International Journal of Scientific Engineering and Research (IJSER)

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The Trend of Health Expenditure in India and Odisha

and Its Relationship with Health Status
Ashima Mohanty
Bhubaneswar-751012, Odisha, India

Abstract: India, especially Odisha, has a long way to go in providing basic health care to the people. The persistence of deficits in the
health outcomes of a majority of the country’s population is rooted in the poor state of public provisioning of healthcare. Public
expenditure accounts for a small share in total expenditure on healthcare in India, which reflects the low priority accorded to health sector
in the government budgets of the country. When compared to the developed and many developing countries, the share of public expenditure
in the country’s total expenditure on healthcare appears to be very low for India. Further, India ranks sixth from the bottom, amongst all
countries in the world, in terms of public expenditure on healthcare as a proportion of the Gross Domestic Product (GDP). On the basis of
the above discussion, it is felt that health sector would require a significant strengthening of the regular and sustained government
interventions, which would inevitably require a much higher magnitude of public expenditure on health than what is still prevailing in
India and Odisha. Therefore, as an immediate action, at least the following issues must be addressed in the Union and State Budget.
Overall allocation for the health sector should be in increased in the union budget 2016-17, to fulfill the Government’s commitment to
increase the health expenditure to 2-5 % of GDP. Overall allocation on Medical Education and Training has to be raised. In the context
that post graduate medical education needs to be prioritized to fulfill requirement of the specialist doctors, allocation on this should be
increased. At the same time, the Union Finance Minister’s proposal for Annual Health Survey to prepare District Health Profile for all
districts (which was slated to begin from 2010) is a welcome step; but the government would need to allocate adequate funds for this
purpose. We may note here that no allocation towards this has been made in Union Budget 2014-15. We would expect that adequate funds
will be allocated in the Union Budget 2016-17.

Keywords: Health, Odisha, IMR, Immunization

1. Introduction add to the cost of insured health care without improving

health outcomes and the market is shy to share the cost.
Public expenditure on health is an essential prerequisite for
human welfare since it leads to better health outcome, 2. Global Health Expenditure
greater equity, more consumer satisfaction and lower cost
of service. The three rationales for government intervention World spending on health is about 8 per cent of the global
in the health sector - provision of public goods, reduction of income in 2014. Of this; governments have spent nearly 60
poverty and market failure correspond roughly to three per cen3t. The role of government varies from country to
different kinds of services, namely, public health, clinical country but every government plays an important role.
health and health insurance. „Public Health‟ includes the There is a glaring disparity in the health expenditure
services provided to the population at large or to the between established market economies like USA, UK,
environment such as housing, drinking water and sanitation. Canada etc. and India. While the percentage of world
„Clinical Services‟ are highly cost-effective services which population residing in these market economies is 15 per
improve the health of the poor. Since poor people cannot cent, in India alone resides 16 per cent. However, according
buy such care for themselves, there is a case for public to an estimate in 2014, the total health expenditure in these
finance. The government cannot finance all medical care for market economies is $1483 billion whereas that in India it
which health insurance is desirable1. is only $18 billion. It is also observed that while these
economies share a staggering 87 per cent of the total world
Alleviation of poverty provides a straight forward rationale health expenditure, India shares only 1 per cent. These
for public intervention in health. Reduction of poverty disparities are prevalent despite the fact that India needs
requires two strategies – promoting labour productivity better health care facilities than these developed countries.
which is the most important asset of the poor and increasing
their human capital through access to basic health care, 3. Role of Government
education and nutrition. Investing in the health of the poor
is an economically efficient and politically acceptable Human development has assumed considerable importance
strategy for reducing poverty2. in the development process and has attracted worldwide
attention in recent times. In case of developing countries,
Health is treated as public goods and due to externalities government expenditure on health plays an important role
inherent in it, government intervention is justified. in ensuring total reasonable level of human development. In
Externalities, or spillovers of benefits or losses from one India government spending on health is smaller than the
individual to another leads to market failure and world average. It was 6.0 per cent of the GDP in 1999-
government intervention becomes indispensable. Failures in 2000. According to a recent Report in The Times of India,
markets for health care and health insurance provide a third India ranks 171st out of 179 countries in government health
rationale for government action to improve efficiency and spending. In contrast, it ranks at impressive 18th in terms of
equity. Efforts to obtain valuable information about risks private spending on health4. Government expenditure on
health is important in India for two reasons. The first is that,

