Asymmetric Fiscal Federalism and Public Provision of Healthcare: New Insights from India

Abstract

In this article, we show undesirable consequences of a market-based system and argue for a public provision of healthcare. We examine the healthcare provision from the fiscal federalism perspective. With the asymmetric fiscal federal structure characterised by vertical and horizontal imbalances, states are dependent on transfers from union to provide public goods. Our analysis shows a widespread disparity in the public provision of healthcare in India due to fiscal imbalances. The performance of states in the management of the COVID-19 pandemic reveals that a robust public healthcare system is a prerequisite in managing a health emergency. We identify the withdrawal of governments from healthcare provision and concentration of resources with the union government as critical impediments to achieving universal healthcare access. In light of our analysis, we emphasise the need for resource devolution and cooperative federalism to ensure public provision for a dignified life in a functioning democracy.

Keywords

Equity fiscal federalism human development public provision universal healthcare

Introduction

The policy debate on healthcare has long focused on whether a government should focus on the provision of healthcare or its role should be limited to financing healthcare delivery. The neoliberal era witnessed nation-states receding from the task of healthcare provision across the globe. The free market treats health as a commodity whose provision needs to be left to the market mechanism. Nevertheless, accessible and affordable healthcare is a bare minimum condition for the dignified life of any human being. Healthcare as a commodity whose consumption is determined by the forces of demand and supply is not in tandem with the ideal of universal access to healthcare.¹

A purely market-based healthcare system relying on the ability-to-pay criterion is potentially efficient. Nevertheless, it is crucial to recognise its vulnerabilities due to asymmetric information, fragmentation, barriers to entry, moral hazard and ability to pay criteria, among others. As a result, such a mechanism hinders the delivery of social goals of healthcare (Arrow, 1963; Mascarenhas et al. 2013). Arrow (1963) even deems a laissez-faire solution for medicine intolerable. Empirical evidence links market distortions in healthcare provision, leading to redundant tests, medical procedures, over-treatment and inflated healthcare bills. This phenomenon is observed not only in lower-middle income countries such as India but also in high-income countries like the United States (Hooda, 2020; Mascarenhas et al., 2013). Therefore, government intervention is crucial for the adequate provision of healthcare.

The Constitution of India assigns the responsibility of healthcare provision to state governments. Hence, the asymmetric structure of Indian federalism and resulting fiscal imbalances have implications for public healthcare provision. These imbalances include both vertical and horizontal fiscal imbalances. The disparity in terms of resources between union and state governments is termed as a vertical fiscal imbalance, whereas the differences in the ability of state governments to raise revenue result in a horizontal fiscal imbalance. Vertical and horizontal imbalances raise two fundamental issues with respect to healthcare provision. One, states are dependent on transfers to provide healthcare, posing a resource challenge. Second, the ability of a state to mobilise revenue significantly impacts the public provision. Consequently, these imbalances affect the provision of public goods by state governments.

Public provision of healthcare in India is below the required standards and varies significantly across states. The onslaught of the COVID-19 pandemic unmasked two major deficiencies in the healthcare provision in India. First, the pandemic unveiled the flaws in the narrative of a private-dominated, insurance-based healthcare system as a panacea for ensuring universal access to healthcare. Second, the management of the pandemic exposed the weakness in the public provision of healthcare in the Indian federal system. The growing dependence of state governments on union grants due to lack of autonomy and limitation on revenue generation significantly affected the mitigation measures. It exposed the fault lines in the current fiscal federal structure.

In this article, we locate the public provision of healthcare within the fiscal federal structure of the country.² Further, we investigate how fiscal imbalances severely constrain the states from providing healthcare with universal care especially in primary healthcare. We show that addressing the current fiscal imbalance among states is indispensable for better healthcare provision in India. We further substantiate our arguments by showing how the disparity in public provision among states affected mitigating the COVID-19 pandemic.

Our analysis shows the need for a comparable standard of public provision of healthcare across states. To achieve this target, the strengthening policies of fiscal equalisation, which empowers less-endowed states to improve quality of provision, are essential. Providing larger untied resource flows to state governments increases flexibility in policy formulation and supports the goal of achieving universal healthcare. Therefore, we advocate for a cooperative federal approach to public healthcare provision. Moreover, our findings emphasise the crucial role of a robust public primary healthcare system in addressing healthcare emergencies. Successful public healthcare intervention requires a solid public primary care network. Our analysis in the backdrop of the pandemic indicates that the increase in the share of the private sector poses challenges to the target of universal healthcare.

