Wednesday, June 27, 2012

Price Cartelisation !

Why Competition?
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As you know India was a socialist state from 1950 till around 1990, when it tried to industralise by keeping PSUs at a commanding heights and stifling the private cos, which came to be known as 'The License Raj'. It was bound to fail and it did. As of 1991, our forex stood at $1.2 Billion and BoP was in such a mess that we had to literally airlift gold bars lying in our reserves to pledge it with the Bretton Woods for some credit.

Faced with bankruptcy, wisdom dawned upon our policy makers and they put the "mujhe muh nahin kholna"(dentist ke samne bhi nahin? ), our blue turbaned "paaji' at the helm of affairs. Starting 1991 India made U-turn in its socialist ideologies and through various LPG measures, established a 'market oriented' 'Capitalist economic system, and became the 2nd fastest growing economy in the world. Yesterday, India committed to helping IMF with $10 Billion in its Europe Firewall Fund !! The wheel has indeed turned full circle !! 
Proud Indian Here !! 

Central to this economic system is the feature of 'competition', which at times can be corrosive.For any free market to effectively function there should be healthy competition amongst the firms participating in that market. It is the market which determines the price of the product, through its demand and supply forces. [Remember the demand and supply curve and the point where they intersect, determines the equilibrium price]

Competition is an economic stimulant which is good for the consumers(as they get lower price, better quality, more variety), government and ultimately lead to consumer welfare. Government control over any product is not good as it ultimately lead to inefficiencies, wastage and loss. Hence the abolition of 'administered pricing mechanism' for petrol etc. It has been argued by several economists that Govt. should not interfere in the regular functioning of the market and should only be regulator, facilitator and should only interfere when there is an issue. Say, there is drought in country and production of sugar has been less. Govt. can impose heavy export duty to discourage sugar leaving Indian shores etc. 
[Note: Sugar Market in India is NOT exactly a free market and is a regulated item under the Essential Commodities Act]

Lack of competition invites several corrupts practices and costs a lot to the exchequer. In certain situations (like procurement of goods & services) state govts. follows the policy and practice to give preference to local units in their procurement policy. So price and purchase preference is given to small scale sector cos., so as to protect and promote such units. From dev. perspective it may be fine but it creates enough conditions for these units to collude and cause serious loss to the exchequer. 

While doing initial study for my latest post on Health Sector in India (See here), I found out how these local traders(colluded with hospital staffs) and looted govt. 
Some examples:
> Purchasing of Non Essential Drugs – Nimesulide Tabs 18% of budget !!!!! (BTW Nimesulide is now banned in India or ceased to be OTC drug ?)
> Dialysis machine worth 5 lakhs bought for around 13 lakhs !!
> Equipment for removing Cholesterol was bought for 60 lakhs and used only once !! (OMG !! heights )

All of these happen because there aren't any competition in such procurement models !! Economic resources(including natural resources) are always be scarce and Govt. should always try and see that its distributed optimally and in most efficient way. Hence, increasingly govt. policies are framed and implemented to promote competition and level playing fields for all. 


Basic Concept:
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The main aim of any company is profit maximisation for its shareholders. There is a purpose to economic activity and this was identified long back when ancient Indian posted Artha, ‘material well being’, as one of the goals of life. They believed that the pursuit of money is justified to the extent that it leads to the good life. However this desire to maximize one's profit has taken a disproportionate dimensions and companies often indulge in malpractices. As Adam Smith puts it, if at all cos. gather, they do so "to conspire against the public, or some contrivance to raise prices". 

Such companies usually form two types of arrangements - horizontal(peers) and vertical(with one below in value chain).

Cartels are basically a type of 'secret horizontal arrangement' b/w 'peer companies' to achieve gain for themselves. Such type of arrangements discourage 'competition'. 

Cartels usually forms in a conducive environment when ...

> the market is Oligopoly, where there are few dominant players, and; 

> there are high entry barriers - there is very less incentive for any new player to enter the market
(See Porter's 5 forces model for details). [Indian cellular market had high entry barrier but still the Nordic tele major 'Telenor' entered Indian market, which surprised many. Ultimately it had to face huge losses and exit the market]

> the product demand is inelastic - Since their ultimate motive is to manipulate price, which if increased will lead to fall in demand, thereby reducing their revenue. All such issues would not be with inelastic demand product as no matter the price demand is not affected much. 