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the magnitude of deprivation in the country is too large to government expenditure are: i) Medical and Public Health
be left to market forces alone to tackle and secondly a ii) Family Welfare iii) Nutrition iv) Water supply and
higher proportion of the poor population utilizes Sanitation and v) Social Security and Welfare.
government facilities5. The bulk of government spending is
routed through the State Governments since the Indian State Government
Constitution specifies that a large number of health related
activities belong to the ambit of individual states. The In the government sector, provision of health care is the
central government spends most of the remaining share, responsibility of the State government. The states account
with local governments such as Municipalities. A recent for over 90 per cent of the aggregate health expenditure of
analysis by the World Bank concludes, “the hospitalized central and state governments. Their share in the aggregate
Indian spends more than half of his total annual expenditure spending has increased in past years. Involvement of the
in buying health care: more than 40 per cent of hospitalized central government in states budget is confined mainly to
people borrow money or sell assets to cover expenses and family planning and certainly centrally sponsored disease
35 per cent fall below the poverty line6.” control programmes.

In India poor public health expenditures remain the National programme on control of leprosy, immunization
predominant cause of the unsatisfactory performance of the scheme for children and ICDS are some of the examples of
health system. Also, inefficient utilization of available centrally sponsored schemes. Centre‟s allocation of funds to
resources also contributes substantially to poor health these schemes in different states is guided by their needs,
outcome. The policy which declared the state to provide ability to absorb grants and spend them efficiently. There is
free universal health care to the entire population is far from a fair degree of uniformity in the levels of spending of
reality. India has one of the highest levels of private similarly placed states. But such uniformity is absent in the
financing with out-of-pocket expenses, estimated to be very case of states‟ expenditure on their areas of responsibility
high. In a poor country like India, out of pocket payment is such as medical relief, public health, medical education,
the most regressive method of health finance as it water supply and sanitation and states own schemes in
aggravates poverty. nutrition.

4. Healthcare Expenditure by Government Ability of the states to make sufficient level of allocation of
money to different component of health depends on a
Central Government number of factors. Important among these are: states
capacity to raise revenues from the taxes assigned to them,
Health care expenditure refers to the amount defrayed the statutory share they get in central taxes and upgradation
towards health care by the Central, State and Union grants they get from the centre. Besides their own sources
Territory governments7. It excludes expenditure by local of revenue, states get a share in the non-corporate income
bodies, public sector enterprises and autonomous and semi- tax and union excise duties from the centre9.
autonomous institution8. The different components of

Table 1: Combined Expenditure of Center and State on Health and Family Welfare (Rs in Cr)

Center‟s Expenditure on State‟s Expenditure on State‟s Expenditure as% of Total Total Expenditure
Health and Family Health and Family Budgetary Expenditure on Health (Center+ States)
Welfare* Welfare and Family Welfare as % of GDP

2003-04 7249 12529 70.7 0.90

2004-05 8086 18721 69.9 0.85

2005-06 9650 22031 69.5 0.88

2006-07 10948 25375 69.9 0.90

2007-08 14410 28908 66.7 0.88

2008-09 17661 38579 68.6 1.02

2009-10 21680 43848 66.9 1.06

Source: Compiled by CBGA from Union Budget, Govt. of India, various years.

