How MCLR will affect your home loan

For new borrowers, home loan rates will be automatically reset either yearly or every six months

State Bank of India (SBI), India’s largest lender, was the first to announce the new marginal cost-based lending rate (MCLR), on 1 April 2016. This is the new benchmark lending rate and it replaces the base rate for new borrowers. SBI has introduced seven MCLRs for periods ranging between overnight and three years. While MCLR will be the benchmark rate for new borrowers, for existing borrowers, the base rate regime will continue.

Here’s what the new rate means, and how it affects you.

What is MCLR?

MCLR is the new benchmark lending rate at which banks will now lend to new borrowers. Till 31 March 2016, banks used the base rate as the benchmark rate to lend.

MCLR is built on four components—marginal cost of funds, negative carry on account of cash reserve ratio (CRR), operating costs and tenor premium.

Marginal cost of funds is the marginal cost of borrowing and return on net worth for banks. The operating cost includes cost of providing the loan product including cost of raising funds. Tenor premium arises from loan commitments with longer tenors. According to brokerage and investment group CLSA, the source of funding for a bank is based on actual domestic funding mix. MCLR is closely linked to the actual deposit rates.

“If one-year term deposit is at 7.50%. Then one-year MCLR will be 7.50% plus CRR, operation cost and tenor premium,” said Ashutosh Khajuria, executive director, Federal Bank Ltd.

The Reserve Bank of India (RBI) has asked banks to set at least five MCLR rates—overnight, one month, three month, six month and one year. Besides these, banks are free to set rates for longer durations as well. The rates have to be reviewed on a monthly basis, but banks that don’t have the capacity to do monthly reviews on can do so quarterly till March 2017.

MCLR-linked loans will be reset for a maximum of one year. So, you will have a new interest rate on your home loan at a pre-decided time and for a maximum period of one year.

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Banks are also allowed to determine a spread that is higher than MCLR. Depending on your credit profile, banks will decide this. “The spread will be decided based on credit risk and tenor. For credit risk, in case of an individual borrower, we will look at Cibil rating. Depending on the credit worthiness of the customer, we will set the spread above MCLR. Currently, the spread is in the range of 25-60 basis points (bps) for home loans,” K.V.S. Manian, president-corporate, institutional and investment banking, Kotak Mahindra Bank Ltd. One basis point is one-hundredth of a percentage point.

Not all loans will come under this rate. For instance, loans covered by government schemes where banks have to charge interest rates as per the scheme are exempted from being linked to MCLR as the benchmark for determining interest rate.

How does it work?

If you plan to take a floating rate home loan, your loan will now be linked to MCLR. Most banks have announced five to seven rates. For home loans, banks will either use the six-month MCLR or the one-year MCLR as the benchmark rate. Therefore, from now, all floating rate loan agreements will have a reset clause at a pre-specified interval. “Banks can decide on the tenor that they want to use to reset for longer-term loans such as home loans. We have decided to reset home loan interest rates at a six-month frequency. Hence, the six-month MCLR will be applicable for home loans,” said Manian. Kotak Mahindra Bank has announced 9.40% as its six-month MCLR and the home loan will be reset every six months in case of any changes in MCLR. If you have a home loan, the bank will reset the rate automatically at a pre-specified date.

However, banks such as SBI and ICICI Bank Ltd have set one-year MCLR as the benchmark for home loans. For instance, for salaried individuals, ICICI Bank has set a floating rate home loan at one-year MCLR of 9.20% with a spread of 25 bps for loans of up to Rs.5 crore. So, the interest rate will be 9.45%. The bank’s website stated that this will be valid till 30 April 2016. Though the MCLR is reviewed monthly, your home loan will be reset every year automatically, depending on the agreement with the bank. For instance, if you take a Rs.30-lakh loan on 1 April this year, one-year MCLR is at 9.20% and spread on it is 25 bps, your home loan will be 9.45%. You will pay instalments at this rate for the next one year. If on 1 April 2017, one-year MCLR gets revised to 9.15%, your home loan interest rate will get reset at 9.40% (MCLR of 9.15% plus spread of 25 bps). Accordingly, your instalment or loan tenor may change.