Cartels can be formed in following 4 types:

(i) through price fixing 
Some examples - 
> the cartel members decide to increase price of product simultaneously
> simultaneously apply uniform discounts on products
> agree among cartel members on a standard formula, according to which product prices will be determined
> agree to remove products offered at low prices from the market so as to limit supply and keep prices high

(ii) market sharing
agree amongst cartel members and divide markets by territory or by customers

(iii) limiting output 
companies limit the supply and create artificial demands in market. [Recent onion price hike(when sulphur in onion wasn't the reason for our tears) was considered to be result of one such illegal cartel activity]

(iv) bid rigging
companies conspire in private to intentionally and collectively quote less for a tender, thereby driving down the price. Govt. is leaving no stone unturned to ensure that the forthcoming 2G auctions are free of any such bid rigging through various intelligence and other measures. 

All these types of cartels ultimately gives the power of 'deciding prices' to select companies who join the cartel. 

Govt. of India has taken various measures to curb such cartelization. MRTP Act had been protecting the interests of consumers, but with changed global scenario and the WTO commitments of India and the various Free Trade agreements its signing with various countries, new Competition Commission of India (CCI) was formed in 2002. 

Securitization Process !

Bank - Asset & Liability:
A typical bank balance sheet consists of 'Assets' and 'Liabilities'. 

Any bank's primary duty is to adjust these assets and liabilities to acquire profit. So, there are cash inflows from these assets, with which they pay partly towards clearing off their liabilities and retain the rest as profits. Therefore, performance(i.e. cash inflows) of the assets are critical for any bank to survive in the market. 


Bank Asset(loan) structure:
Typical bank loan structure is shown below. Loan repayment amount has principle and interest component, which is packaged together as Equated Monthly Installments(EMI) by the bank and is paid by the customer pays every month.


[Note: Interest component is more(in the EMI amount) towards the beginning of loan tenure.]

An asset becomes non-performing when it ceases to generate income for the bank. In India, a Non-Performing Asset (NPA) is defined as one with interest or principal repayment instalment unpaid for more than 90 days ( 3 months time).

NPAs causes several problems to the bank:
> It drain bank's profitability

> It also impacts banks capital adequacy. In India, under RBI guidelines, banks have to maintain certain ratio between the capital they have and the risks they are exposed to. NPAs affect this ratio. 

> NPAs also effects credit growth of the country as the bank’s prime focus now becomes zero percent risk and as a result becomes risk averse to fresh credit or increases its cost of funds which may affect genuine borrowers.


NPA Management History in India: 

The problem of NPAs in Indian Credit market is not a new phenomenon. Figure below shows the various steps taken by Indian govt. over a period of time to manage the rising NPAs of banks. 




I will briefly touch upon them here.

1. Pre-1980s : Socialist Indian govt. best bet was to nationalize everything and try and write of NPAs from banks balance sheet. This obviously wasn't going to help them for long. 

2. 1980-1990 : Realising the growing industrial/instutional sickness in Indian market, where more and more enterprises were going bust or deep red in losses, that's when Indian govt. seem to have woken up from sleep and enacted the first such act to contain NPAs. 

This was the SICA(see full form in picture) Act 1985. This act constituted BIFR(see full form in picture) body, which was to negotiate with the sick enterprise and the bank and help resolve a common ground through legal, managerial or financial reconstruction mechanisms.

Over a period of time, Banks realised that this was not working as, an average BIFR negotiations took them 5-6 yrs for resolution. 

3. 1990s - With the growing clamour among banks, Indian govt. enacted the RDDBFI Actwhich enabled set of Debt Recovery Tribunals(DRTs). This obviously was a good news initially but over a period of time with rising NPA appeals to DRTs, we were back to square one with regards to delays. 

4. 2000s - In 2002 Indian govt. setup SARFAESI Act 2002 which was a benchmark reform in the Indian banking sector. The progress under this Act had been significant, as there was an overall reduction of NPAs within banks. This Act empowered banks to skip going to the courts and settle the NPAs on its own. 


