ARTICLEI2

in India: Trend
Public Spending on Health Analysis
BhartiPandey and Shachi Rai

Introduction
spending on health component of human development 0ccupies a critical pace in a
Public
realm of fiscal cconomics. Success of astate depends on its knowledge economy which is a
function of healthy population. Health constitutes a basic need of human being which paves
development. Provision of health facilities is
way to a virtues
agovernment cycle of multi-dimensions
responsibility, but due to inadequate expenditure and dominance of private
infrastructural services aoe
spending inhealth sector, there is unequal availability of health
bang reform wherea
state. gender and location. The top priority is given to economic big
like education and health tho
marginal policy attention is being given to social sectors
main factor for the formation of
it is the basic responsibility of any government and is the
human capital. In an economy like India when prosperity is accompanied by social poverty
particularly in the field like education and health it finally eclipses economic development
and ultimately quantity of life. After the introduction of new economic policy in 1991. India
is a fast growing economy. However, this rapid economic growth has not been accompanied
third-largest
by improvement in social indicators particularly in health sector. India is Asia's
economy which spends about just 1 percent of its gross domestic product (GDP) on public
health, compared with 3 percent in China and 8.3 percent in the United States. However.
Indian states manage their health budgets separately.
This paper examines the trends and patterns of public spending on health in India. It is
assumed at the outset that the human development primarily depends on the expenditure incurred
by the government on health. It is contended that public policy intervention plays paramount
role in social sector development; especially in health and thereby human development. The
responsibilities entrusted with the state in enhancing the human capabilities and raising the
standard of living of individuals necessitates public spending on delivery of health services.
This ismore so true in India like developing countries that are characterised by high levels
of poverty, inequality, and market imperfections. Spending by the governmenton health is
the single most dominant factor determining the health standards. The paper also explicaes
inter-State diversity in public spending on health and concludes that this diverse patem
has tended to accentuate socio-economic disparities among States. It suggests higher pube
spending on health with effective delivery system.

Associate Professor &Head, Department of Economics, JNPG College, University of Lucknow, Lucknow.
Assistant Professor, Department of Economics, University of Lucknow, Lucknow.
 hblic Spending on Heolth in Indin BHART PANDE YAND SHACHI RAL
157

Despite rapd economic growth overthe past two decades,successive centralgovernments

haxe failed to invest generously in health An inadequate number of doctors and a poor
network of public hospilals, coupled with hureaucratic mishandling. means India often
stnIggles to spend its allocated budgets The World Health Organization (wHO) estimates
chet the henlth care sector is one of the Iargest segments of workforce and employ ment
generator glohally India has for ton long ignored the value creation opportunity of this
Rctor and needs a paradigm shift to bring it in the forefront of the country's development.
Among developing nations, India has one of the poorest development indices, which are
REually the social indicators of anv country
Apredominant role of public financing is a necessary condition for the achievement
of universal health coverage. It is a well known fact that health expenditure in India is
dominated by private spending. This largely reflects the inadequate public spending. The
situation seems to be unfortunate because of the large positive externalities associated with
health spending which make health spending a clear merit good. The greater reliance on
private delivery of health infrastructure and health services therefore implies that overall
these will be socially underprovided by private agents and also deny adequate access to the
poor This in turn has adverse outcomes not only for the affected population but for society
as a whole. It adversely affectscurrent social wel fare and labour productivity and of course
harms future growth and development prospects.
Literature Review