According to a report by Ambit Capital Pvt. Ltd, RBI gave banks the provision of a reset period to partly smoothen the impact of changing rates on banks’ margins (as deposits re-price with a lag, reset periods allow bank to adjust the timing of loan pricing). As the concept of reset period contravenes with the RBI’s objective of quick transmission of monetary policy, the RBI has capped reset period at one year.

Though retail loans are likely to be set at six months to one-year MCLR tenors, corporate loans may be set at shorter tenors. “Due to complexity in the retail product, a pre-specified reset has been decided. When it comes to corporate loans, there is a possibility to negotiate across the multiple sets of rates that are available,” said Manian.

Can an existing borrower who is on a base rate regime move to MCLR? According to RBI, existing loans and credit limits linked to base rate will continue till repayment or renewal, and banks will have to continue publishing base rates as well. Existing borrowers can move to MCLR-linked loans at mutually acceptable terms and these loans will not be treated as foreclosure of existing facility.

What you should know

The MCLR-linked home loan rate is currently marginally lower than a base rate-linked loan. For instance, SBI was offering home loans between 9.50% and 9.55% till 31 March. From 1 April, the rate is lower by 10 bps and ranges between 9.40% and 9.45%.

According to the Ambit report, new MCLRs are not so different from base rates: “...even if benchmark rates would have fallen, the effective loan pricing for borrowers might not have changed much. This is because banks could change spreads over benchmark rates,” the report noted.

Home loan rates will now depend on the bank’s choice of reset period—six-month or one-year MCLR rate and spread rather than one common base rate and spread. According to a Centrum Broking Ltd report, while MCLR is intended to ensure effective policy transmission, past studies, including references to global banks, suggest limited rate transmission to end-user. Hence, its effectiveness in the longer run will need to be assessed, the report noted.

Existing borrowers should wait for the new system of calculation to settle before deciding to switch loans

The changing pattern of healthcare in India

The government’s allocation to healthcare as a percentage of GDP has fallen to 1.05% in 2015-16 from 1.47% in 1986-87

The evolution of healthcare in India over the past 25 years has been a mixed bag. While key health metrics such as the infant mortality rate (IMR) and maternal mortality ratio (MMR) have come down substantially, healthcare expenses have shot up—a direct fallout of lower public health spending. The government’s allocation to healthcare as a percentage of the country’s gross domestic product (GDP) has fallen to 1.05% in 2015-16 from 1.47% in 1986-87.

IMR has fallen to 41 per 1,000 live births in 2013 from 88 in 1990, according to a United Nations report ‘Levels and Trends in Child Mortality’ released in 2015. Similarly, according to a World Health Organization (WHO) report released in 2014, MMR in India has declined from 560 deaths per 100,000 live births in 1990 to 190 in 2013.

“Evidence from the ground supports this. We have made gains in maternal and child health by establishing public health systems in rural areas. The investments made through National Rural Health Mission (now under National Health Mission) have paid dividends in this area,” said Vandana Prasad, national convener, Public Health Resource Network and formerly with the National Commission for Protection of Child Rights.

But India has failed its citizenry when it comes to expenses on healthcare. Health surveys by the National Sample Survey Organisation (NSSO) show that since the 1990s, the dependence of Indians on private healthcare has risen sharply. In 1986-87, 60% of people availed of public health services and the rest private healthcare, according to the 42nd NSSO report. But by 2014, this trend was reversed, with only 41% availing of public healthcare, according to the 71st NSSO report released last year. The decline in dependence on public healthcare is sharper in urban areas—from 60% in 1986-87 to almost 32% in 2014.

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The NSSO rounds also show a corresponding three-fold increase in out-of-pocket expenditure or private health expenses of households. People spent Rs.3,561 per hospitalization in 1995-96, according to the 52nd NSSO report. It increased toRs.18,268 in 2014.

“Out-of-pocket expenditure is the main cause of worry for the patients. A number of people fall from above poverty line (APL) category to below poverty line (BPL) category because of this. Nearly 70% of out-of-pocket expenditure is due to medicines. That has to be addressed,” said Rajesh Kumar, head of the department of community medicine and school of public health, Post Graduate Institute of Medical Education and Research (PGIMER), Chandigarh.

The rise in out-of-pocket expenditure is a direct outcome of the fall in the government’s budgetary support to healthcare.

