Has Health Spending by the Centre Increased Significantly?

Analyzing the trends in health expenditures across India and the role of states in boosting health allocations since 2017-18.

pocketias team

•January 30, 2026•5 mins read

Has Health Spending by the Centre Increased Significantly?

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1. Context: National Health Policy Commitments and Fiscal Reality

The National Health Policy (NHP) 2017 articulated a clear fiscal vision for India’s health sector by committing to raise public health expenditure from 1.15% of GDP to 2.5% by 2025. This target was grounded in the recognition that underinvestment in health weakens human capital formation and long-term economic growth.

However, with 2025 now past, the core objective remains largely unmet. Public health spending has not scaled up in line with policy commitments, primarily due to the Union government’s failure to substantially increase allocations over the past decade.

The NHP further envisaged that the Union government should contribute 40% of total public health expenditure, implying an increase in Central spending from 0.29% to around 1% of GDP. This would require a near threefold rise in Union allocations, which has not occurred.

If this divergence between policy intent and fiscal action persists, health policy risks becoming aspirational rather than operational, undermining credibility and implementation capacity.

“Health is not a cost; it is an investment.” — World Health Organization

Policy commitments without fiscal backing weaken state capacity; ignoring this gap erodes both service delivery and trust in long-term planning.

2. India’s Low Public Health Spending in Comparative Perspective

India’s public spending on health remains abnormally low when compared internationally, including with countries at similar or lower income levels. This gap highlights structural under-prioritisation rather than fiscal incapacity alone.

In 2021, Bhutan’s per capita public health spending was 2.5 times that of India, while Sri Lanka spent three times more per person. Other BRICS nations spent 14–15 times more per capita, and countries such as Thailand and Malaysia spent at least 10 times more.

Such disparities have implications for health outcomes, service quality, and financial protection against medical shocks. Low public spending pushes households towards out-of-pocket expenditure, deepening inequality.

Failure to address this gap risks India remaining an outlier among emerging economies despite its growth ambitions.

Comparative examples:

Bhutan: 2.5× India’s per capita public health spending
Sri Lanka: 3×
BRICS countries: 14–15×
Thailand, Malaysia: ~10×

International comparisons reveal that India’s challenge is not affordability but prioritisation.

3. Role of States versus the Union Government

During the COVID-19 years, public health expenditure as a share of GDP increased modestly. However, this rise was driven largely by State governments rather than the Union government.

As per RBI data, allocations by States and Union Territories for health and family welfare increased from 0.67% of GDP (2017–18) to 1.1% of GDP (2025–26 BE). The share of health in overall State budgets also rose from 5% to 5.6%.

In contrast, the Union government’s health spending has declined in real terms post-pandemic. Adjusted for inflation, the 2025–26 health allocation is 4.7% lower than actual spending in 2020–21.

This asymmetry places disproportionate fiscal pressure on States, which are constitutionally responsible for health service delivery.

When fiscal responsibility and expenditure authority diverge, service delivery gaps widen.

4. Declining Central Priority to Health

The Union government’s health expenditure as a share of GDP declined sharply from 0.37% (2020–21 Actuals) to 0.29% (2025–26 BE). Simultaneously, health’s share in the total Union Budget fell from 2.26% to 2.05%.

This reversal suggests that the temporary elevation of health during COVID was not institutionalised into long-term budgeting priorities.

Given rising healthcare costs and population needs, declining real allocations imply reduced service coverage and quality over time.

Ignoring inflation-adjusted trends risks overstating nominal increases while masking real contraction in public provisioning.

Post-crisis rollback of health spending undermines preparedness for future shocks.

5. Health and Education Cess: Design versus Deployment

The Health and Education Cess (HEC), introduced in 2018–19 at 4% of taxable income, was intended to augment government spending on health, particularly for poor and rural populations.

However, cess collections have largely been absorbed into general revenues rather than expanding health budgets. In FY 2023–24, HEC collections amounted to ₹71,180 crore, of which only about ₹17,795 crore (roughly one-fourth) was allocated to health.

Excluding cess-linked support, the Union health budget declined by 22.5% in real terms between 2020–21 and 2023–24.

