In the Budget for FY27, the Centre’s total budgetary expenditure is estimated to rise by a modest 7.7%, lower than the projected nominal GDP expansion of 10%. The outlays for health and education are pegged to marginally exceed the pace of total expenditure, at 10.5% and 14.2% respectively. This shows a modest effort to raise the outlays for both, which are central to enriching human capital and reaping the demographic dividend. However, the country can hardly afford to be complacent.
The Centre’s health expenditure declined from 0.37% of GDP in 2020-21 to 0.26% in 2025-26 (Revised Estimate), and is seen to remain roughly the same for 2026-27. The outlays for both the years are in fact lower than in 2020-21 when adjusted for inflation. The National Health Policy’s target of raising overall public health expenditure to 2.5% of GDP by 2025 has been missed, with the actual figure stuck at around two-thirds of that level.
Health spending by states and Union Territories has of course increased steadily from 0.67% of GDP in 2017-18 to 1.1% in 2025-26, thanks also to the funds transferred from the Central Budget. But out-of-pocket health expenses of households still lingers at 2.3% of GDP. Low doctor-population ratio and acute shortage of specialist professionals are also afflicting many states. Bihar and Jharkhand’s healthcare professional to population ratio is just 10, much lower than 44.5 recommended by the World Health Organization.
The ‘Missing’ 2.5%
Government spending on education has hovered around 4.6% of GDP over the last few years, which is relatively better in comparison to similarly placed low-middle income countries. But it is still lower than the Euro area average of 5.05% or South Africa (6.5%) and Brazil (5.5%), both comparable economies. In fact, the average high-income country rate is only marginally higher at 4.8%, but unlike India, they don’t have the task of building basic infrastructure any longer. To be sure, India’s per capita general government expenditure (PCGE) on education in current US dollar terms is largely on the trendline. However, as pointed out in an EY study, to fulfil the aspiration of Viksit Bharat, the PCGE on education needs to increase by more than seven times.
Since wide inter-regional disparities remain, equalisation transfer to poorer states is taking place. However, low institutional and fiscal capacity of laggard states are a problem. For instance, to receive the Centre’s grants under the National Health Mission, states are required to make a matching contribution, and this has led to the unintended consequence of certain “high-focus” states like Bihar and Rajasthan getting lower grants than better-placed ones like Tamil Nadu and Kerala. The education outcomes, measured by established yardsticks like “learning poverty rate”, teacher-student ratio, and student dropout rates continue to be below par, although some states have indeed made rapid strides.
Regional Disparities
To its credit, the Centre has rolled out some well-designed health and education schemes in recent years like Samagra Shiksha Abhiyan and PM-JAY health insurance facility. Budget FY27 has moved further on this path by seeking to establish stronger linkages between education and entrepreneurship, bolster the care ecosystem for the elderly, and forge alliances with the private sector to upgrade Allied Health Professionals. Though joint ventures with the private sector have incremental benefits, health and education infrastructure can’t reach acceptable levels, unless the government pitches in with more resources. Raising the revenue-GDP ratio is paramount.