SARFAESI Act,2002: 

The SARFAESI Act empowers Banks / Financial Institutions to recover their NPAs without the intervention of the Court. The Act provides three alternative methods for recovery of non-performing assets:

Securitisation - we will talk about this in detail below 

Asset Reconstruction - you reconstruct the structure of the loan by changing the loan tenure, monthly installments etc.

Enforcement of Security without intervention of the court - Banks can take over the property which they have loaned into their possession by promulgating this Act and then auction/sell it to recover their costs.

(Note: Non-Banking Financial Institutions like Ge Money, Reliance mOney, Fullerton, Future Money etc are not covered in this Act).

At present 3 legal options are available to banks for resolution of NPAs - the SARFAESI ActDebt Recovery Tribunals and Lok Adalats. The SARFAESI Act has been the most important means for recovery of NPAs. 




Securitisation:

In a usual loan process, banks have to hold the assests for the whole duration of the loan tenure to realise full profit from that assests. As a result the funds of the bank(which it had loaned) are blocked and to meet its growing fund requirement a bank has to raise additional funds from the market. 

Securitisation is a way of unlocking these blocked funds.

Liquidity for bank means something which can be easily converted into cash. Usually loans have a tenure of min. 4-5 yrs and hence not liquid. 

So, banks convert these illiquid assets into a liquid ones by properly pacakaging them into similar asset categories and then selling them to investors by issuing them securities. This process is called securitization. 

So everything from auto loans, credit cards, personal loans, residential and commercial mortgages etc, all can be securitized. 


Main parties involved in a securitization process are:

1. Banks - Who wants to securitize its assets

2. Credit Rating Agencies - These are companies which work along with banks and rates each asset category and defines if its a 'risky' or 'safe' asset. 

3. Securitization Company - The special purpose vehicle created for the purpose of securitization which actually purchases the assets from banks and sells it 

to investor by issuing them securities.

4. Investors - People who are interested to buy securities from Securitization Company. They buy such securities as they get higher returns on their investments. There are mix of investors - some are risk takers(hedge funds) and some who don't and buy only safe assets. Due to risky nature of the transactions only Qualified Institutional Buyers are allowed to invest. So firms like banks, mutual funds, hudge funds, insurance cos. etc.

5. The borrowers who pay their regular EMIs as usual. 

Please see the figure below which shows a typical securitization process. 



In recent past, banks have been increasingly adopting to securitization process for following reasons:

> Securitization has given banks an alternate method to garner cashand then to lend it to other entities. Getting more capital has been increasingly important because they need to fund increasing number of industries in India (power companies are major credit seekers are they are perenially in loss) and also due to the BASEL III regulations which will be in operation from Jan 2013 onwards. 

Balance sheet management - Once the bank sells its assets to the Securitization company, it is relieved of the tensions of that loan and then its the problem of the Securitization and eventually the investor(thats why investors gets higher returns as they are taking risks). 

This ensures bank's balance sheet looks good and more robust and can concentrate on more productive work rather than wondering on who hasnt paid its due. 

Appropriate allocation of risks for banks - Suppose a bank has lots of housing loan in its asset and the house price is going down. Its a matter of concern for the banks or say a certain sector of its asset portfolio is not performing good(say credit cards), then it may want to get rid of such portfolio by resorting to securitization(we will talk about this a little later). 

ICICI Bank had amassed a huge debt due to Credit Cards defaults. Thanks to the globalization and boom in multiplexes, foreign goods in markets, flashy neon lights and fancy GUCCI specs and Versace denims, floating in Indian market. Indian customers had gone crazy and so were the banks !! The banks had gone crazy selling their credit cards and Indian customers spending credit unresponsibly. 

Bank DSA Agent: "Hello Sir! Mein Idli Rasam bol rahi hoon, Aap humare lucky draw mein select huay hain aur aapko humare bank ke taraf se ek Lifetime FREE Credit Card diya jaata hai !"

Customer: "Ok! Accha hua aapne phone kiya ! Mujhe kuch bombs kharedney thay. Boliye kab bhej rahe hai aap credit card ?" 

