Human Development

Getting centre-state relations right for health in India

  • Blog Post Date 01 April, 2015
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Amanda Glassman

Center for Global Development

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Anit Mukherjee

Center for Global Development

The 14th Finance Commission has recommended devolving a greater share of revenues to states in order to give them more control over spending. In this article, Amanda Glassman and Anit Mukherjee examine the current centre-state relationships in the context of the health sector in India. They recommend that centre-to-state transfers should be performance-related, and should seek to, at least partly, level the playing field across states.

India represents about a fifth of global disease burden, and much of it is preventable. Yet India’s government spends only 1% of GDP (Gross Domestic Product) on health (Ministry of Health and Family Welfare 2015), of which 80% (Mukherjee 2014) is sub-national - raised and spent by the states themselves1. This state-level control of health spending will likely deepen given the 14th Finance Commission’s recommendation to devolve a greater share of revenues to states, while the centre’s own spending on health through the National Health Mission (NHM)2 has remained the same in the 2015-16 Union budget.

The government’s policy to devolve more resources directly to states in the spirit of ‘cooperative federalism’ – a strategy some called Modi’s “biggest bang political reform” (Jagannathan 2014), is welcome. However, state-level public service provision in India has chronically underperformed and is plagued by poor quality and corruption (Davis 2004, Singh 2015).

While life expectancy has increased dramatically over the past decade, it has been a challenge to directly link improvements in health outcomes with public spending on health or health services (Filmer and Prichett 1997). For example, the National Rural Health Mission’s (NHRM) budget tripled between 2005-06 and 2011-12, but did not lower India’s infant mortality, maternal mortality, and total fertility rates to targeted levels. Similarly, while NRHM enabled state governments to convert more than 14,500 primary health facilities to 24/7 facilities (an increase of 500%) (Sundararaman 2012), the influx of money to states failed to increase doctor attendance rates in these same facilities (Aiyar 2012). The advent of Rashtriya Swastha Bima Yojana (RSBY)3 as well as state-level health insurance schemes did lead to increases in financial protection for the poor (Fan 2013, Sood et al. 2014) but there has been little good news elsewhere to report - and some incredibly bad news (Hammer and Das 2014).

This begs the question: how can spending the same money through current arrangements really make a difference for health and the availability and quality health care services? What more can be done to incentivise states to spend more on health and spend it better?

What we know about current health programmes

Understanding the impact and limitations of current programmes is a first step to finding the answer. Both NRHM and RSBY require better evaluation, particularly of their impact on health. In the meantime, a couple of issues stand out.

First, NRHM was a noble mission designed by well-meaning Delhi bureaucrats to strengthen state health systems. However, in practice, the scheme adopted a one-size-fits-all approach that placed little regard on the socioeconomic diversity across states, and forced states to buy into conditions that may have limited innovation or created unnecessary structures. A health centre had to look a certain way, an ASHA (Accredited Social Health Activist) had to be part of the plan. India is simply too big and too decentralised for single solutions for healthcare provision to work.

Second, a main problem with centrally-sponsored schemes in general (NRHM or otherwise) is that federal (centre-to-state) transfers have done little to respond to need. Figure 1 below illustrates that centre-to-state transfers are divided more or less equally across states on a per capita basis in 2009-10, with no regard for differences in need or the amount of funding that states mobilise themselves for health. While states like Kerala may have enough of their own funds to reduce IMR (Infant Mortality Rate), states such as Uttar Pradesh require greater levels of central assistance to tackle this problem.

Finally, the current approach does little to relate funding to gains in health and healthcare. Currently, there is a small performance-related transfer in the NRHM but our forthcoming work suggests that the rewards formula, as currently designed, does not in fact reward performance. In the absence of performance-based transfers, the state and centre are stuck in a principal-agent trap – where states can continue to receive transfers because it is difficult to monitor outcomes in the absence of credible information on health service delivery. Efforts must be made to realign these incentives both at the centre and state levels to reduce mistargeting and improve effectiveness of expenditure.

Figure 1. Infant Mortality Rate and Per Capita Health Expenditures across Indian states, 2009-10

Source: Sample Registration System of the Registrar General of India (2010); Choudhury and Amar Nath (2012).
Notes: Per capita health expenditure is in Rupees (current prices). Total Health Expenditure and Central Transfer for Health are on one scale and IMR is on another.

A better way forward

Alongside greater devolution to states - recommended by the 14th Finance Commission - the central government needs to examine current programmes and the fiscal architecture underpinning centrally-sponsored schemes, and to identify the health outcomes it would like to see improved. The Finance Commission recommendations are a start, but it’s now time to think strategically about how these transfers will be designed and accountability systems put in place. A two-pronged approach of equalisation grants and performance/ accountability incentives may help India strengthen its system of fiscal transfers as well as its health system.