“By the end of 1980s, public health spending had increased to 1.5% of India’s GDP. Since then, there was declining trend in public spending on health, which reached to only 0.6% of GDP in the 1990s. Since then, it has improved a little up to 1.2%, but nowhere close to the 12th five-year plan (2012-17) target of 2.5% of GDP,” said Ravi Duggal, health economist and country coordinator of non-profit International Budget Partnership. “What this under-financing did was to reduce the credibility of public health institutions among general people. And doctors and nurses left the public health system, creating huge vacancies in primary health centres and public hospitals,” he added.

The increasing burden of both communicable and non-communicable diseases, too, is a challenge. While diarrhoea, respiratory infections and pre-term birth complications continue to affect India, lifestyle diseases such as heart diseases, stroke, pulmonary diseases and diabetes are now leading causes of premature death. Non-communicable diseases such as cardiovascular diseases, cancer, chronic respiratory diseases and diabetes account for nearly 60% of all deaths in India, according to the WHO.

The economic burden of these lifestyle diseases accounts for about 40% of all hospital stays and roughly 35% of all recorded outpatient visits, according to a 2014 report by the World Economic Forum and Harvard School of Public Health. The report further added that the probability of dying during the most productive years—between 30 and 70—from one of the four main non-communicable diseases is a staggering 26%.

Tracking the Panama Papers

The list of Indians include Amitabh Bachchan, Aishwarya Rai Bachchan, K.P. Singh and Gautam Adani’s elder brother Vinod Adani, among others

Over 500 Indians figure among a list of individuals who have paid Mossack Fonseca, a law firm headquartered in tax haven Panama known for its factory-like production of offshore companies for its worldwide clientele of the well-heeled, to set up offshore entities in tax havens around the world, according an Indian Express report.

Mossack Fonseca won’t discuss specific cases of alleged wrongdoing, citing client confidentiality, reports the Guardian.

Also Read:

• Panama Papers: Tax authorities begin probes into some people named in leak

They find mention in more than 11 million documents from the secret files of Mossack Fonseca, in an unprecedented leak that is being called the Panama Papers by the media the world over.

From film actors Amitabh Bachchan and Aishwarya Rai Bachchan to businessmen including DLF owner K.P. Singh and nine members of his family, and the promoters of Apollo Tyres and Indiabulls to Gautam Adani’s elder brother Vinod Adani, to politicians Shishir Bajoria from West Bengal and Anurag Kejriwal, the former chief of the Delhi unit of Loksatta Party, the Indian Express has verified 300 addresses. The list includes scores of businessmen with addresses in nondescript neighbourhoods in Panchkula, Dehradun, Vadodara and Mandsaur.

A close scrutiny of The Panama Papers by The Indian Express also reveals details of hitherto unknown deals, in some cases involving the Indian government, too.Read more

The leak shows how the rich and famous can exploit offshore tax shelters and reveals an unprecedented pattern of corruption worldwide for 40 years, including maneuvers by major banks who created the hard-to-trace companies. World leaders or associates who have embraced anti-corruption platforms are featured throughout.

The massive leak of documents exposes the offshore holdings of 12 current and former world leaders and reveals how associates of Russian President Vladimir Putin secretly shuffled as much as $2 billion through banks and shadow companies, according to ICIJ or the International Consortium of Investigative Journalists’ report on Panama Papers .

The leak also provides details of the hidden financial dealings of 128 more politicians and public officials around the world. The cache of 11.5 million records shows how a global industry of law firms and big banks sells financial secrecy to politicians, fraudsters and drug traffickers as well as billionaires, celebrities and sports stars. These are among the findings of a yearlong investigation by the International Consortium of Investigative Journalists, German newspaperSüddeutsche Zeitung and more than 100 other news organizations.

The files expose offshore companies controlled by the prime ministers of Iceland and Pakistan, the king of Saudi Arabia and the children of the president of Azerbaijan.

The network of secret offshore deals and vast loans worth $2billion has laid a trail to Putin, reports the Guardian.

Though the Russian president’s name does not appear in any of the records, the data reveals a pattern—his friends have earned millions from deals that seemingly could not have been secured without his patronage. The documents suggest Putin’s family has benefited from this money—his friends’ fortunes appear his to spend, added the Guardian.

The leak of secret documents reveals another side to Putin and classical cellist and conductor Sergey Roldugin’s friendship. The records show Roldugin is a behind-the-scenes player in a clandestine network operated by Putin associates.