Bank DSA Agent: - Hangs Up- 

So, due to enormous amount of NPAs ICICI Bank had accumulated over time, so when Chandra Kochar(current head of ICICI Bank), took over charge, she had literally stopped ICICI Bank to issue Credit Cards for some time till they resturctured their portfolio and allocated risks through securitization and related methods. 


Securitization in case of NPAs:
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NPAs are bad loans for banks. It doesnt provide them any returns. So, banks have resorted to securitization for such loans as well. The middle-man company in such cases are called "Asset Reconstruction Company(ARC)" (instead of securitization company). The returns on such NPA loans are higher than safe or moderate safe loans are they are risky assets. 

So, once banks sells their NPAs to ARCs, they write it off(remove them) from their balance sheet with the money they have received through sale and hence it has now being converted into a good loan. 

Friday, June 15, 2012

Indian Health Sector

Every citizen is entitled to essential health care services and these should be guaranteed by the Government. Considering the regional and socio cultural diversities, and the differential health care needs of people in different locations, any system of Universal Health Coverage for a large country like India requires a flexible and adaptable framework and substantial devolution of powers. The challenges of rapid urbanization and of demographic, epidemiological (distribution of diseases) and nutritional transitions also need to be taken into account.

Millennium Development Goals (MDGs)

The United Nations Millennium Development Goals are eight goals that all 191 UN member states (including India) have agreed (in the year 2000) to try to achieve by the year 2015. 

The MDGs have specific targets and indicators and are as follows:
Millennium Development Goals; Source WHO
Millennium Development Goals; Source WHO (Click to Enlarge)
The MDGs are inter-dependent; all the MDG influence health, and health influences all the MDGs. For example, better health enables children to learn and adults to earn. Gender equality is essential to the achievement of better health. Reducing poverty, hunger and environmental degradation positively influences, but also depends on, better health. These MDGs provides a framework for Human Development Report (HDR).


Health Status of India


EAG Vs non-EAG States

  • Empowered Action Group (EAG) was formulated by Govt. of India under the Ministry of Health and Family Welfare following 2001 census to stabilize population in eight states. These EAG states are Bihar, Chattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh, and Uttaranchal. Then there are 18 Focus states, which include the EAG states as well as Arunachal Pradesh, Assam,Himachal Pradesh, Jammu and Kashmir, Manipur, Mizoram, Meghalaya, Nagaland, Sikkim, and Tripura.
  • Non-EAG States - Kerela, Gujrat, Tamil Nadu and others which are not included in 18 Focus states(see above).
  • EAG states have high population (45% of total Indian Population) and a primarily high levels of infant and child mortality and child malnutrition. On the other hand, in non-EAG states Non-Communicable Diseases(NCDs) like Heart diseases, Diabetes etc are fast replacing infectious diseases and malnutrition as the leading causes of morbidity and mortality.


Population

  • Indian population - 1.21 Billion (2011 Census) - 18% of World's Population
  • 51% Males and 49% Females
  • 69% live in Rural areas and 31% live in Urban areas
  • Annual growth rate of population is decreasing
  • Population Statistics of India
    Population Statistics of India
    Source: Census 2011 of India, Registrar General of India
  • Total Fertility Rate -  Average number of children that would be born to a woman in her life time
    • High TFR in select states of Bihar, UP and MP which is contributing to high population growth (see Radar Chart below)
    • There is an effort by Govt. of India to bring TFR from current 2.6 to less than 2.1
    • Developed countries have TFR < 2
Total Fertility Rate of Indian States
Total Fertility Rate of Indian States
Source: Census 2011 of India, Registrar General of Indi
a


Sex-Ratio

  • While overall Sex-Ratio has improved in India, Child Sex Ratio (0-6 yrs) has declined
  • Child Sex Ratio has deteriorated, especially in Northern India. As you see from the Radar chart below that child sex ratio has worsened severely in Punjab, Haryana and J&K. Excel sheet can be accessed here 
Overall Sex Ratio  & Child Sex Ratio in India 
Source: Ministry of Women and Child Development, Govt. of India; Census 2011 - RGI


Mortality Rates

Mortality rates have improved over years, but have not sufficiently improved nor are concomitant with the GDP (read Economic) growth, suggesting we must be doing something wrong !     
  • Life Expectancy increased from ~ 50 yrs in 1970-75 period to 64 yrs in 2002-04 period.
  • Maternal Mortality Rate (MMR) - No. of maternal deaths per 1 lakh live births.
    • MMR has improved over years, with 437 (in 1992) to 212 (in 2009)
    • There is a differential MMR statistics from different states - Low in Kerela, TN (non-EAG States) while high in Assam, UP and Rajsthan (EAG States).