Equalisation grants don’t mean the same amount of money for every state; it should instead level the playing field so that the poorest states are able to provide a similar standard of healthcare as the wealthiest state. Clearly, the centrally-sponsored schemes have failed in this regard. The average growth of expenditure of the centre in worse-performing states has been lower than in the better-performing states (Choudhury and Amar Nath 2012). A portion of federal monies should compensate for differentials in levels of underlying health and fiscal need, which does not seem to have happened until now. Some thought should also be given on how central monies do or do not incentivise a state’s own fiscal effort on health.

As for performance incentives, India may consider models where the central and state governments collaboratively design a performance-based resource allocation to link a district’s funding to its health needs. Each district might automatically receive 70% of its base allocation; to claim the remaining 30%, a district could be required to improve performance according to defined indicators including quality and coverage of healthcare. This approach, tried out in Argentina’s Plan Nacer (Gertler et al. 2014) and Pakistan’s Punjab province (UNICEF 2013) for example, gives a clearer incentive to improve healthcare delivery as well as outcomes.

Better and timelier data, and rigorous monitoring and evaluation, are also needed, whatever transfer scheme is adopted. One key near-term data issue relates to costing. Proposed health benefits plans – or the set of services that will be financed by the public sector - are not costed empirically but instead extrapolated from spending on existing public schemes, not recognising state-level differences in need and cost structures, and inefficiencies in existing provision.

In addition, adjusting budgets to the cost of the benefits plan, or adjusting the benefits plan to available budgets, is pending. Central transfers to states should be sized on the basis of the set of minimum health benefits are supposed to be funded by the public sector, whether at the primary level of care or higher, in all states. A comparison of current plans brings into focus the extreme inequity in expenditure per beneficiary in current central and state schemes (see Figure 1 in Chowdhury and Gupta’s I4I column). Further, different states are at different levels of disease burden, demographic transition and budget availability, so both the cost and coverage of the packages will need to vary by state.

If the per capita transfer amount is less than the per capita cost of the healthcare benefits plan intended to be provided with the transfer monies, states will be forced to ration care, likely using implicit methods such as denying or waitlisting, all of which can exacerbate inequity. In many countries (including India), a benefits plan has little to do with the amount of per capita resources actually at the disposal of the government. It is therefore important to design a benefits plan from the budget available to state governments (including central transfers as well as other resources), not vice versa.

India is not alone

India not alone in facing these kinds of challenges; there are other countries where health and fiscal policy collide at the sub-national level. In Kenya, as local governments assumed full responsibility for healthcare provision, at least three separate centre-to-county flows for health were recently created, some conditional, some unconditional, and none allocated or structured to enhance health equity, accountability and impact (Lakin and Kinuthia 2013). In Nigeria, a new National Health Act creates a new earmark on federal-to-Local Government Area transfers for the delivery of primary healthcare, and mandates budget shares to be used for specific activities, but fails to set up accountability arrangements using data, funding or other tools.

There are important lessons to be learnt from countries in Latin America like Mexico, and in Asia like Thailand, which have managed to increase coverage of healthcare services, improve quality and reduce out-of-pocket expenditure. It is time to change the discourse.

A version of this article has appeared on the Center for Global Development Blog.


  1. Health is a state subject in the Constitution. However, the centre also spends on health through centrally-sponsored schemes such as National Health Mission (NHM), and Rashtriya Swasthya Bima Yojana (RSBY) – the National Health Insurance Scheme.
  2. NHM is the largest public health programme of Government of India. It consists of two sub-missions: National Rural Health Mission (NRHM), and National Urban Health Mission (NRUM).
  3. The RSBY or the National Health Insurance Scheme covers hospitalisation expenses in empanelled public or private health facilities, up to a ceiling of Rs. 30,000, for BPL families and other unorganised sector workers.

Further Reading

1 Comment:

By: Dr Gopal Balajirao Shinde

All programs will fail because they are designed by beaurocrats and not doctors who have worked at ground level...whatever little we spend on health is also not utilized properly as we want everything at the cost of doctors. No study done to fine out why doctors are not willing to work in rural areas .. Can the harrassment to them be controlled? Can they be given better working conditions ( working 24 hrs and 7 days a week for a meager salary with lot of public and political harrassment is the last thing a doctor wants ) ? Doctors and nurses should be the mainstay of any program then only it will be successful... Why not start Indian medical service on the lines of IAS /IPS/IRS..? Why not spend at least 5 % of GDP on health ? Why not make health insurance compulsory for all citizens so that no one has to suffer for lack of money to arrange for medical treatment..? If govt doesn't want to spend more on health it should only focus on preventive medicine and let private sector take care of curative medicine with the help of insurance... ?

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