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Governmenthealthfinancinginindiachallengesinachievingambitiousgoals Essay

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About this series...
This series is produced by the Health, Nutrition, and Population Family (HNP) of the World Bank’s Human Development Network. The papers in this series aim to provide a vehicle for publishing preliminary and unpolished results on HNP topics to encourage discussion and debate. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent. Citation and the use of material presented in this series should take into account this provisional character. For free copies of papers in this series please contact the individual authors whose name appears on the paper.

Peter Berman, Rajeev Ahuja, Ajay Tandon, Susan Sparkes and Pablo Gottret

Enquiries about the series and submissions should be made directly to the Editor Homira Nassery ([email protected]) or HNP Advisory Service ([email protected], tel 202 473-2256, fax 202 5223234). For more information, see also

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December 2010


Peter Berman
Rajeev Ahuja
Ajay Tandon
Susan Sparkes
Pablo Gottret

December, 2010

Health, Nutrition and Population (HNP) Discussion Paper
This series is produced by the Health, Nutrition, and Population Family (HNP) of the World Bank's Human Development Network. The papers in this series aim to provide a vehicle for publishing preliminary and unpolished results on HNP topics to encourage discussion and debate. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent. Citation and the use of material presented in this series should take into account this provisional character. For free copies of papers in this series please contact the individual author(s) whose name appears on the paper. Enquiries about the series and submissions should be made directly to the Editor, Homira Nassery ([email protected]).

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Health, Nutrition and Population (HNP) Discussion Paper
Government Health Financing in India:
Challenges in Achieving Ambitious Goals
Bermana Ahujab Tandonc Sparkesd Gottrete

Health, Nutrition, and Population Unit (HDNHE), Human Development Network, World Bank, Washington DC., USA
South Asia Health, Nutrition, and Population Unit (SASHN), World Bank New Delhi, India
East Asia Health, Nutrition, and Population Unit (EASHH), World Bank, Washington DC., USA
Ex-HDNHE, World Bank, Washington DC., USA
South Asia Human Development Sector (SASHD), World Bank, Washington DC, USA

Abstract: The Government of India has publicly committed to a doubling or trebling of government health spending by 2012 and launched a major program, the National Rural Health Mission (NRHM), to help spend the additional funds and achieve better health outcomes. This paper reviews recent data on trends in government spending and various scenarios of central and state funding to assess the feasibility of achieving these financing goals. The goal of 2 percent of GDP for government health spending is unlikely to be achieved, although there is clear evidence of program growth. Much larger state-level spending is needed to accelerate overall government spending in India’s federal system. In addition, there is evidence of constraints in the ability to spend significantly increased budgets in a timely way and possible state substitution of increased central funding for existing state budgets. Significantly increasing government health spending in India requires more than simply raising budgets at the central level. NRHM does show some positive effects, but the rapid gains envisaged will require greater efforts to address the shortcomings of government systems and creative approaches to India complex federal financing system.

Keywords: Health Financing, India, Government Expenditures, Health Systems Disclaimer: The findings, interpretations and conclusions expressed in the paper are entirely those of the authors, and do not represent the views of the World Bank, its Executive Directors, or the countries they represent.

Correspondence Details: Peter Berman, MSN: G 7-701, World Bank, 1818 H St. NW., Washington DC, 20433 USA., tel: 202-458-2676, fax: 202-522-3234, email: [email protected], website:



Table of Contents

ACKNOWLEDGEMENTS ......................................................................................... VII GOVERNMENT HEALTH FINANCING IN INDIA .................................................. 1 INTRODUCTION ................................................................................................................. 1 HEALTH FINANCING OVERVIEW FOR INDIA ...................................................................... 3 THE FINANCING IMPLICATIONS OF NRHM GOALS .......................................................... 5 RECENT EXPERIENCE WITH BUDGETING AND SPENDING GOVERNMENT HEALTH ALLOCATIONS .................................................................................................................. 9

NRHM Implementation and Absorptive Capacity ..................................................... 12 Is Increased NRHM Spending Improving Health Programs? ................................... 15 CONCLUSIONS ................................................................................................................ 19 REFERENCES: .............................................................................................................. 21



The authors would like to thank colleagues in Government of India for their assistance in identifying relevant health expenditure and program output data. A member of colleagues in the World Bank’s new Delhi office, especially the HNP Team, contributed helpful comments. This paper benefitted as well from work on fiscal space carried out in other countries. Funding for this study came from the GAVI Alliance through World Bank Trust Fund No. 690001.

The authors are grateful to the World Bank for publishing this report as an HNP Discussion Paper.




The government health financing landscape is changing fast in India. There is a strong political commitment at the highest level to increasing public spending on health from about 1% of GDP to 2-3% of GDP by 2012. In keeping with this goal, the central government has increased its health spending substantially in the last 3 fiscal years, mainly for the national flagship program, the National Rural Health Mission (NRHM), that provides increased finances to states for existing programs as well as funding for several new initiatives.

In India, states contribute the bulk of government health financing, which is in consonance with India’s constitutional decentralization whereby health is a ―state subject‖(Constitution of India). While the goal of 2-3% of GDP is voiced by the central government, achieving the goal would not be possible without the active involvement of states. Even if this commitment is center-led, which is implied in the strategy of raising the central share from less than 30% in 2005 to 40% in total government health spending by 2012, the states would still have to substantially increase their contributions to reach the goal. Given that the states’ role is crucial to achieving the goal, how credible is the overall commitment by the center? Do states attach the same priority to health as shown by the center? Even if, in principle, states attach similar priority, what demand does this goal places on state level funding? Can states mobilize the kinds of resources needed to achieve the goal? Furthermore, central government funding may not be wholly additional. States may partially substitute central funding for funding on their own account, thus somewhat offsetting GOI’s efforts to increase total government health spending. This may be exacerbated if states run into the constraint of spending additional funds given their limited capacities to implement programs. These are all interesting and pertinent issues to investigate.

One articulation of the central government’s pledged increase in public spending on health in India has been the introduction in 2005 of the National Rural Health Mission (NRHM) (MoHFW 2005). NRHM is designed as an umbrella program – consolidating existing programs as well as adding some new ones – with a flexible, bottom-up perspective whereby district and village level health plans are aggregated up to the state level which are then annually submitted to and financed by the center, with some proposed matching of funds by the states to be introduced during the course of the implementation of the program. To what extent does NRHM expenditure currently impose, and will impose in future, financing obligations on the states? For example, improved facilities and increased access will need to be sustained in the future. Can the states sustain the financing of additional activities being undertaken under NRHM? Increasing of funding is one thing and effectively utilizing those funds is quite another. NRHM has a stated aim to not only increase financing of basic health care services in

rural areas of the country with a special focus on 18 lagging states 1 but also improve efficiency and increase effectiveness of public investments in the health sector. As NRHM is focused mainly on improving primary care, the implementation of the program is expected to improve allocative efficiency of public health spending. Moreover, NRHM intends to bring about an ―architectural correction‖ to improve effectiveness of public health spending. Mechanisms for this include block grants to districts and local governments; demand-side financing for institutional deliveries (Janani...

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