International experience in social sector development can provide some pointers to what a
is that
successful policy framework should look like. One example that has often been cited
Most of them
of the ASian economies, such as Japan, Korea, and South-east Asian nations.
and have
have been able to achieve high levels of economic growth in the post-war period,
Asia or Africa.
also attained comparatively greater social development than countries in Souch
policies, Mundle
This experience has been reviewed in Rao (1998) for public expenditure follows. Several
are as
1998) for health and education expenditure. The broad conclusions
(HPAEs) including Japan,
lessons can be drawn from the High-Performing Asian Economies
public expenditure
Korea, and Taiwan regarding how the efficiency and equity aspects ofdevelopment.
and social These
were harmonised leading to several decades of high growth
'accommodated' expendiure
include: fiscal prudence in overall government budget which
in social sectors and significant role of the private
sector in both provision and delivery of
healthcare.
sOCial services, especially in tertiary education and investigated the etfectiveness of
Since around the mid 1990s, a number of studies have enrolment
development outcomes, such as
public spending in education and health on social
outcome indicators(Anand and Ravallion,
rates, infant mortality, life expectancy, and other
et.al. 2004). Public spending on
1993; Appleton et.al. 1996; Gupta et.al. 2002; Baldacci accrues from a reduction in the
welfare that
primary health careis justified by increases in
particularly because of large spill over benefits. However, the effectiveness
burden of disease,
spending goes down if allocations are skewed towards curative (tertiary)
of government
rather than preventive (primary) healthcare.
 The Indian
158
Economic Journol
Public Spending on health tends to ensure the quality of life. Thus, the
implications of health expenditures need to be judged from the reduced incidence of
and death and the benefits resulting from such a development. Health is a vital inae
economi c
disease
of human development. However, India's public spending on health is not in
to its needs. Despite this India has shown significant improvement in health accordance
since independence. The concerted efforts by the government and other
in expanding the health infrastructure have paid off. This is evinced by agenciesstandards
engaged
some of our health indicators. Longevity has more than doubled since improvement
Independence,
Mortality Rate has fallen, malaria has been contained, small pox and guinea
in
infant
Worm
completely eradicated and leprosy and polio are nearing elimination. Public have been
health has made deeper inroads into rural areas with focused schemes like the spending on
Health Mission and has even started ascheme for health insurance for the
National Rural
poor
Despite these achievements, the health services that India provides to her peoplepopulation.
to be inadequate and compares rather poorly with even Asian neighbours like Sri Lankacontinues
and
China. One fifth of the world's share of diseases is in India. But there are huge reoional
disparities in health standards in the country and huge gaps in health care infrastructure in
rural areas. The basic reason for this is low government spending on health. Health
outcomes
are influenced more by the share of health expenditure in public expenditure rather than
the share of health expenditure in Gross Domestic Product (GDP). In India, level of public
spending on health is low. This is evident from the fact that India spends only 1.l percent of
GDP on health against the 7.5 per cent by United States, 7.1 per cent by Norway.
However.
India is committed to increase its spending on health to 3 per cent of GDP.
Health is amulti- faceted phenomenon having physical, mental and socio-economic
dimensions. Thus, numerous factors influence health like hereditary factors, environmental
factors, life style, adequate housing, basic sanitation and socio economic conditions including
income, education, availability and quality of health infrastructure and per capita health
expenditure. In India 12 per cent of the population do not have access to safe drinking
water and 69 per cent do not have access to proper sanitation facility. Safe drinking water
and proper sanitation have a significant role in health sector. Water borne diseases like
diarrhoea, malaria, cholera and hepatitis basically target the infants, children and old people.
Sanitation facilities still fail to meet the requirements of all population groups, especially in
India where access to sanitation needs much progress. Inadequate nutrition also affects the
people - particularly children to acquire knowledge and participate in society. It hampers
the ability to work and be productive and thus limits the ability to earn the income needed
to lead a decent life and the irreversibility of some health consequences of malnutrition.
In India over 80 per cent of the health expenditure is private. As against this, In mosi
developed countries, more than 80 per cent of health expenditure is borne by the publle
exchequer. Almost three fourth of the total health expenditure is borne by the households
as out of pocket expenditure and it is estimated that one quarter of all Indians slip below
the poverty line in the event of hospitalisation and more than 40 per cent of the individuals
who are hospitalised in India in a year borrow money or sell assets to cover the cost
 Ohic Spending on Health in India " BHARTI PANDEY AND SHACHI RAL
159
henlth care. Rising health care costs are major cause of
indebtedness and impoverishment
especially in the context of the poor and marginalised. However. in recent year India's
share of public spending in total health outlay has been
very encouraging and needs to continue because increasing steadily. This trend is
greater reliance on private spending on
healthcare infrastructure and service nmay lead to inadequate provision of healthcare. This
can have many conscquences, one of which, in
economics, called "externalities".
is
I is very widely
acknowledged that health is an important component of human
development. Empowerment of people comes from the freedom they enjoy. and this includes,
among others, treedomtronm poverty, hunger, and malnutrition, and freedom to
lead a healthy life (Sen, 1999). Access to health care is work and
critical to improving health status and
cood health is necessary for empowerment. Ensuring access to
health care helps to minimise
absenteeism, enhance labour productivity, and prevents misery. Government
health is also argued for. due to the presence of high degree of intervention in
the health sector. Notsurprisingly, throughout the world, asymmetric information in
governments have had a significant
role in providing and regulating health services, and their role is
developing countries with large concentration of the poor. particularly important in
Despite poor health indicators, government spending on health care in most
low- and
middle-income countries is well below what is needed. A recent analysis suggests that while
low-income countries need to spend $54 per capita for a basic package of health services,
the average actual per capita health expenditure in these countries is only $27
(Stenberg and
others. 2010). Low revenue collections, competing demands for revenues, and
relatively low
spending priority contribute to this insufficient spending. Consequently, limited access to
public health care facilities forces people to go to private providers, resulting in substantial
out-of-pocket (00P) spending, especially for the poor (WHO, 2004).
The publicspending on health has not only been recognised in fighting with major diseases
like HIV/AIDS, tuberculosis, malaria, meeting the Millennium Development Goals (MDGs)
targets, reducing poverty but also important for industrial and economic development of a
country (CMH, 2001; NCMH, 2005; UN, 2008). It is argued that public health expenditure
is one of the important components for the provisioning of health facilities which further
result in better health outcomes. India's performance in improving the health outcomes
however remained far from satisfactory. India seems to be off-track in achieving most of the
Millennium Development Goals (MDGs) targets. For instance, some of the health outcomes
like infant, child and maternal mortality rates are not only low but even worse than some of
the developing countries. The infant mortality rates (IMR) in India is around $4 whereas Sri
Lanka's IMR is 17 (WHR, 2010). The life expectancy at birth about 64 of an average Indian is
at least 1S years lower than those in developed countries andeven lower than the neighbouring
Sri Lanka about 74 years. Almost half of Indianchildren suffer from malnutrition which is
In some places worse than Sub-Saharan Africa. More than 50 per cent of women suffer from
anacemia (WHR, 2010). The rural-urban gaps in health outcomes do not only stillpersist but
have widened (Peters et. al., 2002). Review of literature shows that countries with high level
of public spending in health have secured better health outcomes compared to the countries
 The Indian
160
Economic
the
with lowlevel of spending in health (NCMH, 200S). Thus, size of the public fund Journal
scctor matters for better health outcomes. Besides
the level of
spending, health in health
Gumber, 1997; Tim Ensor, 2003). It is argued that low levelof spending medicine,
on
outcomes
most aflected by allocation pattern of public funds in health sector (Breman anddShelton, 2001;are