This disconnect weakens the credibility of earmarked taxation as a policy instrument.

Earmarked revenues lose purpose if fungibility dilutes sectoral impact.

6. Centralisation and Decline of Centrally Sponsored Schemes

Historically, a significant portion of Union health spending was channelled to States through Centrally Sponsored Schemes (CSS). In 2014–15, around 75.9% of Union health expenditure was transferred to States.

By 2024–25 (BE), this share had fallen to 43%, which is insufficient to maintain basic health services at the State level.

This trend reflects increasing fiscal centralisation, even as health remains primarily a State subject. Reduced transfers constrain States’ ability to sustain frontline services.

Persistent underfunding of CSS risks hollowing out the public health system at its foundation.

Fiscal centralisation without service responsibility weakens cooperative federalism.

7. Cuts to Public Health-Oriented Schemes

An examination of scheme-wise allocations reveals declining priority for programmes that strengthen public health systems and protect vulnerable populations.

Key schemes such as the National Health Mission (NHM), Pradhan Mantri Swasthya Suraksha Yojana, and initiatives on nutrition and health research have faced significant cuts despite demonstrated effectiveness.

Launched in 2005, the NHM has been central to improving rural and urban health services. While NHM spending grew at an average of 7.4% between FY14 and FY19, it declined by 5.5% in real terms on average during the second NDA tenure.

Sustained contraction in such schemes undermines preventive and primary healthcare, increasing long-term costs.

“Primary health care is the cornerstone of a sustainable health system.” — WHO, Alma-Ata Declaration

Neglecting foundational schemes shifts health systems from prevention to crisis response.

Conclusion

The gap between India’s health policy commitments and fiscal execution remains substantial. Persistently low Union health spending, declining scheme transfers, and dilution of earmarked revenues risk weakening public health capacity and federal balance. Aligning budgets with stated policy goals is essential for strengthening human capital, reducing inequality, and ensuring long-term economic resilience.

Quick Q&A

Everything you need to know

India’s public health expenditure remains significantly below the targets set by the National Health Policy (NHP) 2017. The NHP aimed to increase government health spending from 1.15% of GDP to 2.5% by 2025, with the Union government contributing around 40% of total public spending. However, as of the 2025-26 Budget Estimates, the Union government’s allocation stands at just 0.29% of GDP, far below the 1% target.
Comparative context: Even neighboring countries outperform India considerably; for instance, Bhutan spent 2.5 times and Sri Lanka 3 times more per capita on health in 2021. Other BRICS nations and Southeast Asian countries like Thailand and Malaysia spend 10–15 times more per capita. This low allocation limits India’s capacity to provide universal and quality healthcare, demonstrating a substantial gap between policy objectives and implementation.
Implications: The persistent underfunding of public health not only undermines preparedness for pandemics but also limits access to preventive and curative healthcare, placing undue burden on State governments and households.

The declining share of the Union government in health expenditure is concerning because it undermines equitable access and coordination of health services across India. While States have increased their share of health spending from 0.67% of GDP in 2017-18 to 1.1% in 2025-26, the Union government’s share has decreased from 0.37% (2020-21 actual) to 0.29% (2025-26 BE).
Consequences:

States bear a disproportionate burden of funding critical schemes such as the National Health Mission (NHM), putting fiscal pressure on less-resourced regions.
Reduced Union allocations compromise centrally sponsored schemes intended to provide uniform health coverage, impacting rural, tribal, and vulnerable populations.
Hypercentralisation of resources for health, when most service delivery is State-driven, weakens the overall efficiency and effectiveness of public healthcare.

Case in point: Schemes such as NHM, Pradhan Mantri Swasthya Suraksha Yojana, and nutrition programs have seen stagnation or reductions in funding despite proven efficacy. This reflects a misalignment between stated policy goals and budgetary priorities, threatening long-term health outcomes.