This article is organised into six sections. The second section examines the provision of healthcare within India’s fiscal federal framework and highlights its current challenges. The third section investigates the extent of inter-state disparity in healthcare provision across states. We extend this analysis to examine the mitigation of the COVID-19 pandemic across states in the fourth section. The fifth section highlights the lessons from the pandemic and shows the need for comprehensive provision with equity. We present concluding remarks in the last section.

Fiscal Federalism and Public Provision of Healthcare

The provision of public goods is a basic function of a government. The Universal Declaration of Human Rights (UDHR) also underlines the necessity of universal access to healthcare. Later, a host of nations, such as Italy, Canada and Cuba, assured universal access to healthcare as a fundamental right to its citizens. Well-developed Canada and European countries, including the UK, provide publicly funded healthcare; most hospitals are publicly owned, often by provincial governments. Healthcare in Cuba and Botswana is largely government run, and the state owns and operates hospitals. Although the Indian Constitution does not explicitly recognise the right to healthcare, the Supreme Court interpreted the right to life guaranteed by the Constitution as including the right to healthcare.

The principle of subsidiarity adds one more layer to the public goods provision in a federal country. According to the principle of subsidiarity, the criteria for allocating functions and responsibilities are the comparative efficiency of a government (Føllesdal, 1998). In the case of certain public goods, decentralised provision allows for accommodating local preferences and better provision (Oates, 1972). In federal systems worldwide, national governments possess an advantage in revenue mobilisation, while state governments perform better in public provision. Further, the differences in economic activities cause a disparity in revenue mobilisation among subnational governments or horizontal imbalance. The vertical and horizontal fiscal imbalance adds to the complexity of public provision.

Indian federalism is characterised as a union of states with a centripetal bias or a quasi-federal system (Rao & Singh, 2006). There is an inherent asymmetry in terms of politics and fiscal resources. The fiscal asymmetry implies that states are dependent on the union government for resources. Of the total government revenue, 60% accrues to the union government, while states have expenditure responsibility of a similar percentage (Isaac et al., 2019). This imbalance necessitates federal governments to grant resources to states. The significant vertical imbalance in the major revenue sources of union and state governments is evident from the data. For the fiscal year 2017–2018, taxes on income (individual and corporate), customs and excise duties, primarily administered by the union, constituted a substantial 63% of the combined tax revenues. Notably, income and corporation taxes alone contributed to 97% of direct taxes, showcasing their buoyancy and progressive nature.

In contrast, state governments in India heavily rely on taxes related to consumption, stamp duties, state excise, vehicle taxes and electricity for their tax revenue (RBI, 2022). However, these state-level taxes, by their inherent nature, are non-buoyant and result in comparatively lower revenue generation. This intricate interplay of revenue sources underscores the pronounced vertical fiscal imbalance in India.

In addition to the vertical asymmetry between union and state governments, the challenges to public provision are further compounded by the extent of horizontal fiscal imbalance. As healthcare falls under the jurisdiction of state governments, disparities in their financial capacities translate into differences in the level of public provision. The Directive Principles of State Policy in the Constitution echo concerns about inter-regional inequality. Article 38(2) specifically mandates that ‘the state shall strive to minimise income inequality and endeavour to eliminate disparities in status, facilities, opportunities, etc., among individuals, areas, and vocations’. Addressing these fiscal imbalances is often framed as fiscal equalisation in the literature on fiscal federalism.

The principle of equalisation implies that citizens paying the same level of taxes should have access to similar levels of public goods. The devolution of funds from the divisible pool by the Finance Commission, known as tax devolution, and grants allocated by various union ministries serve as sources to address the resource gap. Finance Commissions, over time, have focused on devolving more resources to poorer states by considering criteria such as income distance, area and population. Subsequent Finance Commissions incorporated additional criteria such as population, income distance and forest cover to address the fiscal needs of the states. While these transfers are relatively equalising in nature, the crucial question of whether this equalisation translates into improved provision of public goods has received little attention in the existing literature.

