking, credit card etc.
It is not very difficult to raise additional resources if the government has some commitment to the social sectors. For instance a health cess of 2% on sales turnover of health degrading products like alcohol, tobacco products like cigarettes, guthka, beedis, pan masalas etc. which together have a turnover estimated at Rs.2000 billion would itself generate Rs. 40 billion which would contribute a 10% addition to the existing health budgets of central and state governments combined. Similarly, the financial transaction tax (STT) introduced in the 2004-05 budget needs to be expanded and earmarked for social sector expenditures only (this should be an additional allocation and should not entail reductions from existing allocations out of present tax revenues). India is a rapidly growing financial sector economy and daily transactions in securities (Government and stock market, commodities, forex, including futures and options) alone are estimated at over Rs. 1000 billion per day and other cheque and financial instruments another Rs. 300 billion daily and as per the present STT rate of 0.15% this would generate over Rs. 500 billion annually and if the rate is doubled to 0.3% with the proviso that the increased rate would fund social sector budgets like health and education then we are looking at over Rs.1000 billion (3% of GDP) of additional taxes. And this would not hurt those transacting as it would be merely Re. 3 per Rs. 1000 transacted and there would be a return on this contribution in the form of improved health and education services. Apart from this there are other transactions like credit card transactions, commodities trading etc. which can contribute substantially. There are also other avenues for raising resources for the health sector, for example a health tax similar to profession tax, a health cess on land revenues and agricultural trade so that the rural economy can also contribute to revenues for public health, health cess on personal vehicles using fossil fuels, on luxury goods like air conditioners, on house rents and property taxes above a certain value or size etc. The bottom line is that these additional resources should be strictly earmarked for the health and other social sectors and should not find their way into the general pool – with this caveat and evidence of its use for strengthening social sectors like health and education people will not protest against such levies.
All these methods are used in different countries to enhance health and social sector finances. Many more methods appropriate to the local situation can be evolved for raising resources. The effort should be directed at assuring that at least 50% of the families are covered under some statutory contribution scheme. Since there will be no user-charges on services rendered people will be willing to contribute as per their capacity to social security funding pools and because they are making a dedicated contribution (similar to an insurance premium) they will also demand accountability in the use of those funds and the services provided. For the remaining 50% of the population which cannot contribute the government would provide the resources through the general tax pool.
The grapevine says that the Finance Ministry is likely to review or scrap the STT and look at alternate means for netting resources from the stock markets. This may not be such a good idea because if you remember the STT in the first place was a replacement for capital gains tax. Its implementation scrapped the long terms capital gains tax and reduced the short term capital gains to 10% from 33%. Infact the Finance Ministry needs to extend the application of the STT as a broader financial transaction tax covering all kinds of speculative financial transactions as well as other high end financial transactions. In the last 5 years the STT has averaged about Rs.6000 crores per year but has the potential even with the present rate if extended to all financial transactions to net in over Rs. 50,000 crores annually. Also as suggested above a doubling of the rate to 0.3% would help the government improve its tax:GDP ratio substantially. So the SENSEX, NIFTY et.al. has a great untapped potential in contributing to India’s social security. Given the fact that the market capitalization of just the BSE listed shares is equal to or more than the GDP of India the potential of the stock market transaction contributing to social security of the country is enormous. In a booming stock market such contributions would also boom, and when it is known that a booming SENSEX or NIFTY will contribute to peoples health and education there will be a vested interest to assure that the stock market is also healthy and robust.
Ravi Duggal
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