The Health and Education Cess (HEC), introduced in 2018-19 at 4% of taxable income, was intended to supplement and expand health spending, especially for poor and rural populations. However, in practice, the cess has largely been used to supplement general tax revenue rather than to increase actual allocations for health. For instance, the FY2023-24 HEC collection was ₹71,180 crore, but only around ₹17,795 crore (approximately one-fourth) was directed towards health.
Impact on health outcomes: If the cess had been fully earmarked for health, it could have significantly bolstered funding for preventive and curative services. Instead, real terms allocation for Union health spending declined by 22.5% between 2020-21 and 2023-24, indicating a shortfall in resources relative to rising costs and population needs.
Implications: The disconnect between revenue collection through cess and actual expenditure undermines public trust, limits service delivery improvements, and reduces the fiscal flexibility of States relying on central transfers for health programs.

Stagnation and cuts in centrally sponsored health schemes arise from multiple fiscal and policy reasons. First, the Union government has prioritised other expenditure areas over health, leading to reduced budgetary allocations despite the creation of schemes like the Health and Education Cess. Second, political and administrative focus has shifted to non-health sectors or flagship programs outside healthcare, limiting sustained investment.
Effects on service delivery:

NHM, launched in 2005, was critical for improving rural and urban health infrastructure, yet its funding declined in real terms by an average of 5.5% during 2014-19.
Other programs addressing nutrition, health research, and specialized care have received cuts, undermining preventive and promotive health services.
States are left to fill the financing gap, creating disparities in health service availability across regions.

Ultimately, these funding trends reflect a disconnect between policy objectives in the NHP and actual budgetary prioritisation, which risks long-term deterioration of India’s public health system.

Low public health spending has profound implications for both pandemic preparedness and health equity in India. During COVID-19, modest increases in health spending were primarily driven by States, highlighting the Union government’s limited contribution. This imbalance undermines coordinated national responses, as States may lack the necessary infrastructure, workforce, or financial flexibility to manage crises efficiently.
Equity concerns:

Insufficient Union allocations to centrally sponsored schemes exacerbate regional disparities in access to healthcare.
Vulnerable groups—rural populations, women, children, and the urban poor—are disproportionately affected due to reduced funding for programs like NHM and nutrition schemes.
Low expenditure constrains preventive measures, research, and public health surveillance, increasing susceptibility to disease outbreaks.

Case study: While States increased health spending post-COVID, the real per capita Union expenditure has declined, illustrating systemic underfunding. This limits India’s ability to achieve universal health coverage, maintain surge capacity, or respond effectively to future pandemics, threatening both health security and social equity.

Countries like Bhutan, Sri Lanka, Thailand, and Malaysia spend considerably more per capita on health than India. For example, Bhutan’s per capita health spending is 2.5 times, Sri Lanka’s three times, and Thailand and Malaysia at least 10 times higher than India’s. Similarly, BRICS nations allocate 14-15 times more per capita on health.
Lessons for India:

Increased public health investment enhances access, quality, and coverage of services, which India currently struggles to provide.
Higher spending allows for robust preventive care, research, and workforce development, critical for pandemic preparedness.
Equitable allocation across regions ensures vulnerable populations are not left behind, as seen in countries with stronger health budgets.

These comparisons suggest that India must substantially increase Union and total public health spending to meet international benchmarks, reduce inequities, and improve health outcomes for all citizens.

The National Health Mission (NHM), launched in 2005, is a pivotal centrally sponsored scheme aimed at improving health services in rural and urban areas. In its early years, Union funding supported critical interventions in maternal and child health, infrastructure development, and disease control. Between FY14 and FY19, NHM spending grew at an average of 7.4%, largely due to a jump in FY18. However, during the second NDA tenure, NHM expenditure declined by 5.5% in real terms.
Impact of declining funding:

Infrastructure and human resource development slowed, leaving rural health centres understaffed and under-equipped.
Programs targeting maternal, child, and preventive health were constrained, affecting vulnerable populations.
States had to fill the financial gap, leading to disparities in service delivery based on state capacity and fiscal health.

Insights: The NHM case demonstrates that sustained and predictable central funding is critical for long-term improvements in public health. Declines in allocation not only reduce immediate service delivery capacity but also weaken India’s health system resilience for future challenges, including pandemics and non-communicable disease burdens.

Attribution

Original content sources and authors

Reuters

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