How Covid-19 Is Impacting Your Household Budget?

The health expenditure currently at Rs 6 lakh crore of overall Private Final Consumption Expenditure (PFCE) could increase by at least 11%.

(Representative Image/Getty)

Mumbai: Coronavirus is likely to leave Indian families more destitute by Rs 66,000 crore as healthcare expenditure is expected to increase by 11% amidst rising inflation, fuel bill, and falling income.

The health expenditure currently at Rs 6 lakh crore or 5% of overall Private Final Consumption Expenditure (PFCE) could increase by at least 11% from the current level, according to SBI Research's latest report.

"We believe health expenditure will rise significantly because of the pandemic. This is likely to also result in squeeze in expenditure on other items of discretionary consumption, a recipe for a cutback in consumption spending," said SBI Research.

There has been an increase in the weighted contribution of health inflation in CPI inflation. Taking the share of health expenditure in PFCE for FY20 and adjusting it for such an increase in CPI inflation, SBI Research estimates that health expenditure in the family budget will increase by at least around Rs 15,000 crore due to a rise in prices. 

The increase in fuel prices since December 2020, as the government is facing a collapse in revenue receipts, is having a direct impact on squeeze in consumption spending on discretionary items, other than on health which is currently unavoidable.

COVID-19 has led to a significant increase in the hospitalization cost of people. Based on current trends, if 30% of the infected people get hospitalized and amongst them, 30% opt for private hospital and taking a conservative Rs 1.5 lakh as the cost of the entire treatment (including medicines, hospitalization charges, PPE kit, etc.) total expenditure of hospitalization comes around Rs 35,000 crore because of increased consumption of health services. 

Further, there is also an income effect due to lower per capita income, reportedly declining by Rs 8,637 in FY21 from FY20 (CSO estimates). Assuming that the income of private and unorganized sector employees has been impacted on a conservative basis, the income effect comes to around Rs 16,000 crore as per SBI's calculation. This loss in income could be an additional burden and could be a diversion from other discretionary spending to health.