India’s public health financing stands at a critical juncture. The year 2025, set by the National Health Policy (NHP) 2017 as the deadline to substantially raise government health spending, has passed without the core promise being met. Instead of converging towards a stronger public health system, recent budgetary trends suggest a retreat by the Union government, even as States shoulder a growing share of responsibility.
What the National Health Policy promised
The NHP 2017 laid down two clear fiscal commitments. First, total public health expenditure was to rise from about 1.15% of GDP to 2.5% by 2025. Second, the Union government was expected to contribute around 40% of total public health spending. This implied a sharp increase in central spending from roughly 0.3% of GDP to about 1%, requiring at least a threefold expansion in allocations.
Neither target is anywhere close to being realised. While States have gradually increased their health budgets, the Centre’s contribution has stagnated and, in real terms, declined.
India’s low public spending in global perspective
India’s public health expenditure remains strikingly low when compared internationally. Neighbouring Bhutan spends about two-and-a-half times more per person on health, while Sri Lanka spends roughly three times more. Other BRICS countries outspend India by 14–15 times on a per capita basis, and middle-income economies such as Thailand and Malaysia spend nearly ten times more.
This gap matters because low public spending pushes households towards out-of-pocket expenditure, deepening inequality and exposing families to health-related financial distress.
States step up, Centre steps back
During the COVID-19 years, public health spending as a share of GDP rose modestly, largely due to increased State expenditure. Importantly, States have sustained this higher effort even after the pandemic. Data from the Reserve Bank of India show that health and family welfare spending by States and Union Territories rose from 0.67% of GDP in 2017–18 to about 1.1% in the 2025–26 Budget Estimates. Health’s share in State budgets has also inched up.
The Union government presents a contrasting picture. After a temporary rise during the pandemic, central health spending has fallen in real terms. As a share of GDP, it declined from 0.37% in 2020–21 (actuals) to about 0.29% in 2025–26 (Budget Estimates). Adjusted for inflation, the Centre’s health allocation in 2025–26 is lower than what it spent five years earlier, implying reduced capacity to deliver the same level of care.
The fading post-COVID priority for health
The rollback is also visible in the overall budgetary priority accorded to health. The share of health in the total Union Budget has fallen from about 2.26% in 2020–21 to around 2.05% in 2025–26. This suggests that the heightened attention to health during the pandemic was not institutionalised into long-term fiscal commitments once the immediate crisis passed.
Health and Education Cess: promise versus practice
The Health and Education Cess (HEC), introduced in 2018–19 as a 4% levy on income tax, was intended to expand spending on health and education, particularly for poorer and rural populations. In practice, the cess has largely become a general revenue supplement.
For instance, in 2023–24, the HEC yielded over ₹71,000 crore, but only about a quarter of this amount was directed towards health. Excluding the cess component, Union health spending declined by over 20% in real terms between 2020–21 and 2023–24. This undermines the very rationale of earmarked taxation for social sectors.
Centralisation and shrinking support to States
Another structural shift has been the steady reduction in the share of Union health spending transferred to States through Centrally Sponsored Schemes. In 2014–15, nearly three-fourths of central health expenditure flowed to States, primarily via programmes such as the National Health Mission (NHM). By 2024–25, this share had fallen to about 43%.
This trend reflects increasing fiscal centralisation, even though health service delivery is constitutionally and practically a State responsibility. Reduced central transfers strain State capacities, especially in poorer regions where own-source revenues are limited.
Which schemes are bearing the cuts?
The pattern of expenditure reveals clear priorities. Schemes that strengthen public health systems and protect vulnerable populations—such as the NHM, the Pradhan Mantri Swasthya Suraksha Yojana, nutrition programmes, and health research—have seen stagnation or real-term cuts. The NHM, launched in 2005 and widely credited with improving maternal and child health and primary care access, has seen declining real expenditure during the second term of the NDA government, reversing earlier growth trends.
Why this matters for India’s future
Underinvestment in public health has long-term consequences. It weakens disease prevention, reduces resilience to future pandemics, burdens households with high medical costs, and limits India’s demographic dividend by undermining workforce health. Missing the NHP targets is not just a fiscal failure but a strategic one, with implications for equity, productivity, and social stability.
What to note for Prelims?
- National Health Policy 2017 targets: 2.5% of GDP and 40% Union share.
- Union health spending at around 0.29% of GDP (2025–26 BE).
- Rising role of States in public health financing.
- Health and Education Cess introduced in 2018–19.
What to note for Mains?
- Analyse reasons for India’s persistently low public health spending.
- Discuss Centre–State fiscal dynamics in the health sector.
- Evaluate the effectiveness of cess-based financing for social sectors.
- Examine implications of underfunding public health for inclusive growth.