Maternal Mortality Rate in India
Maternal Mortality Rate in India 
Source: Ministry of Women and Child Development, Govt. of India; Census 2011 - RGI
  • Infant Mortality Rate (IMR) - No. of infant deaths (0-1 yrs) per 1000 live births
    • IMR has improved over time, from 129 (in 1971) to 47 (in 2010). 
    • IMR is higher with girls and in rural areas and lower in boys and in urban areas.
    • IMR is low in non-EAG states (Kerela has lowest in country - 13) and high in EAG states (Bihar, UP etc). (See Radar chart below)

Infant Mortality Rate in India
Infant Mortality Rate in India 
Source: Ministry of Women and Child Development, Govt. of India; Census 2011- RGI
  • Under 5 Mortality Rate (U5MR) - Probability of dying (per 1000) before 5 yrs of age. (Note: This is not rate like other indicators viz; IMR, MMR, but its a probability).
    • U5MR figures have improved over years with 118 ( in 1990) to 59 (in 2010).
    • U5MR is higher in girls and in rural areas, than in boys and urban areas. 
Under 5 Mortality Rate in India
Under 5 Mortality Rate in India 
Source: Ministry of Women and Child Development, Govt. of India; SRS 2011- RGI

MDG Goals for Health

  • Sample Registration System (SRS) under Office of Registrar General of India (Ministry of Home Affairs, Govt. of India), tracks the Child Mortality and Maternal Heath for MDG Goals.
Health Related MDG Goals for India by 2015
Health Related MDG Goals for India by 2015
Source: SRS 2011 - RGI

Indian Healthcare System

Features of Indian Healthcare system are as follows:
  1. Health is a State Subject (Seventh Schedule of the Indian Constitution), and Family welfare is Concurrent. Central Govt. participates through - Health Programs, Grants & Aids
  2. Primary Healthcare is Local self government.
  3. Most institutions and manpower are in state sector.
  4. Most health programmes are in central sector.
  5. Mixed ownership of healthcare institutions - Public and Private
    • Private sector is primarily only in Curative areas
    • Public sector is in Pro-motive, Curative and Preventive areas
  6. Different systems of medicine - Allopathy, Ayurvedic, Unani, Siddha and Homoeopathy.
  7. Imbalance in the healthcare system
    • Deficiencies in public sector’s capacity to deliver basic healthcare facilities.
    • Private hospitals with world class facilities, but are beyond the reach of most Indians.
    • Unregulated private sector is comparatively more affordable, but comes at price of quality, often by under-qualified practitioners.
  8. Healthcare by provider
    • Public sector is publicly financed and managed – Central Govt. hospitals, State Govt. Hospitals, Municipal and local bodies
    • Private sector healthcare providers includes:
      • Not for profit – NGOs, Trusts, Missions
      • For profit – Apollo, Max Healthcare etc
  9. National Health Policy of India envisages a 3-tier structure for healthcare
    • Primary Tier
      • Sub Center for ~ 3,000-5,000 people
      • Primary Health Center (PHC) for ~ 20,000 – 30,000 people
      • Community Health Center
        • Referral Center for every 4 PHCs under it
        • Population of 80,000 – 1 lakh people
        • District Hospital – only for urban population
    • Secondary Tier
      • District Hospital as secondary tier healthcare facility for rural population
    • Tertiary Tier
      • Healthcare Center well equipped with latest diagnosis and investigation facilities

