Pandemic Impact: Indian’s Health expenditure to surge, consumption spending to be hit, says SBI report

May 18 2021 01:15 PM
Pandemic Impact: Indian’s Health expenditure to surge, consumption spending to be hit, says SBI report

According to an SBI Ecowrap report, it sheds light that Health expenditure of Indians is likely to surge from the current levels and impact the expenditure on items of discretionary consumption,

"Health expenditure, currently at 5 percent of overall PFCE (private final consumption expenditure), could increase by at least 11 percent from the current level." it said.

It noted that although CPI inflation slowed to 4.29 percent in April 2021 from 5.52 percent in March 2021, primarily due to easing food prices, as the pandemic rages through India, it is worthwhile to look beyond the headline inflation.

In particular, rural core has now jumped to 6.4 percent in April 2021 and would rise further in May 2021. Increasing health expenditure because of the pandemic is having a meaningful impact in rural areas. Item-wise inflation of Health CPI shows persistent month-on-month increase in inflation of non-institutional medicine, and X-ray, ECG, pathological tests. Even hospital and nursing home charges have increased in April 2021. In the current pandemic, headline inflation may not be incorrect to look at, said the report.

It noted that overall CPI declined in April 2021 because of the significant decline in food CPI, but when the relative prices of food items as compared to overall CPI, the deceleration was not sharp as it was seen in actual food CPI. Similarly, for certain items like fuel and health, the increase in relative prices is maximum.

The core CPI, which was showing a decline of 57 bps, increased in relative terms by 18 points. "We believe such distortions in relative prices must be looked through now as it could have an important impact on ratcheting up future inflationary expectations..," the report said.

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