Vinod Vitthal Rane is a 42-year-old car mechanic, who lives with his family of seven in a one-room chawl in Juhu, having to use the public bathroom every day. Vinod, a semi-skilled labour and his wife who works in households as a maid, both combined earn roughly Rs12,000 a month.
Ironically, treatment for Vinod's father - suffering from diabetes, blood pressure and now kidney failure – runs up a minimum monthly cost of Rs12,000. The meagre gold and saved funds are quickly disappearing, with loans from small-time moneylenders being the only option.
Much hue and cry was made about last year's report by Deloitte LLP which showed India poised to emerge as an economic superpower, driven by its young population. India's potential workforce is set to climb from 885 million to 1.08 billion people in the next 20 years. As analysts have previously pointed out, India has a consumer-driven economy, yet the bulk of its population has hardly any purchasing capacity. This is no surprise since National Sample Survey Organisation (NSSO) data claims 70% of medical bills come out of individual's pockets leading to impoverishment and indebtedness.
"The most burdened by medical costs is the poor and lower middle-class, which forms over 60% of our total population," says Arup Mitra, professor at Institute of Economic growth and Director General of National Institute of Labour Economics Research and Development.
Lower middle-class is the new poor?
The Credit Suisse report estimated that 664 million formed the global middle class in 2015, with India recording 23.6 million - 3% of the total global middle-class population. Goldman Sachs stated that: 'India's Urban Middle is much smaller at just 27mn working people, or 2% of the population. We believe most of the new generation of India's youth will first fall into Urban Mass, a cohort that is 129mn people today, earning over US$3,200 on average.'
Goldman Sachs term of Urban Mass credits a hard look at the income reality. Twenty-six years of India's liberalisation since 1991 has propelled the nation on the wealth-growth index. Although millions now have annual income above $5000, only 20% of them earn more than $10,000 per year. An article published in Mint states that those earning between $5000 and $10,000 annual income fall in a vulnerable category: "It now appears, however, that the economic power of the great Indian middle class may be more a myth than reality. Not poor but not quite middle class."
Mumbai University economists Neeraj Hatekar and Sandhya Krishnan claim that the societal structure of middle class has changed drastically with caste groups and occupational criteria: 'The lower middle class is engaged in occupations similar to that of the poor, whereas the upper middle class is involved in traditional service activities as well as in new knowledge services.'
Healthcare spanner in wealth growth
At the vulnerable zone of $5000 and $10,000 annual income, expenses on education, housing and weddings heavily deplete wealth. But healthcare is the major source of not only wealth decrease, but also of loans and insecurity. Data collated for 10 years – 2004 to 2014 – by National Sample Survey Organisation (NSSO) show that the average expenditure per hospitalisation increased by about 176% across both urban and rural patients.
This is partly because the percentage of those opting for private medical care, which is costlier, has increased by almost 6 percentage points to 68% yet the percentage of those using government hospitals in rural areas has seen no improvement despite initiatives to boost the sector.
As government services fall short, many now switch to private care, even though doctors and private hospitals charge considerably more, often prescribing costlier medicines and more tests. "In settings with low levels of effort in the public sector, the benefits of higher diagnostic effort in the private sector may outweigh the costs of market incentives to over treat," stated a report published by National Bureau of Economic Research. Treatment may be unaffordable but it is still necessary. Vinod Rane brought his ailing father from Ratnagiri to Mumbai after his health kept repeatedly failing in the village. It is a matter of cost versus quality of treatment.
Poor coverage of health insurance
The reason that personal wealth of the lower middle-class goes into paying medical is the absolutely abysmal outreach of insurance coverage. Government initiatives have failed to take off and the public hospitals are plagued with media reports of shoddy treatment and lacking infrastructure. NSSO released figures in 2016 showcasing that over 80% of India's population have no health insurance cover. The Centre-run Rashtriya Swasthya Bima Yojana (RSBY) could bring on board only 12% urban and 13% rural population in seven years.
A direct link between coverage and living standards has led to around 90% of the poorest urbanites not being insured. These households depended on income and savings to meet healthcare costs. To quote NSSO's 2015 data, 70% of healthcare expenses incurred are paid by the patients out of their pockets, of which 70% is spent on medicines alone, leading to poverty and debts. Lacking insurance to meet medical costs, 21% families resorted to "borrowings".
Consumerism vs minimum requirement
The growing workforce must not be considered only as labour but also as consumers. Goldman Sachs reports: 'The expansion of Urban Mass, both in size and income level, will be the key driver of India's consumption story in the coming 5-10 years.' If this bulk of population loses spending capacity to cover medical costs, they then cease to become consumers.
"For the 60% of the population – lower income middle class and the poor - it's not a question of consumerism but about the minimum requirement in terms of food, shelter, clothing etc. For them consumerism makes no sense," points out Prof Mitra.
Healthcare costs go a long way in keeping the poor poorer and the middle-class poor. A TISS report states, personal wealth expense in medical care forms one-sixth of India's poverty burden. Prof Mitra says that healthcare facility must expand for the lower income and the poor. "Healthcare is mostly curative now, not preventive. A low income individual will opt for insurance only if it is cost effective. The whole point boils down to cost – the cost of healthcare needs to reduce substantially."