Covid-19: The true state of healthcare expenditure in India

December 8, 2020 5:30 AM

Delhi being a city state also scores high on government health spending as a proportion of state revenue expenditure.

The International Monetary Fund in its latest World Economic Outlook October 2020 has advocated all major economies to allocate adequate resources for healthcare as the near-term policy priority.The International Monetary Fund in its latest World Economic Outlook October 2020 has advocated all major economies to allocate adequate resources for healthcare as the near-term policy priority.

By Sunil Kumar Sinha & Devendra Kumar Pant

In India, both central and state governments spend on health and health infrastructure. However, the Seventh Schedule of the Constitution puts the primary onus of healthcare delivery on state governments. As per the constitutional arrangement, public health and hospitals are under the State List, and population control, family planning, medical education, prevention of communicable disease, etc, are in the Concurrent List. As a result, states account for nearly 70% of the government spending on healthcare, and the actual battle against Covid-19 and the associated expenditure are being incurred by state governments. If we include the money transferred to states under a centrally-sponsored scheme, then the share of states in the total government spending on health would go up to 87%.

Since healthcare infrastructure such as hospital beds and availability of doctors and paramedical professionals is a prerequisite for providing quality healthcare facilities, it is believed that states scoring high on this account are likely to score high in their fight against the Covid-19 pandemic as well. However, soon it was realised that the fight against Covid-19 required more than just the healthcare infrastructure, as the final outcome is also dependent on the state-level political leadership’s resolve to galvanise the state/local bureaucracy and efficiently leverage both soft and hard medical infrastructure coupled with stepped-up health expenditure.

In other words, the availability of hospital beds/doctors is essential to take care of the Covid-19 case load, but to detect and prevent the spread of Covid-19, mass scale testing and tracing is required, which is not possible without active, elaborate and sustained administrative support and additional healthcare expenditure undertaken by state governments. Any relaxation on this account means reoccurrence and spread of Covid-19. And, indeed, this has been the case in many states in India and also globally. That is why, there are mixed results and no one-to-one correspondence has been witnessed/observed between state-level health expenditure/infrastructure and Covid-19-related outcomes (see graphics).

Yet the Covid-19 pandemic has brought healthcare expenditure, particularly public expenditure, on the centre-stage due to its unprecedented impact on lives and livelihood across the globe. The International Monetary Fund in its latest World Economic Outlook October 2020 has advocated all major economies to allocate adequate resources for healthcare as the near-term policy priority. However, healthcare in India will have to be both near-term and long-term priority as the country’s total health expenditure of 3.8% of GDP in FY17 is much lower than both advanced economies and emerging economies that are considered to be its peers such as Brazil, China, Russia, Argentina and South Africa.

At one end of the spectrum are Delhi, north-eastern states (excluding Assam), Himachal Pradesh, and Jammu and Kashmir, followed by Andhra Pradesh, Kerala, Assam and Uttarakhand, having high per capita government expenditure on health, and on the other end are Bihar, West Bengal, Jharkhand, Uttar Pradesh, Madhya Pradesh and Maharashtra having low per capita government expenditure on health. The rest are in between. Delhi being a city state also scores high on government health spending as a proportion of state revenue expenditure. Besides Delhi, the only state to have achieved the National Health Policy 2017 target of spending 8% of revenue expenditure on health is Assam.

According to the National Health Accounts FY17 (Ministry of Health and Family Welfare), the government (Centre + state + local) spending accounted for only 1.2% of GDP in FY17. This implies that a significant part of the healthcare cost in India has to be borne by non-governmental entities, of which out-of-pocket expenses of households (including medical insurance) accounted for 2.2% of the GDP and the remaining 0.4% was accounted for by non-governmental organisations/external donors/local bodies.

Out-of-pocket expenses of households in India are way too high. The share of the government in the current expenditure on health in India is only 27.1%. An overwhelmingly large share of 62.4% is borne by households. It is well-known that such a high share of out-of-pocket expenses imposes a financial hardship on household budgets and more than often pushes vulnerable households into debt and poverty. In fact, debt related to out-of-pocket expenses on health can be more damaging than other types of household debt. These expenses generally occur during illness/injury, which limits one’s ability to work, leading to depletion of household savings and unanticipated economic shocks. Over 60% of rural households and 40% of urban households with hospitalised cases borrow, sell their assets (including gold) or rely on contributions from friends and relatives to pay for inpatient care.

Authors are principal economist and chief economist, respectively, at India Ratings and Research. Views are personal

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