Issues in Indian Healthcare System

  1. Health Expenditure
    • Govt. spending on health in India is extremely low by international standards and the country’s health system is heavily dependent on out-of-pocket expenditure and private health care. (Note: Some progress has occurred in the past 5 years with new commitments by central and state govt to correct some of these inequities and gaps in health care). 
    • Private household out-of-pocket expenditure is a major cause of household debt for families on low and middle income.
    • Lack of proper regulation of the private sector has led to increase in healthcare costs and corruption.  
    • There are large variations in public spending across states in India. Cost effectiveness of public health spending in EAG states is low because of their weak administrative capacity, poor governance and service delivery failures. 
        Health Sector Expenses in India
        Health Sector Expenses in India
        Source: National Health Accounts 2004-05; Ministry of Health & Family Welfare, Govt. of India
          Trends in Social Services Expenditure by General Government
          Source : RBI as obtained from Budget Documents of Union and State Governments
  2. Disease Burden of India
    • Communicable diseases account for 38% deaths in India 
      • Example:   - Dengue, ChiKungunya, Cholera AND  - Polio, TB, Measles
      • Existing environmental, socio-economic and demographic factors tend to make India vulnerable to new micro-organisms causing diseases
      • More deaths in rural India due to communicable, maternal and nutritional conditions
    • Non-Communicable Diseases (NCDs) account for 42% deaths in India
      • Example: Cancer, Diabetes, Cardio-Vascular Diseases, Lung Diseases, Mental Dis-orders
      • Improving socio-economic status leads to  physical activity and consumption of "junk foods" - obesity, diabetes
      • Use of tobacco and alcohol - High consumption in India
      • Unlike in Western countries where NCDs occur at elderly age, in India its peak occurrence is a decade earlier i.e. 30-59 yrs. Hence the issue, apart from disease burden is the pre-maturity and the resulting socio-economic consequences. 
      • High medicines cost and longer duration of treatment of NCDs - financial burden on the household
          Causes of Deaths
          Causes of Deaths
          Source: Ministry of Health and Family Welfare, Govt. of India
  3. Weak delivery system and human capacity
    • Primary Health Care
      • Lack of dependable and affordable primary health care for rural and urban poor. With focus only on high-tech, specialist-delivered, and hospital-based medical care, there was little regard for primary health care or evidence based practices.
    • Verticalization and selectivisation of programmes - multiple ministries doing the same thing - duplication of efforts, inefficient distribution of resources 
    • Lack of Community Participation and Involvement of Panchayati Raj Institutions (PRI)
    • Human Resources
      • Lack of skilled human resources, low morale, high absenteeism, lack of management capacity, accountabilities and poor governance
      • Healthcare professionals not willing to work in rural areas, the last mile connectivity has not been achieved in the health system. 
      • Lack of training and inequities of distribution(i.e. less professionals in EAG states, while surplus in non-EAG states)
      • A doctor-centred approach to health care has led to a systematic underproduction, undervaluation, and underuse of public health professionals, nurses, and community health workers.
    • Widespread corruption
      • Health is considered to be 2nd most corrupt sector 
      • Some example(s) of corruption
        • Non essential drugs purchased in large quantities
        • Quoting high procurement price of medical equipments
        • Private practice and misuse of profession
        • Appointments, Promotions, Transfers 

  4. GDP and inefficiencies in health expenditure

    • The Preston curve honey-moon period has gone and the difficult task ahead is to improve health of the population in India. Preston curve has flattened significantly by the 2000s, suggesting that economic growth alone is unlikely to lead to limited mortality declines in the future.
    • Indian economy experienced high growth rates in recent years, but is still ranked 134th(/182 countries) in the Human Development Index. So, the economic transformation has not produced tangible improvements in the health of the nation. For e.g. Bangladesh's public spending on health is less than India, but has a lower Infant Mortality Rate (IMR) than India. This shows that public spending in India has not been effective.
    • In recent years (last 5 yrs) we have seen small increase in the governmental allocations for health, but due to poor and inefficient utilization of funds by states, things didn't bring positive results. 