Despite the gradual stepping up of Union Budget allocation allocation from both Union Budget and State Budgets) for
for Health & Family Welfare since 2005-06, Centre‟s health sector stands at a meager 1.06% of GDP, which is far
expenditure on health still accounts for a very small below the promised level of public expenditure on health.
magnitude as compared to the overall level of public The table shows that a major chunk of India‟s public
spending on health recognized as necessary for the country. spending on health comes from the State Budgets10. In
In 2009-10, the combined budgetary allocation (i.e. the total 2003-04, the expenditure on Health & Family Welfare
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incurred from the State Budgets accounted for almost 71% services. There exist wide disparities across states in terms
of the country‟s total public expenditure on health; this of health infrastructure, expenditure and attainment. The
proportion has shown a marginal decline over the last three coefficient of variation in real per capita expenditure
years and reached 67% in 2009-10. Thus, although the incurred in health has increased over the years. This is
Union Budget allocation for Health & Family Welfare has likely to aggravate the existing disparities in the provision
been increased gradually since 2005-06, it still accounts for of health infrastructure across strates17.
only one-third of the total public expenditure on health in
the country. The expenditure on Health & Family Welfare An analysis of the budget of Odisha from 1991-92 to 1998-
from the State Budgets has increased at a much slower pace 99 shows the same trend. In 1991-92 the proportion of
over the last six years. As a result, the combined health expenditure in the budget was 4.6 per cent of the
expenditure of Centre and States on Health and Family total budget expenditure and it was only 1.23 per cent of
Welfare has increased very slowly from 0.9% of GDP in GSDP during the same period. Further a serious point to be
2003-04 to 1.06% of GDP in 2009-10. noted is that in 1998-99 the per cent of health budget
declined to 4.49 per cent as a percentage of state budgets
5. Characteristics of Health Expenditure and 1.12 per cent of GSDP during the same period. The low
expenditure on health by the state governments is being
India is characterized by relatively low expenditure on affected by their stringent financial position since the
health, which is estimated to be 0.9 per cent of GDP. The initiation of adjustment at the central level from 1991 14.
percentage is almost equal to the expenditure incurred in Several measures undertaken by the Union Government
other Asian Countries such as China, Indonesia, Thailand have implied a deceleration in revenues for the states, plan
and Sri Lanka. But these countries have better health and non-plan grants. Despite the more equitable
outcome than India11.The private sector accounts for over arrangement for sharing of revenues suggested by the Tenth
three-quarter of the expenditure implying the share of Finance Commission, the budget did not bring about any
government is confined to a mere 25 per cent. On the basis fundamental change in the arrangements for sharing
of a survey of 18,000 households conducted by NCAER 11, revenues. The states during this period reacted to fiscal
it is found that 39 per cent of household expenditure was stringency with a deceleration in health expenditure15.
incurred on government doctors and 56 per cent on private
practitioners in both rural and urban areas. This situation is Trends in different Plan Period
totally different from that prevailing in developed countries.
In these countries public sector accounts for more than 60 The pattern of investment in health has been rather bleak in
per cent of the total health expenditure12. the Five Year Plans. While the 1st Five Year Plan had 3.3
per cent of the total plan outlay reserved for the health
In addition to the state and central government, financing of sector, the Ninth Five Year Plan had only 2.31 per cent
the health sector by local self government is important in reserved for the same. The percentage of expenditure in
large urban areas. The health expenditure of municipal Family Welfare is also not very encouraging. While 0.1 per
bodies varies between 30 to 50 per cent of their total cent of the total plan outlay was reserved in the 1st plan,
expenditure. In rural areas the status of public health only 1.76 per cent of the net expenditure was allocated for
provided by local self government bodies like the the same.
Panchayats is very poor. It is due to fact that the local
bodies lack the financial autonomy. The higher expenditure The plan wise real per capita health expenditure shows a
incurred by poor households on private sector facilities are great deal of variation from the 5th Five Year Plan to 9th
more in the nature of unavoidable expenditure on curative Plan in different states. The coefficient of variation value
care. This is a reflection of non-availability and under was only 26 per cent across the states in 5th Five year Plan
utilization of public sector facilities. The anomalous which increases to 40 per cent during the 9th Five Year Plan
situation in the country is evident in the fact that health period. Odisha needs more per capita expenditure for its
infrastructure constructed at public cost remain grossly poor health status.
underutilized. The Primary Health Centre in rural areas treat
less than 5 per cent of the total illness episodes. This is a Health Expenditure as a Percentage of Social Sector
clear indication of the poor quality of service, provided at Expenditure
the public sector health facilities13.
The expenditure by the Central and the State governments
The public provisioning of infrastructure is concentrated a on public health, water supply and sanitation has been
large hospital-based curative facilities in urban areas. declining over the years despite the fact that the cost of
Nearly four-fifth of the infrastructure facilities in the health services has increased exponentially. It is evident
country is located in urban areas. The rural areas are from the analysis of health expenditure as a percentage of
neglected both by the public sector as well as the private social sector expenditure, total government expenditure and
allopathic sector. The rural areas which account for three GDP from the year 1974-75 to 2002-03. While the
fourth of the population had only 32 per cent of the percentage share in social sector expenditure for health is
hospitals and 20 per cent of the hospital beds13. 22.56 per cent in 1974-75 it has decreased to 22 per cent for
the year 2002-03. The same trend can be seen in the
Trends in State Govt. Health Expenditure percentage share in total government expenditure over the
same period where the percentage of health expenditure has
Health is a state subject and state governments have a major only marginally increased from 4.1 per cent to 4.6 per cent.
responsibility for providing adequate funding for health The percentage share of health expenditure in GDP has also