The BBC reported that the leak reveals information about 72 current or former heads of state, including Syria’s president Bashar al-Assad, Egypt’s former president Hosni Mubarak, and Libya’s former leader Muammar Gaddafi. It reported Icelandic Prime Minister Sigmundur Gunnlaugsson stored millions of dollars of investments in Iceland’s major banks in an offshore company.

Sueddeutsche Zeitung reported Juan Pedro Damiani, the Uruguayan lawyer who is president of the country’s most popular soccer team and a FIFA ethics expert, managed companies through which FIFA members may have received bribes.

The ICIJ also state that the documents contain “the names of nearly 20 high-profile soccer players, past and present, representing some of the globe’s best-known professional football clubs, including Barcelona, Manchester United and Real Madrid”, as well as “current or former owners of at least 20 major soccer clubs, including Internazionale Milano and Boca Juniors”.

Outside of football, the ICIJ states that the names of at least five golfers, as well as a number of NHL players, appear in the documents.

The ripple effects of the leak have already started to show, at least in Iceland.

Iceland’s prime minister Sigmundur Davíð Gunnlaugsson is this week expected to face calls in parliament for a snap election after the Panama Papers revealed he and his wife is among several leading politicians around the world with links to secretive companies in offshore tax havens, reported the Guardian.

An anonymous source apparently tipped off Suddeutsche Zeitung, an investigative newspaper in Germany, which then shared the information with ICIJ.

The ICIJ report states that it includes information on “29 billionaires from Forbes list of top 500 Richest” as well as movie star Jackie Chan, and soccer star Lionel Messi, who ranked fourth on Forbes’ 2015 list of highest paid athletes.

The Forbes report lists the billionaires and former billionaires who are mentioned in stories reporting on The Panama Project or have ties to entities mentioned. The list is incomplete.

So, how did the Panama agent offer secrecy? The offshore entity need not appoint natural persons as directors or have individuals as shareholders. The Registered Agent, Mossack Fonseca in this case, offers its own executives to serve as shareholders or directors. Sometimes, an intermediary law firm or a bank acts as a director or a nominee shareholder. So the real beneficiary remains hidden,reported the Indian Express .

Criminal investigations are sure to follow in dozens of countries, and more revelations are sure to emerge as the documents are pored over more thoroughly.

Though the details are shocking, the leaks also offer the most granular look ever at a banal reality that’s long been hiding in plain sight. Even as the world’s wealthiest and most powerful nations have engaged in increasingly complex and intensive efforts at international cooperation to smooth the wheels of global commerce, they have willfully chosen to allow the wealthiest members of Western society to shield their financial assets from taxation (and in many cases divorce or bankruptcy settlement) by taking advantage of shell companies and tax havens.

If you are a wealthy business owner in Germany who has decided to evade tax, an international drugs dealer or the head of a brutal regime, the methods are all pretty similar. There are shell companies, offshore financial centres, bearer shares and bonds, among others.

And though there is nothing unlawful about using offshore companies, the files raise fundamental questions about the ethics of such tax havens—and the revelations are likely to provoke urgent calls for reforms of a system that critics say is arcane and open to abuse.

At one end of this spectrum, the papers simply reveal the vast number of people who use offshore to protect their wealth. There is nothing unlawful about doing this. It is not illegal to be a director, shareholder or beneficial owner—the real owner, even though their name may not appear on the shareholder register—of an offshore company. But the financial advantages these structures provide are not generally available to the ordinary taxpayer.

Unsurprisingly, the public is questioning—perhaps more than ever—whether a system that provides advantages only to the wealthy is immoral. And the political climate that once tolerated this inequality has changed decisively, wrote theGuardian.

At the other end of this spectrum there is, frankly, what could be described as offshore pandemonium.

Mapping the Panama Leaks

Switzerland and Hong Kong have the maximum number of companies, clients and beneficiaries named in the confidential documents, leaked from Panamanian law firm Mossack Fonseca. Mossack Fonseca, which the BBC calls “as one of the world’s most secretive companies”, had allegedly helped its clients “launder money, dodge sanctions and evade tax.” These documents, eleven million in all, known as the Panama Papers, were first leaked to German newspaper Sueddeutsche Zeitung, which later “shared them with the International Consortium of Investigative Journalists.” The data cache worth 2.6 terabyte is reportedly the largest ever leak.

