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At an annual spend hovering around 2,000 per capita, India’s public health expenditure remains one of the lowest among major economies in the world. Even a pandemic of the scale of covid has not moved the needle much.

India’s annual health budget has stayed barely above 1% of gross domestic product (GDP) for the past decade. In fiscal year 2019-20, it was 2.57 trillion, or 1.3% of GDP. This ratio compares unfavourably even with emerging market peers such as Indonesia (1.4%), China (2.9%), Russia (3.2%) and South Africa (3.6%).

It is hardly surprising therefore that in 2019, the World Health Organization (WHO) ranked India 57th out of 195 countries on its Global Health Security Index, pointing out weak spots in India’s health preparedness. The pandemic further exposed these chinks, bringing the existing healthcare delivery system to the brink of collapse during the virulent second wave.

Yet, in fiscal 2020-21, when the pandemic burst on the scene, India’s government health expenditure inched up to merely 1.5% of GDP. And, worse, this fiscal year, the Centre and most state governments have budgeted lower health spends. Interestingly, even as health budgets of the Centre and states went up in absolute terms last fiscal, their share in total expenditure was almost flat. Total general government expenditure as a proportion of GDP rose from 31.2% in fiscal 2019-20 to 37.6% in fiscal 2021-22. But health expenditure was languid (1.3% versus 1.5%).

What do all these statistics mean for the Indian public and policymakers?

Low government spend means Indians shell out more on health expenses from their pockets. According to the WHO’s health financing profile for 2017, roughly two-thirds of expenditure on health in India is out-of-pocket, nearly four times the global average of approximately 18%.

Given historically low public health spends, together with high out-of-pocket expenditure, a catastrophic health event such as this pandemic would have only pushed the vulnerable further into poverty. Hence, the need to prioritize healthcare spending in the current and subsequent years, in both state and central budgets, cannot be emphasised enough.

The National Health Policy, 2017, and on its lines, the latest Economic Survey, have both recommended a national public health spending target of 2.5-3% of GDP by 2025. But what receives less attention is the trajectory of states in health spends. Health is a state subject. Three-fourths of India’s public health expenditure is, in fact, undertaken by state governments. The National Health Policy, in addition to recommending an increase in overall public health spending, had also proposed that states increase their health expenditure to 8% or more of their respective budgets, by 2020.

Our own assessment yields three emerging trends. One, states have not achieved their policy targets. Our analysis of the past decade’s data, though, suggests that most states are making slow progress. On average, the share of health expenditure (on medical and public health, and family welfare) in the total for 17 large states rose from 4.4% in fiscal 2009-10 to 5.5% in 2019-20. To be sure, the pandemic accelerated that pace in most states in 2020-21. State-wise, the rise was generally correlated with the intensity of covid infections in that state. Yet, surprisingly, medical and public health expenditure shares slowed in a few states such as Telangana and Gujarat in 2020-21 vis-a-vis the past three-year averages.

Two, richer states tend to spend more on healthcare. We glean this from a comparison of per capita income and share of health in total expenditure across states. Goa, Kerala and Gujarat, for example, were relatively high spenders, whereas Bihar, Uttar Pradesh, Jharkhand, Madhya Pradesh and Odisha spent less.

Three, higher per capita health spends result in visibly better health outcomes, though with a lag. An analysis of data taken from Niti Aayog’s Healthy States, Progressive India report of 2019 shows that states with higher average health expenditure per capita over 2012-17 registered better health outcomes in fiscal 2017-18 (the latest available), with “health outcome" defined on the basis of 10 health- related variables. This finding should act as an incentive for states currently spending less on health to rework their priorities. It also merits better resource mobilization and/or greater targeted transfers to the country’s poorer states to help them catch up.

The experience of many advanced as well as emerging countries shows that there are no shortcuts to spending on health—which is essential for overall well-being and productivity.

As a topmost goal, India must focus on achieving universal health coverage. Attention to non-communicable diseases will need to be balanced with that to infectious diseases such as covid-19. The benefits of technology as seen during the pandemic may be leveraged to provide last-mile healthcare access, particularly through telemedicine. This is an additional reason why both state and central governments must spend on healthcare infrastructure to complement the country’s new digital health mission.

In this context, the recently announced PM Ayushman Bharat Health Infrastructure Mission, which aims to spend 64,180 crore over the next five years to fill critical gaps and improve long-term health care infrastructure, is a welcome move. But much more will need to be done to achieve anything close to what are decent standards of healthcare for all.

Dharmakirti Joshi & Adhish Verma are, respectively, chief economist and senior economist at Crisil

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