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shown an insignificant increment from 0.85 per cent to 1.4 expenditure constituted over 90 per cent of total
per cent over the year. expenditure in all major states. There should be an
increased level of capital expenditure on health as
By analyzing the per capita expenditure on education, compared to revenue expenditure, so as to expand the
health and social security in Orissa from 1985 to 2000 it is infrastructure which is an essential prerequisite for a better
obvious that the health sector expenditure is by and large health status. The role of capital expenditure can be well
neglected among the social sector expenditure. While the understood from the Implicit Model of Causation between
per capita expenditure on education in 1985-86 is Rs.72.18, past public spending (Capital Account) and IMR given by
it is only Rs.39.35 for health during the same period. The Tulsidhar16. Infant Mortality Rate (IMR) is influenced by a
bleak performance of Odisha in terms of its health status is complex set of factors like past and current spending,
the result of low per capita health programme. access and availability of health care and socio-economic
conditions prevailing in the states. Expansion of health
Proportion of Revenue and Capital Expenditure services is possible only through expenditure from capital
account. A high proportion of revenue account meets the
An important feature of the health expenditure incurred by current expenditure which in no way ensures the
state government in India is that the bulk of expenditure is improvement of IMRs.
in revenue account. Between 1994-95 to 2001-02 revenue

Figure 1: Implicit Model of Causation

The trend of Revenue expenditure and capital expenditure year 1991-92 both these level has only 21 per cent of share
on health in Orissa is similar to other states. The revenue each, whereas the tertiary sector grabbed 58 per cent which
expenditure is meant for salaries, medicine and other is meant for major hospitals, allopathy medical education,
accessories. The bulk of capital account is meant for training and research located in urban areas. Health
infrastructure. But in a poor state like Orissa capital outcomes depend on the type of expenditure and pattern of
expenditure is less than 10 per cent of the total between spending. The poor health outcomes in Orissa have been
1986-57 to 2001-02 except in two years. It has also been attributed to greater emphasis on curative facilities located
observed that though there is a serious dearth of health in urban areas as against preventive measures in rural areas.
infrastructure in the states a part of the grant from the The poor health attainment of the state is result of the
revenue and the capital account goes unused. declining share of expenditure in health sector.