While the likes of Russian president Vladimir Putin, Barcelona and Argentina footballer Lionel Messi, Ukrainian prime minister Petro Poroshenko and other global financial and political elite have made headlines with their names featuring in the Panama Papers, Irish Times digital production editor Brian Kilmartin created a map of the countries implicated in the controversy.

Switzerland, with 38,433 companies leads the chart, while Hong Kong with 37,919 companies comes in a close second. India, in comparison, has only 21 companies with 384 beneficiaries.

Why local body polls aren’t free and fair

Bringing the administrative control of State Election Commissions under the purview of the Central Election Commission will never be accepted by the parties in power in the states

Panchayat and municipal corporation elections come under the purview of the State Election Commissions that are constituted under a state Act, which does not provide for the independence and impartiality enjoyed by the Central Election Commission as their terms and conditions are subject to the whims and fancies of the state government. Consequently, these elections are not as free and fair as those conducted by the Election Commission of India.

There are a number of high court judgements questioning the fairness of such elections.

These are dominated by local issues based on caste, creed and other petty matters that the opposition parties always question the neutrality of the conduct of such polls.

The rules relating to the compilation of voters’ register, timing and scheduling of elections, regulation of campaign expenditure, staffing of polling booths, use of state police machinery, etc., vary from state to state. The ruling parties are often accused of interfering with the conduct of these elections.

There is a clamour in many states, especially by opposition parties, for bringing the administrative control of State Election Commissions under the purview of the Central Election Commission so that the appointment of state election commissioners and deployment of central paramilitary forces by the Election Commission of India can help conduct more fair elections. But this can be done only if there is a constitutional amendment. This will never be accepted by the parties that are in power in the states.

The money power in these local elections is also increasing mainly because the candidates feel success in these elections will improve their image in influencing state patronage and they being identified for various positions in parties and subsequent selection for contesting polls to state assemblies and Parliament.

India’s great power aspirations

Narendra Modi seeks to transform India into an entity whose weight and preferences define international politics

Less than a year after he took office in May 2014, Prime Minister Narendra Modi challenged his senior diplomats “to help India position itself in a leading role, rather than [as] just a balancing force, globally”. Elaborating on this idea, foreign secretary Subrahmanyam Jaishankar later noted that Modi’s dramatic international initiatives reflected India’s growing self-confidence, declaring that the country now “aspire[s] to be a leading power, rather than just a balancing power”.

When this ambition is realized, it will mark the third and most decisive shift in independent India’s foreign policy, one that could have significant consequences for the future international order. It will take concerted effort, however, to reach this pinnacle in the years ahead: India will have to reform its economy, strengthen its state capacity and elevate the levels of rationalization across state and society writ large so that it may be able to effectively produce those military instruments that increase its security and influence in international politics.

For the longest time, India’s foreign policy was essentially defensive. Its early rhetoric was bold—championing, in former prime minister Jawaharlal Nehru’s words, a “real internationalism” that promoted global peace and shared prosperity. Yet, its material weaknesses ensured that its strategic aims in practice during this first phase were focused principally on protecting the country’s democracy and development from the intense bipolar competition of the Cold War. India survived the Cold War with its territorial integrity broadly intact, its state and nation-building activities largely successful, and its political autonomy and international standing durably ensconced. In the process, it created some impressive industrial and technological capabilities, but its obsession with “self-reliance” unfortunately also ensured the relative decline of India’s economic weight in Asia and beyond.

After 1991, when it was freed from the compulsions of having to avoid competing alliances at all costs, India entered into the second phase of its foreign policy evolution: building strategic partnerships. The domestic economic reforms unleashed in the very year of the Soviet Union’s collapse aided this process by paving the way for consolidating India’s path towards higher growth. From the abysmal 3.5% annual growth witnessed until the 1980s, the 1991 reforms accelerated the improving 5.5% growth rate to the 7% demonstrated since the new millennium, leading the CIA to conclude that India was likely to become the most important “swing state” in the international system. This assessment suggested that India’s significance in global politics lay mainly in its being a balancing power.

