Budget: Why experts want 3% of GDP allocated for healthcare

With Union Budget 2024-25 slated for July 23, there is heightened expectation that the Centre may leverage budgets for healthcare and education to boost the employment rate.

One of the primary expectations from the Union Budget is a substantial increase in the healthcare budget. Experts advocate raising healthcare expenditures to at least 3 per cent of GDP to ensure comprehensive coverage and quality services. This increase would enable better funding for public health programmes, medical research and the development of Indigenous healthcare technologies.

Budgetary increase

Over the past decade, India’s healthcare budget has seen a steady increase. From Rs 30,626 crore in 2014-15, the Department of Health and Family Welfare budget has grown at an annual rate of 12 per cent, reaching Rs 86,175 crore in 2023-24. The Interim Budget 2024-25 further allocated Rs 90,171 crore, underscoring the government's commitment to improving healthcare access and infrastructure.

However, despite these increases, the healthcare expenditure remains below the recommended 3 per cent of GDP, hovering around 2.1 per cent in 2022-23.

Low allocation

Experts have long advocated for healthcare expenditures to be at least 3 per cent of GDP to ensure comprehensive coverage and quality services. The current allocation needs to catch up, resulting in a heavy reliance on private healthcare providers and high out-of-pocket expenses (OOPE) for individuals.

In 2019-20, India’s OOPE was 47.1 per cent of total health expenditures, starkly higher than South Africa’s 5.4 per cent.

Ayushman blues

The government’s earlier health schemes haven’t had much success. The Ayushman Bharat-National Health Protection Mission (PMJAY), popularly called Modicare, introduced the universal health insurance scheme in 2018. The mission pledged to provide millions of vulnerable families with comprehensive health insurance.

Nevertheless, translating policy initiation into execution has revealed an unfavourable truth: a scheme rife with deficiencies in infrastructure, inefficiencies in operations and widespread fraudulent activities. Within a few years, numerous obstacles arose for the scheme.

Irregularities

In its report presented to the Lok Sabha in August 2023, the Comptroller and Auditor General of India (CAG) identified conspicuous irregularities within the PMJAY health insurance scheme.

The report noted multiple cases of the scheme providing treatment for patients who had already been declared dead as well as for thousands of people using the same Aadhaar number or invalid mobile phone number.

Hence, one of the primary roles of the government is to fix these issues if they become successful so that the budgetary investment is not wasted.

Gaps in infrastructure

One critical issue in India's health sector has been the low investment in primary healthcare infrastructure. Effective primary healthcare can prevent or pre-empt more severe health issues, but the budget allocations have not adequately addressed this need.

In 2023-24, the budget allocation for the Pradhan Mantri Swasthya Suraksha Yojana (PMSSY) for setting up new AIIMS and upgrading existing medical colleges was Rs 10,200 crore, a 23 per cent increase over the revised estimates for 2022-23.

Public investment

The Department of Health Research, which plays a key role in managing pandemics, has been allocated only Rs 2,980 crore in 2023-24, which is 0.01 per cent of GDP and 3 per cent of the total health budget. The Standing Committee on Health recommended that the Department of Health Research be allocated at least 0.1 per cent of GDP for five years, as countries like the US spend up to 2 per cent of their GDP on health research.

Limited public investment in primary healthcare has resulted in inadequate health infrastructure, particularly in rural and underserved areas. While the focus on setting up new AIIMS and upgrading existing medical colleges has improved tertiary care infrastructure, the benefits have yet to reach the grassroots level effectively.

Costing individuals

Heavy reliance on private healthcare providers due to inadequate public healthcare infrastructure has led to high out-of-pocket expenditures for individuals, pushing many into financial hardship. This undermines achieving universal healthcare and equitable access to healthcare services.

Investments in primary healthcare infrastructure, particularly in rural areas, are critical. Enhanced funding for sub-health, primary and community health centres is essential to improve the reach and quality of basic healthcare services. Effective primary health care can prevent or pre-empt more severe health issues, thereby reducing the overall burden on the healthcare system.

Research funding

Another fundamental expectation is allocating at least 0.1 per cent of GDP to the Department of Health Research. This investment is vital for building infrastructure and capacity to manage future pandemics and other health emergencies. Enhanced research funding would also contribute to developing new treatments and healthcare technologies.

Expanding the coverage and benefits of public health insurance schemes like Ayushman Bharat is crucial to reducing the burden of out-of-pocket expenditure. Additionally, incentivising the private sector to participate in the delivery of affordable healthcare services, especially in underserved areas, can help bridge the accessibility gap.

GST and health

The Goods and Services Tax (GST) structure has had mixed impacts on healthcare in India. While specific benefits have been realised, challenges remain in making healthcare affordable and accessible for all.

For instance, exempting healthcare services provided by establishments with a turnover of more than Rs 20 lakh has reduced tax liability for tiny nursing homes and hospitals.

The seamless input tax credits flow has lowered hospital and clinic capital costs. Essential and life-saving medicines are exempt from GST, aiding economically disadvantaged groups.

Increase health allocation

However, GST on medical supplies and equipment has increased costs for healthcare providers, which could be passed on to patients. It has also led to high out-of-pocket expenses for economically weaker sections dependent on the public healthcare system.

To address the gaps in healthcare funding and infrastructure, the Union Budget 2024-25 must significantly increase its allocation for healthcare, focusing on primary healthcare, research and development, and public health programmes.

(All data in this story are from PRS Legislative Research and the Centre for Development Policy and Practice)