progress in ,some
drugs,of
preventive care can be one of the significant causes of:
cquipment and slow
the health outcomes. The allocation of public funds towards water supply and
is preventive in nature can have seriousimpact on both short as wellas long term sanitation
which
in developing/poor countries/regions as compared to the Cxpenditure on healthhealy ltihfe
medical, public
and family welfare which are of both curative and preventive nature. Thus,
to
reasoning behind the unsatisfactory nature of hcalth outcomes, one necds to
India spends sizcable amount of public funds in health and whether the
under
study sta nd
whether
the
properly..This can be identified by studying whether India's level of f funds are
allocated
international level of health spendingand/or does the level of health
health spending is at the
spending is
meet the required provision of basic health services in the country?
As regards to the health policy initiatives, amongst the other, the National
adequate to
Mission (200S) of India has set an ambitious goal of increasing in government Rural Health
to 2-3 per cent of GDP. This Mission has also mandated that some off
the central thealthfunds,spending
were earlier routed through States budget (particularly under Centrally which
Sponsored
Scheme), will bypass the State budget and will be implemented through state's and Plan
s
agencies. The predominant responsibilities of healthsector in India, under the 7th Schedula
of the Constitution however are primarily with the
implementing
State governments. Hence, this changing
nature of central transfer can affect the health
expenditure of the State governments. This can
widen variations in health expenditure across States.
Trends in Public Spending on Health
Trends in public spending on health which include medical and public health,
water supply and sanitation and nutrition by the General family welfare,
Government (Centre and States
combined) have been shown in Table-1. Also, the growth of public spending on social
and healh as percentage of GDP is depicted in Fig-1. Estimates sector
reveal that there has not
been any significant change in the expenditure on health as a
proportion of GDP and it has
remained stagnant at less than 2 per cent during the period 2005-06 to 2015-16. Its share in
total expenditure has marginally increased from 4.7 per cent in
2005-06 to 4.9 per cent in
2015-16 (Fig-2). But the share of health expenditure in social services
trend from 22.4 per cent in 2005-06 to 19.5 per cent in
witnessed a declining
2015-16.
Table 1
General Government Spending on Health
Items
2005-06 2010-11 2011-12 2012-13 2013-14 2014-15 2015- 16
(RE) (BE)
I. As percentage of GDP
i) Total Expenditure 25.99 270
27.6 27.4 27.0 26.2 30.3
ii)Expenditure on Social Services 5.5 6.8 6.6 6.6 6.5 7.0
6.7
ii)Expenditure on Health 1.23 1.3 1.2 1.3 1.2 1.3
DublicSpending on Health in India " BHARTI PANDEY AND SHACHI RAI
161

