Central transfers to states need to be better targeted so that basic standards of healthcare are met across the country.
In 2017, 30 children died at the Gorakhpur Medical College due to insufficient care, reminding us of the dire condition of healthcare in India. The biggest challenge is financing public health services across the country. Health is a state subject according to the Seventh Schedule of the Constitution. However, the union government transfers funds to the lower tiers of government to ensure that at least certain minimum standards of healthcare are achieved across the country. A recent working paper published by The Takshashila Institution highlights the regressive nature of the central transfers focusing on health.
Consumer spending is more than four times the government spending in India. Public health expenditure in India is not only low but also unevenly distributed across states. The Indian Constitution has assigned “public health and sanitation, hospitals, and dispensaries” in the states’ domain. But the imbalance between revenue powers and expenditure responsibilities assigned to the state creates a vertical imbalance between the union and the states. This means that union government has access to more revenue and the states have a larger burden of delivering public services. The high degree of this vertical imbalance and competing claims from other functions makes it difficult for states to make adequate resource allocations to provide healthcare.
The horizontal imbalance caused due to wide inter-state differences in revenue capacities make the problem even more serious. Hence, in order to ensure minimum standards of healthcare across the country, the union government has to intervene through intergovernmental transfers. These transfers include both unconditional and purpose-specific transfers. On one hand, the unconditional transfers help offset the revenue gaps. On the other hand, the specific transfers help direct the transfers towards increasing the provision of meritorious services like healthcare and education.
Almost two-thirds of central spending on the health sector is directed through National Health Mission (NHM). NHM is a centrally-sponsored scheme started in 2005. It is, therefore, interesting to note that the central transfers on health have been unable to achieve the goal of enabling basic minimum standards of health across the country. The paper also highlights three broad shortcomings of the central transfers on health in India.
First, the specific purpose transfer system has not been helpful in offsetting the fiscal disabilities of the poorer states. Instead, the flat line depicting the union to state specific purpose transfer in the figure shows how little the transfers affect the state’s level of income. With even the poorer states spending three to four times as much as the transfers they receive, the transfers need to be increased to redistribute the transfers more heavily in the favour of poorer states.
Second, the transfers are poorly targeted, as these are not linked to health indicators. The fiscal constraints limit poorer states from achieving the levels of health indicators that states with higher revenue can. Hence, the transfers need to be targeted such that poorer states with lower health indicators are provided more support. Instead, the paper shows that such transfers, by and large, tend to be incremental. States with better health indicators tend to receive more specific transfers per capita.
Finally, the most concerning finding is that the states have been substituting the grants received from the union government for their own spending. Hence, for each additional unit of specific purpose transfer by the union government on health has lead to a reduction in states’ own expenditure on health. Therefore, the total overall spending on healthcare has remained constant.
Positioned to overtake China as the most populous State, India is at the cusp where reaping demographic dividend will critically depend on providing education and healthcare to the young population. With this objective in mind, it is essential that the basic standards of healthcare are met across the country. Central transfers need to be better targeted if we want to ensure that the states with fiscal disabilities are given adequate resources to catch up with the rest.