Since the presidency of George W. Bush, this realization has driven the US to consciously assist the growth of Indian power. On the assumption that New Delhi and Washington share a common interest in preventing Chinese hegemony in Asia, the US has sought to bolster India as a counterweight to China, fully appreciating that India would pursue an independent foreign policy, but expecting nonetheless that it would concord with larger US interests in the Indo-Pacific. Even if India were to eventually become a true pole in international politics, US calculations would not in any way be undermined: shared democratic values would then position India as a valuable partner for the US, while its growing national capacities would help to create those objective constraints that check the misuse of Chinese power in Asia in the interim.

Modi’s clarion call for India to assume a leading, rather than merely a balancing, role signifies larger ambitions. Jaishankar summarized these aims succinctly when he stated, insofar “as larger international politics is concerned, India welcomes the growing reality of a multi-polar world, as it does, of a multi-polar Asia”. In other words, India, by its choices at home and its actions abroad, would seek to create the distribution of capabilities at both the global and the continental levels that would accommodate its presence as an authentic great power. Although these aspirations are conveyed by the more modest locution “leading power”, Modi’s vision, strictly speaking, envisages India becoming a traditional great power—an inescapable conclusion if the desire for multipolarity at the global level has any consequential meaning.

Contrasting the concepts clarifies the point abundantly. From a structural perspective, great powers in international politics are genuine poles: their number defines the configuration of the global system, and their preferences regulate its institutions and determine the ways in which its constituent entities relate to one another. Great powers, accordingly, are system makers. Leading powers, in contrast, are not genuine poles. They exist within the dispositions defined by the great powers, and while they do influence various issues, they cannot determine outcomes pertaining to the fundamental questions of order against the core inclinations of the great powers. Leading powers, therefore, can at best be system shapers. Minor powers, in even greater contrast, are unambiguously system takers. They cannot impose their desires on others, and they can secure their national aims only through aid from other states and institutions or at the sufferance of stronger powers.

Clearly, Modi seeks to transform India from being merely an influential entity into one whose weight and preferences are defining for international politics. This desire is laudable, even overdue, but India’s climb to great power status will take time. Although contemporary projections of global growth out to 2050 suggest that India will become a true pole by then, they also conclude that it will remain the weakest of the principal entities—China, US, the European Union and India—dominating the international system at that time. This does not imply that Modi’s vision of India as a leading power ought to be jettisoned. Far from it. It should, in fact, be pursued even more vigorously to protect the possibility of India becoming a true pole by 2050 with material power exceeding what the current prognoses suggest—an outcome that will require New Delhi to purposefully expand its own national capabilities in ways that other great powers have done before. Modi’s call for India to become a leading power represents a change in how the country’s top political leadership conceives of its role in international politics. Attaining Modi’s ambition will require India to undergo a concerted transformation. This entails strengthening what India has most successfully achieved thus far—territorial integrity, liberal democratic politics and civic nationalism—but drastically renovating the sclerotic elements of its economy to enable the progressive rationalization that comes, inter alia, from enlarging its market system. Concerted marketization thus holds the promise of improving India’s trend growth rates, enabling appropriate redistribution when desirable and empowering the state with the resources necessary to accomplish its international goals.

Modi is cognizant of the need for comprehensive transformation if India is to one day become a genuine great power. But his efforts thus far in promoting such change, though laudable in many ways, have been unduly conservative. He has certainly embarked on several high-profile projects intended to stimulate growth and development, but he has yet to articulate an overarching defence of systemic reform, and he has shied away from undertaking those consequential initiatives that would appropriately reposition the Indian state within the national economy while simultaneously strengthening it. These tasks cannot be avoided much longer.

Modi’s invocation that India become a leading power offers transformative possibilities if it drives the speedy acquisition of great power capabilities and makes their procurement a purposeful object of Indian national policy. If his vision takes root, perhaps the most important immediate change engendered would be the imbuing of self-assurance within the Indian polity, its elites and its leaders. For all the distinctive shifts that have occurred in Indian foreign policy in recent times, it is remarkable how large segments of the intellectual, bureaucratic and political classes are still fundamentally insecure about their country’s capacity to engage with the world on its own terms. This is partly a legacy of colonialism and partly a consequence of India’s persisting material weaknesses in international politics. Yet, it is nevertheless unsettling because among India’s native strength has been the capacity to assimilate diverse foreign ideas, cultures and peoples over the millennia—enriching both the entrants and the host in the process.

