Modicare: A scheme for Bharat that India may like to pay for

It is not often that Indian residents want to on-board a scheme for Bharat. If the Rs 5 lakh sum insured under Modicare for 500 million Indian poor reaches its potential, middle India will clamour to be allowed entry and will be willing to pay for the scheme. What costs India an average of 2% of sum insured for individual covers is costing an average of 1.3% to the government currently, and has the potential to drop down further under Modicare.

In announcing Modicare or the National Health Protection Scheme as a government funded secondary and tertiary care (health services that usually require hospitalisation) plan, India has signalled its healthcare direction where the State does not provide free or subsidised medical care but funds insurance companies to reimburse empanelled hospitals (both private and public) that do. We can argue that the State has abdicated its responsibility. We would be technically right but practically wrong. The current public health system is largely dysfunctional not because money is not being spent but because of the structure that has a hub and spoke model. The bottleneck is not the availability of money, but that of doctors and nursing staff. Available doctors are a fraction of the sanctioned doctors, which are a fraction of the required doctors. Throwing more money at the same system is not likely to yield results, hence this approach that builds on the Rashtriya Swasthya Bima Yojana (RSBY) experience.

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Budgeting arbitrage into investor choices

Every time people who have defined benefit retirement plans make rules for the market, their lack of understanding comes across clearly. Take people in the Ministry of Finance for instance, and then look at what subsequent Budgets have put in place. Not only is there arbitrage between asset classes on the definition of long term, there is arbitrage within an asset class too on the basis of which product you choose to buy. If tax policy is used to nudge behaviour, there is some serious malfunction in the Indian policy that is nudging in all the wrong directions and all the wrong products.

In India we answer the question, ‘How many years does it take for an asset to become long-term?’ in different ways depending on the asset. You have to hold equity for 1 year, real estate for 2 years and debt for 3 years for the profit made to become ‘long term’. This classification of assets is against Finance 101, since both equity and real estate are asset classes that cook slowly over time. They give their best performance over a long period of time. How long is long? Data analysis done by my colleague Kayezad E. Adajania (read it here) shows that it takes about a 7-year holding period to iron out volatility in equity. The thumb rule for real estate puts the cycle at about 10 years. Market-linked debt (as opposed to relatively fixed-return debt products such as bank deposits) as an asset class for retail investors is mostly used for short-term purposes for emergency funds, for near-term cash needs and for income generation. It would be more logical to make debt go long term at 1 year and keep a 5-year threshold for long term for both equity and real estate. At the very least, policymakers need to equalize the definition of long term across asset classes.

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Union budget 2018: A budget for Bharat, but middle India sulks

There were few happy faces in India after the Budget speech got over, except for the senior citizens. Since we don’t have representatives of Bharat in the TV studios or as talking heads, their reaction does not get captured. Budget 2019 has given a big push to Bharat and tightened India a bit more. Senior citizens should be happy. The morning laughing club should be laughing harder tomorrow. They have reason to because they are possibly the only middle India cohort that gets to take home more money. Interest income for them will be exempt from tax up to Rs 50,000, up from Rs 10,000. This means that if a 60-plus person had an income of, say, Rs 10 lakh as interest, she will now be taxed on R s9.5 lakh, other exemptions and deductions remaining the same. The deduction on premiums on health insurance is up from Rs 30,000 to Rs 50,000. This is good because privately bought health covers for senior citizens are very expensive. The Pradhan Mantri Vaya Vandana Yojana has been extended till March 2020, and the Rs 7.5 lakh-limit is doubled. A 60-plus person can now get an assured 8.3% annual return on Rs 15 lakh of investment. A couple that has invested Rs 30 lakh, can earn an interest of Rs 2.49 lakh a year from it.

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MH column

A Budget for Bharat leaves middle India in a sulk

There were few happy faces in India after the Budget speech got over, except for the senior citizens. Since we don’t have representatives of Bharat in the TV studios or as talking heads, their reaction does not get captured. Budget 2018 has given a big push to Bharat and tightened India a bit more. Bharat has got targeted spends on a whole range of items, from electrification to a massive health insurance programme—probably the biggest in the world.

Senior citizens should be happy. The morning laughing club should be laughing harder. They have reason to because they are possibly the only middle India cohort that gets to take home more money. Interest income for them will be exempt from tax up to Rs50,000, up from Rs10,000. This means that if a 60-plus person had an income of, say, Rs10 lakh as interest, she will now be taxed on Rs9.5 lakh, other exemptions and deductions remaining the same. The deduction on premiums on health insurance is up from Rs30,000 to Rs50,000. This is good because privately bought health covers for senior citizens are very expensive. The Pradhan Mantri Vaya Vandana Yojana has been extended till March 2020, and the Rs7.5 lakh-limit is doubled. A 60-plus person can now get an assured 8.3% annual return on Rs15 lakh of investment. A couple that has invested Rs30 lakh, can earn an interest of Rs2.49 lakh a year from it. These are important changes for a generation that is sitting on pension corpuses that were earned on pre-liberalization salaries, and which is finding today’s costs prohibitive.

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