  5. Socio-Economic and Behavioural issues

    • Population stabilization(as mentioned above, population growth rate is declining) and a skewed child sex ratio
    • Gender discrimination and high newborn and child mortality rates
    • Tobacco (Pan, Bidhi, Supari) and binge(excess) alcohol consumption
    • Caste and class discrimination
    • Income inequalities - huge divide between rich and poor

  6. Risks posed by distal determinants

    • Unplanned urbanization, water and sanitation crisis, inequitable global trade, unhealthy trade practices, climate change 

    Social Determinants of Health 

Universal Health Coverage (UHC)

The Indian Constitution guarantees fundamental rights to its people. In the landmark case of Maneka Gandhi Vs Union of India (1978), Hon'ble Supreme Court of India, gave a wider interpretation of the Article 21 and inter alia declared "Right to health" as part of Article 21 - a Fundamental Right and made it justiciable
UHC is a developmental imperative and moral obligation of a civilized society. 
Contributory social insurance(like NIA in UK) is not appropriate for India where 93% of workforce is in the unorganized sector and vast population is below or near poverty line. In that regard, President of India in her recent speech to the Indian Parliament said that Govt. of India will endeavor to increase both planned and unplanned expenditure of Centre and States taken together to around 2.5% of GDP by end of 12th 5 year plan. Read entire speech here.
Proposed Health Expenditure in 12th Five Yr Plan (and beyond)
Proposed Health Expenditure in 12th Five Yr Plan (and beyond)
Source: HLEG, Planning Commission of India
However mere doubling the public financing will not be sufficient unless we define our priorities:

Priority 1: Strengthen our Public Health System

  • Primary Health Care should be improved starting with Sub-Centres, which is the first health post for the community.(See 3-tier health structure described above). If provision of primary healthcare is easily accessible and is of good quality, then the need for secondary or tertiary care will be substantially reduced
    • Atleast 70% of total health expenditure should be on primary healthcare
    • Staffing them with well trained non-physician health-workers
    • Both facility based and outreach services could be provided without being doctor dependent. (Note: There is a lack of skilled manpower(especially doctors), hence we should train the health-workers and make them self sufficient)
  • District hospitals should also be strengthened to provide high quality secondary care and some amount of tertiary care.  
  • National Rural Health Mission (NRHM) aims to work on these lines. I will write about NRHM in my future post. 

Priority 2: Improve size and quality of health workforce

Without sizable quality workforce, the promise of UHC will be an empty entitlement. Since primary healthcare is our 1st priority, resources must be devoted to the production of competent & committed health workers:
  • Policy Making and Management
    • Evidence based rather than population based norms should be adopted while planning of human resources(HR). So, understanding health needs and demands of local population is required.
    • HR policy should become an integral part of health policy
    • Decentralize HR planning to local bodies and to district level
  • Education and training
    • Increase training institutions for all type of health workers
    • New medical, nursing colleges must be setup in states which currently have few of them and linking them to district hospital
  • Enhancing health coverage
    • Systematic forecasting and planning based on needs(evidence based planning) rather than universal population size based norms.
    • Pooling and optimize use of available resources - allopathic & AYUSH; formal & informal.
    • Since the IMR/MMR and of non-EAG states are fairly better, the technical and managerial resources from these states can be transferred to the high focus districts of EAG states. These resources should be used to build up training and knowledge institutions within these EAG districts, so that when they are withdrawn, the programmes would sustain based on the buildup of internal capacity. If need be, a special purpose vehicle(SPV) or national programme management unit may be placed in charge of such a transfer of resources. 
    • Use of technology like computers, tele-medicine, mobile phone, etc. to maximize reach and efficiency of all available health workers.
  • Motivation of health workers
    • Clear job roles and performance appraisals
    • Financial and non-financial incentives for good work - linking promotions with qualifications/training and abilities rather than with seniority, and reducing political interference in transfers and promotions
    • Better working conditions and safety from occupational hazards
  • Competence Building
    • Create a cadre of community based providers who will be willing and able to live and work in rural areas,
    • Improving standards of health education by improving technical skills, making community health workers multi-skilled, training in public health.
      • Introduction of the National Commission for Human Resources for Health (NCHRH) Bill is a welcome step. It will be an overcharging regulatory body for medical education and allied health sciences with a dual purpose of reforming the current regulatory framework and enhancing the supply of skilled manpower in the health sector. See details here.

