A Fiscal Space Paradox? Government Spending on Health in India

Presenter: Rajeev Ahuja, World Bank

Abstract

From the perspective of fiscal space for health, India is undergoing an exciting phase with a strong recent political commitment to increase government health spending from current levels of about 1% to 2-3% of GDP by 2012. This is reflected in part by the introduction in 2005 of a national flagship program called the National Rural Health Mission. This renewed commitment for health at the central (federal) level follows almost a decade during which there was a secular decline in government health spending as a share of GDP. Robust economic growth in the past 10-15 years has helped make such a renewed commitment feasible. However, concerns remain that the pledged increases in health spending envisaged may not be actualized, especially given India's decentralized political structure with a bulk of government health expenditure occurring at the state levels. We examine several additional issues with regard to the centrally-driven plan to increase resources for health: Will increased central allocations crowd out financing at the state level? Are there mechanisms to ensure that the increased central funding is incrimental and does not replace existing state-level health spending? Do states in India have the capacity to utilize the additional funding effectively? How sustainable would the increased central funding be once the financing burden is passed on to the states?