The Hindu Editorial Analysis
01 December 2021

1. Small grant but a big opportunity for local bodies; The earmarked health allocation recommended by the 15th Finance Commission can fulfil a mandate on primary care

  • Page 6/Editorial

  • GS 2: devolution of powers and finances up to local levels and challenges therein 

Context: In early November 2021, a potentially game-changing and transformative development went by, almost unnoticed — the release of ₹8,453.92 crore to 19 States, as a health grant to rural and urban local bodies (ULBs), by the Department of Expenditure, the Ministry of Finance.

    • This allocation has been made as part of the health grant of ₹70,051 crore which is to be released over five years, from FY2021-22 to FY2025-26, as recommended by the Fifteenth Finance Commission. The grant is earmarked to plug identified gaps in the primary health-care infrastructure in rural and urban settings.

    • Of the total ₹13,192 crore to be allocated in FY 2021-22, rural local bodies (RLBs) and ULBs will receive ₹8,273 crore and ₹4,919 crore, respectively.


Significance of this allocation:

    • Its  small by some comparisons: It would be 2.3% of the total health expenditure (both public and private spending together) in India and 5.7% of the annual government health expenditure (Union and State combined - 2017-18 figures). It is equal to 18.5% of the budget allocation of the Union Department of Health and Family Welfare for FY 2021-22 and around 55% of the second COVID-19 emergency response package announced in July 2021.

    • The single most significant health allocation in this financial year with the potential to have a far greater impact on health services in India in the years ahead.


The 73rd and 74th Constitutional Amendments, the local bodies (LBs) in the rural and urban areas were transferred the responsibility to deliver primary care and public health services. The hope was this would result in greater attention to and the allocation of funds for health services in the geographical jurisdiction of the local bodies. Alongside, the rural settings continued to receive funding for primary health-care(PHCs) facilities under the ongoing national programmes.


Good intentions gone wrong

    • A constitutional blow to urban health services: The government funding for urban primary health services was not channelled through the State Health Department and the ULBs did not make a commensurate increase in allocation for health.  In 2017-18, 25 years after the Constitutional Amendments, the ULBs and RLBs in India were contributing 1.3% and 1% of the annual total health expenditure in India.

    • There was a Resource crunch or a lack of clarity on responsibilities related to health services or completely different spending priorities. It inadvertently enfeebled the health services more in the urban areas than the rural settings.

    • Lack of coordination between a multitude of agencies which are responsible for different types of health services (by areas of their jurisdiction)

    • Focus on Rural PHCs after 2005: In 2005, the launch of the National Rural Health Mission (NRHM) to bolster the primary health-care system in India partly ameliorated the impact of RLBs not spending on health.

    • Urban PHCs still under neglect: The National Urban Health Mission (NUHM) could be launched eight years later and with a meagre annual financial allocation which never crossed ₹1,000 crore (or around 3% of budgetary allocation for the NRHM). In urban settings, most local bodies were spending from less than 1% to around 3% of their annual budget on health, almost always lower than what ULBs spend on the installation and repair of streetlights. Urban India, with just half of the rural population, has just a sixth of primary health centres in comparison to rural areas.

    • Some obstacles: Regular outbreaks of dengue and chikungunya and the struggle people have had to undergo to seek COVID-19 consultation and testing services in two waves of the novel coronavirus pandemic are some examples.


It this context, Fifteenth Finance Commission health grant — the urban share is nearly five-fold that of the annual budget for the NUHM and rural allocation is one-and-a-half-fold that of the total health spending by RLBs in India — is an unprecedented opportunity to fulfil the mandate provided under the two Constitutional Amendments, in 1992. However, to make it work, a few coordinated moves are needed.


Essential steps:

    1. The grant should be used as an opportunity to sensitise key stakeholders in local bodies, including the elected representatives (councillors and Panchayati raj institution representatives) and the administrators, on the role and responsibilities in the delivery of primary care and public health services.

    2. Awareness of citizens about the responsibilities of local bodies in health-care services should be raised. Such an approach can work as an empowering tool to enable accountability in the system.

    3. Civil society organisations need to play a greater role in raising awareness about the role of LBs in health, and possibly in developing local dashboards (as an mechanism of accountability) to track the progress made in health initiatives.

    4. Its not replacement of the spending on health: 15th Finance Commission health grants should not be treated as a ‘replacement’ for health spending by the local bodies, which should alongside increase their own health spending regularly to make a meaningful impact.

    5. Mechanisms for better coordination among multiple agencies working in rural and urban areas should be institutionalised. Time-bound and coordinated action plans with measurable indicators and road maps need to be developed.

    6. Efficient administration: The young administrators in charge of such RLBs and ULBs and the motivated councillors and Panchayati raj institution members need to grab this opportunity to develop innovative health models.

    7. Community health Clinics: before the novel coronavirus pandemic started, a number of State governments and cities had planned to open various types of community clinics in rural and urban areas. But this was derailed. The funding should be used to revive all these proposals.


Conclusion: India’s health system needs more government funding for health. However, when it comes to local bodies, this has to be a blend of incremental financial allocations supplemented by elected representatives showing health leadership, multiple agencies coordinating with each other, increased citizen engagement in health, the setting up of accountability mechanisms and guiding the process under a multidisciplinary group of technical and health experts.


