Union Budget 2025: Will healthcare finally get its due?

Frugal spending on healthcare

While modest progress has been made over the years, the sector grapples with insufficient public expenditure, inadequate infrastructure, and rising costs, all hindering the nation’s progress toward Universal Health Coverage (UHC). India’s public health expenditure, currently at 1.84 per cent of GDP as of 2021-22, lags far behind the global average of 6 per cent. This figure is even more concerning when compared to nations like South Africa (4.3 per cent), Brazil (4.0 per cent), and China (over 3 per cent).

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The Federation of Indian Chamber of Commerce and Industry (FICCI), in a statement, said India’s public expenditure on healthcare touched 2.1 per cent of GDP in FY23 and 2.2 per cent in FY22, against 1.6 per cent in FY21, as per the Economic Survey. “FICCI recommends increasing this allocation to 2.5 per cent of GDP by 2025, as envisioned in National Health Policy 2017. This will help to strengthen healthcare infrastructure, ensure equitable access, and move closer to Universal Health Coverage (UHC) goals,” the statement said.

Poor funding for healthcare research

One of the most glaring gaps in India’s healthcare budget is the meagre allocation for research and development. In the 2024-25 budget, the Department of Health Research was allocated just Rs 3,002 crore, a mere 4 per cent of the Ministry of Health and Family Welfare’s total allocation of Rs 90,659 crore. This represents an increase of only 4 per cent from the previous year’s revised estimates, a paltry rise when juxtaposed with the growing need for research into vaccines, non-communicable diseases (NCDs), and epidemiology.

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To put this into perspective, the United States spends 0.65 per cent of its GDP on health research, while the United Kingdom invests 0.44 per cent. If India were to allocate even 0.1 per cent of its GDP to research, it would translate to approximately ₹18,000 crore, significantly boosting the capabilities of institutions like the Indian Council of Medical Research (ICMR). Such investments are essential for addressing emerging health challenges and positioning India as a global leader in medical innovation.

Rising out-of-pocket expenditure

Although India’s out-of-pocket healthcare expenditure (OOPE) has declined from 64.2 per cent in 2013-14 to 39.4 per cent in 2021-22, it remains alarmingly high compared to the global average of 18 per cent. Countries like Thailand (11 per cent) and Sri Lanka (27 per cent) have significantly reduced OOPE through robust public healthcare systems and comprehensive insurance schemes.

Private hospitals dominate India’s healthcare landscape, accounting for 55 per cent of hospitalisations as of 2017-18. These facilities are, on average, seven times more expensive than public hospitals, exacerbating household financial stress. A more muscular public healthcare system, complemented by expanded insurance coverage, could significantly reduce OOPE and make healthcare more accessible to marginalised populations.

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Anup Mehra, deputy general manager, finance, at PSRI Hospital, said, “Reclassifying hospitals as infrastructure can open up avenues for long-term investments, enabling the sector to expand capacity and improve service delivery.”

Burdened infrastructure

India’s primary healthcare infrastructure is overstretched and underfunded. According to the Indian Public Health Standards (IPHS), each Primary Health Centre (PHC) should cater to a population of 20,000-30,000, but the figure often exceeds 36,000 as of 2021-22. Community Health Centres (CHCs), which provide specialised services, are in even worse condition, with only 10 per cent meeting staffing requirements.

In comparison, Brazil’s Unified Health System (SUS) ensures that each Basic Health Unit serves no more than 14,000 people, providing a more accessible model of care. For India to achieve similar outcomes, the budget must increase allocations to the National Health Mission (NHM), which has stagnated at Rs 36,000 crore in 2024-25. Real-term increases, accounting for inflation and population growth, are necessary to achieve meaningful progress.

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Tax reforms

The existing GST framework on healthcare services poses a significant challenge. While healthcare services are exempt from GST, hospitals cannot claim input tax credits on goods and services procured, resulting in higher operational costs. Industry leaders have called for zero-rated GST or a 5 per cent slab to allow hospitals to claim input credits and pass on savings to patients.

Additionally, reinstating the 150 per cent deduction under Section 35AD of the Income Tax Act for new healthcare projects and 15-year tax holidays for new facilities could incentivise private investment in underserved regions. Such measures would improve healthcare infrastructure and create employment opportunities, boosting economic growth.

Health insurance: An unfinished agenda

The Pradhan Mantri Jan Aarogya Yojana (PM-JAY) has financially protected millions, covering 11 crore families under its cashless hospitalisation scheme. However, its focus on in-patient care excludes outpatient services, which account for 45 per cent of current health expenditure. This gap disproportionately affects low-income households, which often forgo necessary treatments due to prohibitive costs.

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FICCI also pointed out that to meet rising healthcare demands under Ayushman Bharat, the government should provide 50 per cent additional depreciation under Section 32 of the IT Act for investments in diagnostic infrastructure, especially outside metro cities. This aligns with depreciation benefits in other sectors and supports the vision of affordable healthcare for all. Countries like Thailand have achieved near-universal coverage by including outpatient care in their public insurance schemes. Expanding PM-JAY to cover outpatient services, diagnostics, and preventive care could reduce OOPE and move India closer to its UHC goals.

Inadequate funds for NCD

NCDs (non-communicable diseases), including diabetes, cardiovascular diseases, and cancer, account for over 60 per cent of deaths in India. Between 1990 and 2016, the share of deaths due to NCDs rose from 38 per cent to 62 per cent, yet government spending on NCD management remains inadequate.

In 2024-25, the Pradhan Mantri Ayushman Bharat Health Infrastructure Mission (PM-ABHIM) was allocated ₹3,757 crore, a 63 per cent increase over the previous year. However, much of this funding remains underutilised due to administrative bottlenecks. The upcoming budget must ensure effective fund utilisation and allocate resources for public awareness campaigns, free screenings, and subsidies for NCD treatment.

Rising costs of care

India is grappling with a medical inflation rate of 14 per cent in 2024, the highest in Asia and nearly three times the country’s Consumer Price Index (CPI) inflation of 5.48 per cent. This escalating cost of care underscores the urgency for reforms, including reducing the 18 per cent GST on health insurance premiums and increasing the deduction limits under Section 80D of the Income Tax Act.

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Currently, the Section 80D deduction limit stands at Rs 25,000 for non-senior citizens and Rs 50,000 for senior citizens—a cap that has remained unchanged since 2015. Doubling these limits and exempting health insurance premiums from GST could make healthcare more affordable for millions.

By increasing public spending, implementing tax reforms, and expanding insurance coverage, the government can create a healthcare system that is accessible but also equitable and efficient.