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.