Items Z005-06 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

(RE) (BE)
IL. As percentage of lotal xpenditure
)Expenditure on Social Services 21.1 24.7 24.0 24.4 24.8 24.9 24.9
i)Expenditure on Health 4.7 4.7 4.6 4.7 4.6 4.8 4.9
I. As percentage of Social Services Expenditure
1)Expenditure on Health 22.4 19.0 19.0 19.1 18.6 19.3 19.5
Source: RBI, based on Budget documents of Union f State Goyernments
Figure 1
Gionh Rate ofSolal Sect or Exp enditue and Health
Expen diture as o of GDP
r0wth in Expenditure on Sodal Services as a
percent of GOP
-Gowth in Expenditure on Health as a per cent of GDP
20

10

10

-20 2005-062006-072007-082008-092 009-102010-112011-12 2012-132013-142014-152015-16

(eE)

Figure 2
Trend in Health Expenditure and Social Services
Expenditure as % of
TotalExpenditure
35

B0

20
15

10

(RE)

2005-062006-072007-082008-092009-102010-112011
)Expenditure on Social Services Enditure-132013-142014-152015-16
onHealth (BE)

Inter-State Diversityin Public Spending on Health

Estimates related to public spending on health in major States for
in Table-2. The inter-State year 2011-12 are presented
differences were significant in the case of healthcare, one of the
important social services contributing to human development. In
expenditure Kerala with Rs.794.87 stood at rank one followed by Tamilterms of per capita health
where as Utar Pradesh and Bihar were at Nadu with Rs.794.87
sixteenth and seventeenth rank respectively having
less than 50 per cent per capita health
expenditure than
288.69. The analysis leads us to construe that glaring Kerala with Rs. 361.07 and Rs.
States with respect to per capita government diversity is found amongst Indian
expenditure on health. Moreover, backward
 The Indian
162

situationfor not being able to raise

Economic Journal
States are foundto be in a desperate
level of percapita health expenditure.
Table 2
considerably their
Inter-State Diversity in Public Spending on Health, 2011-12
States
Health Expenditure Health Expenditure
Per Capita (Rs.) Rank Percentage of GSDP
Andhra Pradesh 603.92 0.8 Rank
510.86 11 1.2
Assam 1
288.69 17 1.2
Bihar 1
567.90 7 1.0
Chhattisgarh
577.72 6 0.6
Gujarat 8
578.88 5 0.5
Haryana
Jharkhand 454,87 12 1.1
2
Karnataka 556.85 0.7
Kerala 794.87 1 0.9
4
Madhya Pradesh 397.21 14 0.9
4
Maharashtra 513.39 10 0.5
9
Orissa 366.97 15 0.7 7
Punjab 631.10 3 0.7
Rajasthan 534.52 9 0.9 4
Tamil Nadu 686.83 2 0.7 7
Uttar Pradesh 361.07 16 1.1
2
West Bengal 438.27 13 0.7
AllIndia Average 484.65 0.7
Source: Finance Accounts of the State Governments, Comptroller and Auditor General, Government ef iat
and computed by the authors.

Table 3
Public Spending on Health/Aggregate Expenditure ratio in Indian States
(Per cent)
States 2005-06 2010-11 2015-16
1 6

