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
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”
2014), is welcome. However, state-level public service provision in India
has chronically underperformed and is plagued by poor quality and corruption (Davis
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
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
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
A better way
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
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
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
India is not
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
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.
version of this article
has appeared on the Center for Global Development Blog.
- 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.
- 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).
- 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.
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