If Modi’s quest for India to become a leading power, then, strengthens Indian self-confidence, the foundations would be laid for making some difficult decisions about economic reform domestically; containing those elements on both the right and the left that would disfigure India’s democracy and retard its development, respectively; and articulating a clear perspective of India’s role in Asia and the world without either defensiveness or hubris. The stage would also be set for cementing the strategic partnerships that India has sought to build in furtherance of its own interests, taking the initiative in developing cooperative solutions that address the most pressing regional and global challenges, and building the military capabilities necessary to protect India and to provide the public goods needed to strengthen peace and security in the Indo-Pacific.

A focused effort along these lines would make India’s journey towards achieving great power status easier. There are few leaders in India today other than Narendra Modi who have the capacity to articulate the importance of this vision in ways that are comprehensible to the polity at large. And India enjoys the unique advantage of having its rise unambiguously welcomed by the most important power in the international system, the US. By consummating the path-breaking overtures towards Washington initiated in recent years and complementing those with deeper economic integration with the US, Modi can solidify a geopolitical bond that will be incredibly valuable for India as it continues along the road to becoming a real great power.

Healthcare and economic growth

A healthy nation promotes economic well-being—better healthcare is an inarguable economic good

It is no secret that health is instrumental to an individual’s education, income and overall development. Studies show this is true for countries as well; health can be a causative factor for the aggregate economic growth of a country.

The World Health Organization has estimated that a 10-year increase in average life expectancy at birth is associated with a rise in economic growth of some 0.3-0.4% a year. This evidence is available at the micro-disease level as well: for example, a 10% decrease in malaria is associated with an increased annual economic growth of 0.3%.

A case in point are Asian countries such as China, Malaysia, South Korea and Thailand. Plotting their economic growth vis-à-vis two key health indicators reveals an astounding fact: They have succeeded in improving health as well as delivering sustained economic growth.

Data over decades reveals that health improvements, illustrated through the infant mortality rate and life expectancy, actually preceded their economic surge. This is illustrated most dramatically in China, where both infant mortality and life expectancy improved dramatically in the 1960s, before the surge in Chinese economic performance (see Figures 1 and 2). In other words, countries become healthy before they become wealthy.

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As a nation, we too have made good progress, and India is healthier today than ever before. We have eradicated small pox and polio; made progress with regards to HIV infection and Aids-related deaths and seen increased access and affordability.

However, a lot still remains to be done, especially when compared against the Millennium Development Goals (see Figure 3).

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India continues to grapple with highly prevalent communicable diseases even as it faces an onslaught of non-communicable diseases (NCDs), fuelled by rapid urbanization. By 2030, NCDs will cost India a whopping $6.2 trillion (estimate from a discussion paper of the Institute for the Study of Labor, 2013).

Despite these threats, overall spending on healthcare, particularly public spending, is very low. India’s health systems, with huge gaps in delivery infrastructure as well as skilled professionals, are completely unprepared for dealing with this twin challenge (see Figure 4). In essence, we are still not a healthy country and our lack of investment in the health system will come in the way of our continued economic development.

A direct consequence of a nation’s poor health on its economy is through the adverse impact on its human capital. Studies have demonstrated a strong case for improvements in health and nutrition, concluding that health capital contributes more to wealth than other dimensions.

In South Asia, according to Global Health 2035, a Lancet Commissions report, the annual value of mortality change for 2000-11 was equivalent to nearly 3% of average income during that period, which was almost half as large as the value of the increase in GDP.

It is a healthy nation that turns into a wealthy nation. India is unprepared for the dual burden of communicable and non-communicable diseases. Yet, there is clear proof of the returns from investing in healthcare—the soft infrastructure of a country.

As the nation and the government look at a second wave of reforms, healthcare needs to be a key priority. We can bring about a tectonic shift towards better healthcare within a decade, if we act quickly. Our aspiration should be for a healthy India, where citizens are health-aware and engaged, have equitable access to affordable health coverage with a focus on prevention, early diagnosis and assured minimum quality of care, offered by a vibrant and sustainable ecosystem of public and private players.

Bain estimates that realizing these healthcare aspirations by 2025 will require a cumulative $3 trillion in spending, including about $600 billion in capex. Given the size of the challenge, the government has to enable greater funding from public and private sources, private insurance and individual contributions. It should assign higher priority to healthcare in budgetary allocations, explore all avenues for fund-raising and aim to ensure better management of healthcare spending across different stakeholders.

