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Use disinvestment proceeds to strengthen human development index

This is the second in a two-part series that looks at how divestment of government stakes cannot just help revive PSUs, but also help finance major education and health programmes

January 30, 2019 / 02:59 PM IST

Vipul Prasad

Moneycontrol Contributor

Even 70 years after independence many large states in India have HDI (Human Development Index) comparable to the politically unstable sub-Saharan African countries. This, continues to reflect dismally on our society.

It is nobody’s case that no improvement has happened, but the slow pace of progress -- especially versus other countries that got their independence around the time India became independent (Malaysia, Indonesia, Sri Lanka etc), or versus other developing countries (South Africa, Thailand, Vietnam etc) -- does raise questions on efficacy as well as fairness of our democracy.

Education and health are two key constituents of HDI where progress should have been much faster in India. As per latest data set from the United Nations Development Programme (UNDP), the population with at least some secondary education (for the period 2016-2017) was 51.6% in India. Average across the world, and developing countries were 66.5% and 59.8% respectively. Similarly, adult male mortality rate in India was 17% and 23% higher than world and developing countries.

Poor reach of primary and secondary health facilities and low affordability of tertiary healthcare are some of the reasons for poor health outcomes in the country. Public healthcare facilities are overcrowded and private facilities are beyond reach for large parts of population.

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Ayushman Bharat health insurance scheme launched recently by the government is a great initiative. However, it may face the hurdle of lack of adequate number of doctors and other healthcare professionals. On the education side, distance of schools, family requirement for more hands at work, and low visibility of gains - among families- from senior secondary schooling are some of the key reasons for modest enrolment ratios and high dropout rates at schools. Poor facilities and shortage of quality teachers at these schools cause unsatisfactory education outcomes too.

All this should not come as a surprise. Government’s spending on these two crucial areas has historically left a lot to be desired. As per UNDP, India’s current expenditure on health as a percentage of GDP in 2015 was a paltry 3.9% (versus average figures for world and developing countries at 9.9% and 5.4%, respectively).

Then, government expenditure on education stood at 3.8% versus the world average of 4.8%. Improvement in these two fields will not only enhance India’s HDI but also help the country in escaping the middle-income trap. Understandably the first step in the repair of healthcare and education systems has to be allocation of sufficient resources from the government, given that private sector does not have the incentive for heavy lifting here.

Need for funds

Now, it may not be easy to source funds for this step-up change in government spending on education and healthcare in the country. One logical source could be from disinvestment of government’s stakes in public sector undertakings (PSUs). Essentially this will ensure that proceeds from selling one kind of assets are utilised to create another set of assets -- the human capital assets, instead of being squandered away to plug budgetary deficits.

The primary objective of disinvestment undoubtedly should be to enhance the sustainability of these PSUs versus competition. Here some important 'non-negotiables' should be put in place preferably through a legislative action. The government may state upfront that it will continue to hold a minimum, say 25%, stake, will continue to be the largest shareholder, and will retain enough board representation to ensure that employee interests are not harmed.

If over next, say, seven years, the government follows a targeted programme of dis-investing its stakes down to 25% in central PSUs, it can generate a over Rs 12.2 lakh crore. Assuming that Rs 72,000 crore per annum -– in line with the budgeted disinvestment proceeds in FY18 -- continues to be blended into the common revenue pool, the government will still get Rs 7.2 lakh crore additionally.

One way to invest this amount of Rs 7.2 lakh crore -- over seven years -- on education and health can be as follows.

A sum of Rs 3.1 lakh crore based on rough estimates can be sufficient to set up and run 45 new secondary (class 9 and 10) and higher secondary (class 11 and 12) schools in each of the 673 districts of India. With this investment the schools can be equipped with all facilities like toilets, playgrounds, computers, distance education etc.

This initiative can drive a 27% and 23% increase (versus FY16 figure) in number of secondary schools and students, respectively. Teachers in secondary and higher secondary schools can go up by 145%. Outcomes too can improve substantially, with Gross Enrolment Ratio (GER) at secondary schools expanding to 90%.

Similarly, with a war chest of the balance Rs 4.1 lakh crore, the government can set out to enhance secondary and tertiary healthcare penetration, and to build long-term capabilities by setting up new facilities to churn out healthcare professionals at a faster clip.

This amount can suffice for setting up and operating six sub-division hospitals (with 50 beds each) and two general hospitals (200 beds each) in each district in the country. This can fund the set-up and operation of 200 medical colleges, - of which there can be 10 All India Institute of Medical Sciences (AIIMS).

After the above investment, the number of hospital beds per 10,000 people, which currently stands at 7 (versus developing countries average of 20) can increase to 11.5. Number of doctors per 10,000 people will grow to about 12 in seven years from 7.6 at present.  Similarly, reach of secondary healthcare will improve substantially.

Obviously, there can be many permutations and combinations here but the key is to recognise that education and healthcare needs substantially higher resource allocation, disinvestment process in PSUs needs to be accelerated, and that proceeds from disinvestment should be utilised to create human capital rather than for revenue expenditure.

Such proceeds, if invested on education and healthcare, are over and above the government’s current levels of annual spending.

The first part of the series was published on Tuesday

(Vipul Prasad is founder and CEO, Magadh Capital
Moneycontrol Contributor
first published: Jan 30, 2019 02:59 pm

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