I. Non-Special Category
1. Andhra Pradesh 3.4(13) 4.1 (11) 5.2 (11)
2. Bihar 4.5 (7) 3.3 (14) 4.1 (18)
3. Chhattisgarh 3.4 (13) 3.6 (12) 4.9 (13)
4. Goa 4.9 (4) 5.6(2) 5.6 (7)
5. Gujarat 3.1 (15) 4.2 (10) 5.7 (6)
6. Haryana 3.1 (15) 3.2 (16) 4.2 (17)
7. Jharkhand 6.9 (1) 4.1 (11) 5.3 (10)
8. Karnataka 3.3 (14) 3.9 (12) 4.4 (16)
9. Kerala 4.7 (5) 5.1 (4) 5.6 (7)
10. Madhya Pradesh 3.4 (13) 3.6(13) 4.4 (16)
11. Maharashtra 3.2 (15) 3.6 (13) 4.2 (17)
12. Odisha 3.0(17) 3.5 (14) 4.5 (15)
13. Punjab 3.4 (13) 3.3 (15) 4.9 (13)
14. Rajasthan 4.4(8) 4.8 (7) 6.8 (1)
15. Tamil Nadu 4.2(10) 4.8 (7) 4.4 (16)
16. Telangana 4.5 (15)
17. Uttar Pradesh 5.1 (3) 4.8 (7) 5.5 (8)
18. West Bengal 3.9 (11) 4.5 (15)
4.8 (7)
 Dihlik Spending on Health in India" BHARTI PANDEY AND SHACHI RAI
163
I. Special Cotegory
1. Arunachal Pradesh 3.1(16)
2. Assam 3.4 (13)
4,4 (9) 5.2(11)
4.9 (3) 4.8 (14)
3. Himachal Pradesh 4.6 (6) 4.8 (4) 6.0(4)
4 Jammu and Kashmit 4.5 (7) 52 (4) 5.8 (5)
5. Manipur 3.0 (17) 5.7(5) 5.1 (12)
6. Meghalaya 5.5 (2) 5.4(1) 6.1 (3)
7 Mizoram 3.5 (12) 4.2 (10) 5.4 (9)
B Nagaland 4.3 (9) 4.3 (9) 4.9 (13)
0 Sikkim 2.8 (18) 5.7 (8) 6.2 (2)
10. Tripura 4.7 (5) 5.3 (8)
11. UttaraKhand 5.4 (9)
4.6 (6) 4.9 (6)
Al| States
5.5(8)
3.9 4.2 4.9
Al|States (per cent to GDP) 0.6 0.6 0.9
Source: Budget Documents of the State Governments and
computed by the authors.
Note: Figures in Parentheses show Rank.
Ratio of public spending on health and aggregate expenditure of Indian States is
in Table- 3. Estimates show that in 2005-06 the ratio was presented
highest in Jharkhand with 6.9 per
cent whereas lowest in Sikkim with 2.8 per cent. In 2015-16
highest public spending on
health as percentage of aggregate expenditure was accorded by Rajasthan with 6.8 per
cent
and Bihar stood at lowest rank with 4.8 per cent.
Conclusions
In view of mass poverty, unemployment and deprivations, it is of utmost importance to
ensure sufficient public spending on education and health. This may be typically much
more
employment generating than several other economic activities, and hence also has substantial
multiplier effects. This willensure sustainability of the sources of livelihood and quality of
life. For acountry like India, where socio-economicinequalities are
rampant, comprehensive
public provision of healthcare goods and service by the Government is essential. Despite the
popular belief that Government operations are inefficient, in India, where access to
publicly
provided goods and services are constrained, the Government must ideally take the lead
over the private sector. To do that, India has miles to go on public healthcare
expenditure
as percentage of GDP. Trends show that there has not been any significant change in the
expenditure on health as a proportion of GDP and it has remained stagnant at less than 2 per
cent during the period 2005-06 to 2015-16.
The analysis leads us to construe that glaring diversity is found amongst Indian States
with respect to per capita government expenditure on health, one of the important social sector
expenditurecontributing to human development. Moreover, backward States are found to be
in a desperate situation for not being able to raise considerably their level of per capita health
expenditure. Thedifferences in health expenditure across States probably arise either because
of preference or income of the State. These may also arise because of fiscal disabilities of the
States arising from unequal capacities in raising revenues or due to varying cost of providing
health services. The regional diversity and socio-economic conditions of a particular State
however can also be the cause of inter-state variation in health expendit:re. In order to fully
 The Indian
164

behindthe differences hcalth expcnditure, one needs to

in EconomiC Journg
differences deniSftyates the degeg
the reason
cvaluate
disparity in health expenditure is explained by the in
towhich the by other
fiscal capacity. priority of
state governments or
demographic factors, income
fforutuHreowevsetur,dy. Tohig
come under the purview of present rescarch but can be the part of
does not performance between States may be accounted
some extentthis disparityin by
factors but largely carn be attributed to governance and delivery of services
greater cmphasis on governance iSsues. While
governance is a broader
area to be exogenous
This calls for a
various fronts, use of e-governance
and monitoring of services in health
is becoming
sector.
an important method to.
ensure tackled
better deivery a

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