The public sector cannot deliver on the agenda alone. Private-sector players bring entrepreneurship, innovation and an ability to deliver financial and medical outcomes that create a sustainable ecosystem. The urgent and immediate agenda is for all stakeholders—public and private—to acknowledge the task at hand and work collaboratively to address them.

Yes to a government college, but no to government schools

NSSO report shows that private schools are preferred over government schools due to better quality education

While presenting the budget for Delhi last month, finance minister Manish Sisodia announced an expenditure of Rs.102 crore on training of teachers and principals in the new fiscal year. This was just Rs.9.4 crore last year. Sisodia said his aim was to bring government schools to world class standards in Delhi. While one would have to wait and see whether these goals are realized, improving learning outcomes and perception of government schools seems to be a national problem.

A recent National Sample Survey Organisation (NSSO) report shows that a majority of students studying in private schools do so to make sure that they get better quality education. The survey was conducted between January and June 2014.

The problem of quality in government educational institutions seems to be more acute at the school level. Consider this: more than 92% of students in rural India opt for a private school at the primary level because of one of three reasons. One, better learning environment in private schools; two, English being the medium of instruction in private schools; three, quality of education being unsatisfactory in government schools. The figure is above 70% in both rural and urban areas up to higher secondary level, with the exception of higher secondary level in rural areas, where it is 64%. For graduate and above and diploma level, the tables turn. Majority turns to private educational providers because of lack of supply—the reasons being absence of a government institution in the vicinity, or inability to get admission into one.

The perception about private schools being superior seems to be rooted in experience. As per the Annual Status of Education Report (ASER) 2014, learning outcomes in private schools in rural areas have been consistently better than government schools, with the gap widening in most cases. For example, the percentage point gap between children studying in standard five in private and government schools who could do division was 10.3 in 2010. This increased to 18.6 in 2014. The situation is similar for other learning indicators as well.

Experts say that at junior levels, it is the parents who choose private schools for their children as they believe private schools can offer better all-round education. Parth Shah, president at the Centre for Civil Society, said one mother wanted her young child to study in a private school because the teachers there regularly checked the nails and the uniform of the children.

“Punctuality, hygiene and discipline—these are the three soft skills parents look at while getting their children admitted in elementary school,” he said.

Besides that, it is of course the lure for the English language. In a lot of government schools, children are taught in their regional languages and parents know that even a little knowledge of English can go a long way for their child in the future, Shah said.

Then again private schools are known to have higher attendance levels of teachers and are known to be less discriminatory. “A lot of the teachers in rural areas in government schools are money-lenders. So naturally attendance levels are affected as priorities are split,” he added. Shah also underlines the importance of measuring learning outcomes regularly to improve accountability of teachers in government educational institutions.

Not to mention the higher social statement that a private school makes. “If I am high status, I must send (my child) to private school,” said Anurag Behar, CEO, Azim Premji Foundation.

The preference for government institutions in higher education seems to be coming from the dominance of public sector in this field.

According to Shah, it has only been over the last decade or so that private players have begun to enter into the education space in a big way. “There are many institutes in the private space, but naturally they are not yet able to compete with a Presidency College or a Xaviers or an Indian Institute of Technology,” he said.

At the same time, with teachers being paid well at higher levels in government colleges, quality of education is considered to be better in comparison with their private counterparts. Attracting teachers of similar qualifications or teaching experience would fare a lot costlier for a private college.

There is one caveat to this analysis. The difference between learning outcomes of government and private schools might also be influenced by factors outside the school. The 2014 ASER report states that accounting for all other factors, a smaller proportion of the gap is attributable to private schools themselves.

“It is a well-established fact that household and other characteristics of private school children are very different from those of government schoolchildren. Since learning levels depend not only on the characteristics of a child’s school but also on their own characteristics and those of their household, attribution all the observed differences in learning levels to differences in schools is incorrect,” the report stated.

In fact, one can go a step further. Economic research on public goods shows that the elite opting out of public provisioning of such goods negatively impacts the quality of supply. This is because they are the best suited to exercise political pressure and maintain accountability. Thus, in a society where the rich confine themselves to private schools, it would take more than money to improve the quality of education in government schools.