Distribution between Primary, Secondary and Tertiary 6. Conclusion

Care
India, especially Odisha has a long way to go in providing
An analysis of the trend of real per capita public spending basic health care to the people. The persistence of deficits in
on health of major states and their distribution among the health outcomes of a majority of the country‟s
primary, secondary and tertiary health care shows per capita population is rooted in the poor state of public provisioning
public spending has increased in primary and secondary of healthcare. Public expenditure accounts for a small share
level care by 50 per cent between 1985-86 to 1998-9920 . in total expenditure on healthcare in India, which reflects
During this period spending level has increased by more the low priority accorded to health sector in the government
than 100 per cent in the tertiary level care. It has serious budgets of the country. When compared to the developed
implication for both equity and efficiency of the health and many developing countries, the share of public
system. The percentage distribution of budget expenditure expenditure in the country‟s total expenditure on healthcare
in primary, secondary and tertiary level is a matter of grave appears to be very low for India. Further, India ranks sixth
concern in a health poor state like Odisha where primary from the bottom, amongst all countries in the world, in
health centres in rural sector need a special attention of the terms of public expenditure on healthcare as a proportion of
government. The primary and secondary health care is the Gross Domestic Product (GDP).
neglected by the Orissa budget in the last decade. In the

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On the basis of the above discussion, it is felt that health
sector would require a significant strengthening of the
regular and sustained government interventions, which
would inevitably require a much higher magnitude of public
expenditure on health than what is still prevailing in India
and Odisha. Therefore, as an immediate action, at least the
following issues must be addressed in the Union and State
Budget.

Overall allocation for the health sector should be in

increased in the union budget 2016-17, to fulfill the
Government‟s commitment to increase the health
expenditure to 2-5 % of GDP. Overall allocation on
Medical Education and Training has to be raised. In the
context that post graduate medical education needs to be
prioritized to fulfill requirement of the specialist doctors,
allocation on this should be increased. At the same time, the
Union Finance Minister‟s proposal for Annual Health
Survey to prepare District Health Profile for all districts
(which was slated to begin from 2010) is a welcome step;
but the government would need to allocate adequate funds
for this purpose. We may note here that no allocation
towards this has been made in Union Budget 2014-15. We
would expect that adequate funds will be allocated in the
Union Budget 2016-17.

References
[1] “The Roles of the Government and the Market in
Health.” World Development Report. World Bank,
Oxford, 1993, p.52.
[2] World Development Report, Op. cit., p.55.
[3] World Development Report, Op. cit., p.52.
[4] “India hits rock bottom on Public Health Spending,”
The Times of India, July 2004.
[5] Sarkar, P.C. and K.S. Prabhu, “Financing Human
Development in Indian States.” The Asian Economic
Review, Vol.43, 2001, p.38.
[6] “Who Plays for Health System.” World Health Report,
WHO, 2000.
[7] Reddy, K.N. and V. Selvaraju, Health Care
Expenditure by Government. National Institute of
Public Finance and Policy, New Delhi, 1994, p.7.
[8] K.N. Reddy and V. Selvaraju, Op. cit., 8-12.
[9] K.N. Reddy and V. Selvaraju, Op. cit., 32.
[10] Tulsidhar, V.B., State Financing of Health Care in
India: Some Recent Trends. National Institute of Public
Finance and Policy, pp.10-11.
[11] Griffin, C., Health Care in Asia. World Bank, 1992.
[12] Prabhu, K.S. and A. Radha, “Recent Trends in Health
Financing in India.” IASSI Quarterly, Vol.4, 1995,
p.45.
[13] Independent Commission on Health in India, “Health
Services in Rural and Urban Area,” Voluntary Health
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[14] Prabhu, K.S., “Structural Adjustment and the Health
Sector in India,” In Disinvesting in Health, edited by
Mohan Rao, Sage Publication, 1999, p.122.
[15] K.S. Prabhu, Ibid, p.123.
[16] Tulsidhar, V.B. and J.V.M. Sharma, “Public
Expenditure, Medical Care at Birth and Infant
Mortality.” In Paying for India’s health Care edited by
Peter Berman and M.F. Khan, Sage Publication, New
Delhi, p.83

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