Impact of Covid-19 on Household Budget How the Coronavirus Affects Your Financial Planning

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Bombay: The coronavirus is expected to leave Indian families even more destitute by Rs 66,000 crore, as health spending is expected to increase by 11% amid inflation, fuel bills and falling income.

Health spending currently at Rs 6 lakh crore or 5% of aggregate private final consumption expenditure (PFCE) could increase by at least 11% from the current level, according to the latest report from SBI Research.

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“We believe healthcare spending will increase dramatically as a result of the pandemic. This will likely also lead to spending cuts on other consumer discretionary items, a recipe for reduced consumer spending,” SBI Research said.

There has been an increase in the weighted contribution of health care inflation to CPI inflation. By taking the share of health expenditure in the CCTB 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 by minus 15,000 crore rupees due to higher prices.

The increase in fuel prices since December 2020, as the government faces a collapse in tax revenues, has a direct impact on the squeeze on consumer spending on discretionary items, other than health, which is currently unavoidable.

COVID-19 has led to a significant increase in the cost of hospitalizing people. Based on current trends, if 30% of infected people are hospitalized and among them 30% opt for a private hospital and take a conservative Rs 1.5 lakh as the cost of the whole treatment (including drugs, hospital costs, PPE kit, etc.) Total hospital costs amount to approximately Rs 35,000 crore due to increased consumption of health services.

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In addition, there is also an income effect due to the decline in per capita income, which would have decreased by Rs 8,637 in FY21 compared to FY20 (CSO estimates). Assuming that the income of private and unorganized sector employees has been earmarked on a conservative basis, the income effect amounts to around Rs 16,000 crore according to the SBI calculation. This loss of income could be an additional burden and could be a diversion of other discretionary spending towards health.


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