The Fifteenth Finance Commission health grant has the potential to create a health ecosystem which can serve as a much-awaited springboard to mainstream health in the work of rural and urban local bodies. The Indian health-care system cannot afford to and should not miss this opportunity.



2. India’s informal economy has not shrunk; An SBI Research study’s claim that there is greater formalisation of the economy is unfounded

  • Page 7/OPED

  • GS 3: Economy

Context: According to a recent State Bank of India (SBI) Research report, the informal economy in India has been shrinking since 2018. Formalisation, the report says, has taken place through the gross value-added (GVA) route, consumption through increased digital payments, and the employment route. Let’s examine each of these.


Problems with the report:

    1. It claims that the share of the informal sector is just 15-20% in 2021 compared to 52.4% in 2018. If that was the case, India would have become a ‘miracle’ economy overnight, since no upper-middle-income economy in Latin America or the ASEAN or any low-middle-income country has achieved this kind of transformation.

    2. On the other hand, since the COVID-19 outbreak, informality of enterprises and workers has increased in all such economies.


Definition of Informality of Enterprises:

    • The 15th International Conference of Labour Statisticians (1993) of the International Labour Organization(ILO), household enterprises not constituted as separate legal entities independently of the households or household members that own them, and for which no complete accounts are available, are categorised as informal enterprises.

    • In the 17th Conference (2003), informal workers were defined as those without social security.

    • Based on these definitions, internationally, comparable estimates of both types of informality are available. India’s levels are 80% and 91%, respectively. The latter is higher because there are also informal workers within formal enterprises.


Misleading claim by SBI

    • Completely new definition of informality: The SBI study adopts multiple definitions of formality (digitisation, registration in GST, cashless payments), which are not used by anyone. These could be possible instruments of encouraging formality, but cannot separately or even together be equated with formality.

    • Shrinking informal economy does not mean formalization: The SBI study confuses the shrinking of the informal sector’s share of the GDP due to demonetization and COVID-19’s impact on the economy with formalisation. The informal sector was adversely impacted by the lockdowns and the consequent economic contraction.

    • Registration on e-Shram: Another reason that the SBI claims that informality declined is the number of workers registered in the new e-Shram portal. Since the portal’s launch, over 9.9 crore unorganised workers have registered themselves. However, registration means documentation, not formalisation, of workers.

    • The formal sector has been treated as a homogenous entity in the study. In reality, there are various layers within the formal sector. Not all workers engaged in the formal sector are ‘formal’. There has been large-scale informalisation of the formal sector over the last three decades through contractualisation and outsourcing of labour. Among wage workers, the proportion of non-permanent, casual and contract workers increased in the organised sector from 1999-00 to 2011-12. 

    • A blurred distinction between formal and informal sectors: The systematic dismantling of employer-employee relations in the labour market blurs the distinction between formal and informal. The entire edifice of the formal sector is based on informal workers.

      • There are layers of intermediaries between the employers and the workers to create a disconnect between them. Such a disconnect is deliberate rather than organic.

      • For example, the majority of the output in construction is attributed to the formal sector. But most workers in the construction sector are informal. They don’t have access to social security benefits or protective labour laws.

    • 84% of Indian non-farm establishments are informal by their own account. Some might get registered under miscellaneous laws but that does not imply that they have become formal.

    • Further, We don’t know if this GVA fall is temporary or permanent.


A data to the contrary:

    • Shrinking of Non farm sectors: Lockdowns and demonetization has clearly led to a fall in employment, especially in the non-farm sector, while the share of agricultural workers in total employment rose sharply between 2018-19 and 2019-20 (NSO’s Periodic Labour Force Survey).

    • Agriculture is almost entirely informal for enterprises as well as workers. Catastrophically, for already informal workers, the absolute number of workers in agriculture rose from 200 to 232 million between 2018-19 and 2019-20. This was a reversal of the trend of structural transformation in employment underway since 2004-05 — shown by the first-ever absolute fall in workers in agriculture from 2012 to 2019.


Social security in India:

Importance of formal sector - Social Security: Workers who are ‘formal’ receive social security benefits. Giving such benefits is not the objective of the portal;

    • e-shram portal National database of unorganised workers: At present, there is no credible database for India’s unorganised workers. In 2020, government pleaded helplessness in providing numbers pertaining to the number of migrant workers who had suffered or died during the lockdowns. 

      • After registration on the portal, the workers receive a card with a 12-digit unique number, which is good. The government has announced linking accident insurance with e-Shram registration.

      • Mere registration under this portal does not guarantee access to institutional social security benefits or coverage under labour laws.

      • Also, the SBI study notes that West Bengal tops the list in registration. This is no surprise. Over 1.3 crore unorganised workers are already registered under various social security schemes in West Bengal. A share of them is now registering themselves on the new portal.

    • The social security code: Benefits such as Provident Fund, gratuity and maternity benefits will remain outside the reach of unorganised workers as conceptualised in the Social Security Code of 2020.

  • All these instruments were and are available only to establishments with 10 or 20 or more workers.
  •  Registration under the Factories Act or Employees’ Provident Fund or State insurance means that these organisations are formal as the organisation needs 10 or 20 employees to be registered under these laws. But mere registration under other acts like local municipal acts or tax laws does not indicate formalisation.


Conclusion: Thus, the SBI’s claim that significant formalisation has occurred in India is unfounded. To term this as formalization is misleading at best and cruel at worst.