Poverty falls, Govt health insurance scheme PM-JAY has positive impact on credit market outcomes

The proportion of Indians living in multidimensional poverty has fallen substantially in the last 10 years—from 29.17% in 2013-14 to 11.28% in 2022-23—the government’s economic survey report 2023-24 released on Monday said.

The number of people living under poverty has been reduced by more than half with significant improvements made in Bihar, Madhya Pradesh, Uttar Pradesh, Odisha and Rajasthan, it said quoting a NITI Aayog paper. In total, 248.2 million have escaped multidimensional poverty between 2013-14 and 2022-23. Uttar Pradesh made the biggest gains, with over 59 million people exiting poverty in the state during this period, followed by Bihar (37.7 million), Madhya Pradesh (23 million), and Rajasthan (18.7 million).

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The report said that the health system has been consistently revamped to ensure the quality of human capital, labour productivity, higher household savings, reduce healthcare expenditure and build the capacity to withstand health shocks such as the covid-19 pandemic.

It said India's state-run health insurance scheme – reputedly the world’s largest—will have an impact on credit market outcomes.

The extensive coverage given by the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB PM-JAY) would lead to savings in healthcare costs, thus influencing credit behavior like loan delinquency.

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Citing a 2022 study published by the Indian School of Business, the economic survey said, “A recent paper investigates the influence of AB PM-JAY, the world’s largest publicly funded health insurance scheme, on credit market dynamics in India.

"Comparing border regions of states that did not implement the programme with contiguous areas in states that implemented the programme… it hypothesizes that PM-JAY’s extensive coverage would lead to decreased financial strain due to healthcare costs, thus influencing credit behaviour like loan delinquency rates,” stated the government report.

The government report said that PM-JAY implementation has been found to correlate with a significant reduction in non-performing assets (NPA) in microfinance loans.

The AB PM-JAY, launched in 2018, aims to provide a health cover of ₹5 lakh per family per year to over 107 million poor and vulnerable families for secondary and tertiary hospitalization. Till 8 July, around 347 million Ayushman Bharat cards had been generated and 73 million hospital admissions covered by the scheme. Nearly half the beneficiaries are female.

The 2022 paper employs empirical strategy to isolate the effect of PMJAY from other factors. It uses data from one of the largest Indian credit bureaus covering microfinance loan performance. The sample includes data on nearly 12 million loans across 636 districts.

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“PMJAY implementation has been found to correlate with a significant reduction in NPA rates in microfinance loans. The study notes that the NPA rate in PM-JAY implemented districts decreased by 3.7 to 4.0% points compared to non-implemented regions. This represents a 34.6% to 34.1% reduction relative to the average NPA rates, an economically significant impact,” stated the report.

The report stated a similar reduction in NPA rates was observed in small agricultural loans, underscoring the scheme’s broad economic impact.

It said that for emerging economies, where large segments of the population might lack access to health insurance, programmes like the PMJAY can play a crucial role in enhancing economic stability and illuminating the broader economic impacts of public health insurance programmes.

“These findings are particularly relevant for countries considering similar health insurance schemes, highlighting the potential for such programmes to influence household financial behaviour positively. PMJAY’s implementation has markedly improved credit market outcomes in India, highlighting the interplay between health insurance and financial stability. This underscores the potential of public health initiatives to create significant economic benefits beyond healthcare,” it said.