Priority 3: Provide essential medicines and diagnostics FREE of cost at public facilities


Trends in access to medicines in India
Trends in access to medicines in India
Source: NSS, RGI
  • Increasing outlay on medicines/drugs from current 0.1% of GDP to 0.5% of GDP can cover FREE universal access to drugs. There should be rational use of drugs - Rational Drug Use Policy. 
    • Only those drugs which are part of  Essential Drugs Lists should be procured. 
    • The policy is aimed at breaking the stranglehold of suppliers on the public health system, promoting correct drugs and dosage and curbing unnecessary prescription. 
    • Emphasis should be to procure generic drugs, which are cheaper and have more therapeutic value than the branded ones. 
  • Purchase of all health care services under the Universal Health Coverage (UHC) system should be undertaken either directly by the Central and state governments through their Departments of Health or by quasi-governmental autonomous agencies established for the purpose.
  • TNSMC Drug Procurement Model - Tamil Nadu Medical Services Corporation (TNMSC), a state-owned company was set up under the Companies Act in 1994 in the wake of a spurious drugs scam. The corporation streamlined drug procurement in the state and has helped shave costs by about 30%. The central government is now using the TNMSC model as a national benchmark in rational use of drugs in the public sector in procuring, logistics and capacity building.
TNMSC Drug Procurement Model - Success Story
TNMSC Drug Procurement Model - Success Story
    • Tendering process starts at the beginning of every year to identify suppliers for about 250 drugs(Essential Drugs Lists), which are the most used and usually cover the treatment spectrum.
    • Stringent testing of drugs in TNMSC laboratories.
    • Once the tests approve the drug, TNMSC places regular orders through the year depending on inventory levels in its warehouses. A computerized management information system constantly keeps track of inventories in warehouses and helps place orders. 
    • Passbook system(inspired by bank passbook) - Every user of the drug (government run clinics, polyclinics and hospitals) is issued a passbook. Whenever drugs are required, they inform the nearest warehouse, which immediately fulfills the order. The name and value of the drug issues is immediately entered in the passbook, which forms the backbone of the information system. 

Priority 4: Put in regulatory mechanisms for UHC

Health sector is among the least regulated in our country, despite the need for effective regulation to ensure ethical, efficient, equitable, safe and affordable health services. Achieving high standard in healthcare and empowerment of patients, is not possible without standard setting and strong regulation. "Laissez Faire cannot deliver"


National Health Regulatory and Development Authority
National Health Regulatory and Development Authority
Source: HLEG, Planning Commission
As shown above, we need a national inter-operable health information network to improve governance, accountability, portability and management of health systems.

Priority 5: Encourage community participation for UHC

Community participation must be supported to actively engage people in design, delivery, monitoring and evaluation of health programs. 

Panchayati Raj Institutions (PRI): 

Panchayati Raj Institutions needs to be seen as the key instrument to transform rural India into 700 million opportunities. It is a platform to integrate economic reform with institutional reform for realizing Gandhiji’s far sighted goal of Poorna Swaraj through Gram Swaraj.

  • PRI Opportunities
    • the number of grass root institutions - 2.4 lakh Gram Panchayats
    • the number of persons elected - 36 lakh in Panchayats and Nagar Palikas
Health Infrastructure and PRI mapping
Health Infrastructure and PRI mapping
  • Ministry of Health and Family Welfare has initiated GIS mapping for all 600 districts in India(phase wise). This GIS mapping will indicate very clearly, the gaps and disparities between districts, and will guide the deployment of the BRGF (Backward Regions Grant Funds). The gaps in current outreach and coverage in health care would then be addressed, on a gram panchayat basis
  • To major social movements initiated by Ministry of Panchayati Raj(MoPR)
    • ‘Panchayat Mahila Shakti Abhiyan’ mobilizes Rural Women for more direct involvement and participation in programs aimed at population well-being. This mainstreams gender for more appropriate health and education seeking behavior
    • 'Panchayat Yuva Shakti Abhiyan', mobilizes Rural Youth similarly, to enhance awareness levels, and to channelize energy and time towards improving health, literacy and livelihood outcomes, through Youth Clubs and GPs.
  • Making use of e-panchayat (part of Govt. e-governance programme).