Health Spending in India
Kartavya Desk Staff
Source: TH
Subject: Health
Context: Recent data and the Economic Survey 2025-26 indicate a significant shift in India’s health financing landscape: while state governments have ramped up their spending, the Union government’s health expenditure as a percentage of GDP has witnessed a post-pandemic decline.
About Health Spending in India:
What it is?
• Health spending refers to the total public and private expenditure on healthcare services, infrastructure, and research. In India, it is a concurrent subject, where both the Centre and States contribute. It is categorized into:
• Government Health Expenditure (GHE): Spending by Union and State governments (currently approx. 1.1% to 1.9% of GDP).
• Out-of-Pocket Expenditure (OOPE): Money paid directly by households, which remains high in India at nearly 48%.
Key Trends in Health Expenditure:
• Centre vs. State Divergence: State spending increased from 0.67% (2017-18) to 1% of GDP (2025-26 BE), whereas Union spending dropped from 0.37% (2020-21) to 0.29% (2025-26 BE).
• Budgetary Share Decline: The share of health in the total Union Budget fell from 2.26% during the pandemic to 05% in the 2025-26 Budget Estimates.
• Inflationary Impact: In real terms (adjusted for price rises), the Union health allocation for 2025-26 is 7% less than what was actually spent in 2020-21.
• Cess Utilization Issues: Only one-fourth of the Health and Education Cess (HEC) collected in FY24 (approx. ₹17,795 crore) was actually funneled into health.
• Centrally Sponsored Scheme (CSS) Squeeze: Union transfers to States for schemes like the National Health Mission (NHM) dropped from 75.9% of its health budget in 2014-15 to just 43% in 2024-25.
Need for Increase in Health Expenditure:
• Bridging the NHP 2017 Target: India is still far from the National Health Policy goal of spending 2.5% of GDP on health by 2025.
E.g. Despite the 2025 deadline passing, the combined public spending lingers around 1.9%, necessitating a 3x increase in Union allocations to reach 1% of GDP.
• Reducing Out-of-Pocket Expenditure (OOPE): High OOPE pushes millions into poverty every year due to catastrophic health costs.
E.g. Households still bear 48% of costs, compared to the global average where public funding covers the majority of primary care.
• Strengthening Primary Healthcare: Robust primary care reduces the burden on expensive tertiary hospitals.
E.g. The decline in NHM real-term funding (5.5% average drop recently) threatens the gatekeeping role of rural health centers.
• Tackling the Dual Disease Burden: India faces rising Non-Communicable Diseases (NCDs) alongside persistent infectious diseases.
E.g. NCDs are estimated to cost India trillion by 2030, requiring massive investment in preventive screenings.
• Achieving Universal Health Coverage (UHC): Expansion of insurance must be matched by public infrastructure to ensure quality.
E.g. The expansion of Ayushman Vay Vandana (for seniors 70+) requires scaled-up hospital capacity to handle the increased patient load.
Initiatives Taken:
• Ayushman Bharat (PM-JAY): Provides ₹5 lakh coverage per family; recently expanded in 2024-25 to include all senior citizens aged 70+.
• PM-ABHIM: A ₹64,180 crore mission aimed at plugging gaps in health infrastructure and pandemic preparedness until 2026.
• Tele-MANAS: A national mental health helpline that has handled over 28 lakh calls and was upgraded in 2025 with multi-lingual UI and AI chatbots.
• Ayushman Arogya Mandirs (AAM): Transitioning 1.7 lakh centers into wellness hubs for comprehensive primary healthcare.
• Ayushman Bharat Digital Mission (ABDM): Creation of over 72 crore ABHA IDs to enable seamless digital health records across the country.
Key Challenges Associated:
• Hyper-Centralization of Funds: States bear the primary delivery burden, but the Union’s share in CSS is declining.
E.g. The Union’s transfer to States for health schemes reached a decade-low of 43% in 2024-25, straining State finances.
• Inadequate Absorptive Capacity: Some states struggle to utilize allocated funds due to administrative bottlenecks.
E.g. Significant portions of NHM funds often remain unspent in high-focus states due to a lack of trained manpower.
• Workforce Shortages: Infrastructure exists, but there is a lack of qualified medical personnel at the point of delivery.
E.g. Rural Health Statistics (2025) show nearly 40% vacancy in male health worker posts across many sanctioned primary centers.
• Inverted Duty Structure: Higher GST on medical inputs compared to finished goods hurts domestic manufacturing.
E.g. MedTech firms face an 18% GST on raw materials but only 5% on finished devices, creating a liquidity crunch.
• Data Gaps: The delay in the National Mental Health Survey (NMHS-2) hinders evidence-based policymaking for new threats like digital addiction.
E.g. Without disaggregated data, it remains impossible to track exact spending on specific programs like the National Mental Health Programme.
Way Ahead:
• Institutionalize the 1% Goal: The Centre must raise its specific health spending to 1% of GDP to act as a stable anchor for the states.
• Ensure Cess Transparency: All HEC collections must be statutorily ring-fenced for health expenditure rather than general revenue supplementation.
• Decentralized Infrastructure: Incentivize the private and public sectors to set up multi-specialty hospitals in Tier 3 and 4 cities.
• Focus on Prevention: Shift the budgetary bias from tertiary care (AIIMS-centric) to preventive and primary care (NHM-centric).
• GST Rationalization: Align tax rates for medical equipment and services to encourage the Make in India MedTech ecosystem.
Conclusion:
India’s health sector stands at a crossroads where impressive gains in maternal and infant mortality are threatened by a post-pandemic stagnation in Union funding. To secure the demographic dividend, a structural shift toward a Digital Wellness and Prevention-First model is essential. Only by aligning fiscal priority with the National Health Policy’s 2.5% target can India achieve resilient and universal healthcare.
Q. Describe the present status of healthcare quality in India. Identify the major governance and regulatory gaps influencing service delivery. Discuss the priority reforms required to improve health outcomes. (15 M)