In contrast, grants from the union and its ministries are not inherently equalising. These grants, including central sector schemes and other special grants, mandate specific uses and often require state governments to make matching contributions. For instance, the Ministry of Health and Family Welfare (MOHFW) allocates funds to states through central sector schemes such as the National Health Mission (NHM) and other disease-specific programmes. However, these grants, particularly those with conditions like those for NHM, tend to benefit richer states more than poorer ones, making them non-equalising.

Although healthcare is an exclusive jurisdiction of state governments, a few developments in fiscal federalism and healthcare provision raise concerns about the concentration of resources. First, the implementation of many central sector schemes imposes a burden on state governments. The proliferation of central sector schemes and the condition of matching grants interfered with states’ fiscal autonomy and penalised poorer states, sustaining disparities in development outcomes (Rao, 2017). The conditions attached to grants give lesser space for discretion in spending. Over time, many states have developed approaches to ensure universal access. The implementation of national programmes by the union government can pose a hurdle to such localised approaches (Balagopal & Vijaybaskar, 2019). States have been demanding more untied grants to address issues specific to their regions rather than trying to concur with the uniform policy of resource devolution.

Second, the fiscal autonomy of states is influenced by fiscal federal reforms in a neoliberal era. Widening pre- and post-devolution resource gaps indicate a greater vertical imbalance and transfer dependency. With the abolition of the Planning Commission, awards from the Finance Commission and union grants became the primary channels for devolution. The Constitution permits the union government to collect cess and surcharges that are not shareable with states. The share of cess and surcharges in gross tax receipts of the union increased from 10% in 2011–2012 to 20% in 2021–2022 (Mohan, 2021). The growing share of cess and surcharges implies increased tax devolution since the Fourteenth Finance Commission is neutralised. The reduction in corporate and income taxes by the union governments is also responsible for the shrinkage of the divisible pool. The increasing shares of cess and surcharges in union receipts and reduction in corporate tax is a concern for the size of divisible pool. These together adversely affect the provision of healthcare and the goals of equity.

One of the buoyant revenue streams for the state governments was the indirect taxes on consumption subdued under the GST. As a result, states lost autonomy in deciding the rates for a significant part of their own tax revenue (Kumar, 2019). In consonance with the global policy framework, governments are providing tax exemptions to encourage shifting from fossil fuel dependence to electricity-induced industry. Such exemptions further pose difficulty for states to augment revenue resources in the future.

Third, a major concern regarding healthy fiscal federalism is the growing demand for transferring public health from the state to the concurrent list. The expert panel on health, constituted by the Fifteenth Finance Commission, suggested such a transfer (GoI, 2019). Such a move not only undermines the autonomy of states but furthers the concentration of resources for healthcare provision, which is a prerogative of states. Such concentration may not be ideal in a diverse country like India. Insights from the literature show that the decentralised³ provision of local public goods was more effective than that of the centralised provision at both union and state levels. The Cuban experience of a community-based primary healthcare system proved successful in containing many contagious diseases at a low cost (Fitz, 2020; Reed, 2008).

These trends for the concentration of resources with the union and lesser autonomy to states pose risks to adequate healthcare provision, as it is a local public good. The increasing dependence of states on grants and transfers from the union and greater spending on healthcare by the union government through central sector schemes conflict with the principle of subsidiarity and affect efficient provision (Oates, 2005). A single healthcare strategy for a vast nation like India is insufficient to address the varying requirements of different demographic and economic groups. Some states are below the replacement level of population growth, whereas states with a substantially younger population have other requirements. Uniform healthcare programmes provide less flexibility for state governments, making public institutions less adaptable to local requirements. Consequently, this healthcare policy strategy poses a risk of helping market forces to increase their presence in healthcare provision.

The shift of focus from capacity creation in public healthcare to a uniform strategy often leads to unintended consequences, such as aiding the private sector. A stream of empirical studies shows inflating bills and unnecessary medical tests and procedures, particularly when economically disadvantaged households are covered by government insurance or when the government reimburses the medical bills (e.g., Hooda, 2020; Saxena, 2022). The absence of a robust public healthcare system is undesirable for achieving universal access to healthcare. To attain universal access and improve public provision of healthcare services, it is imperative to grant greater autonomy to state governments in devising their policies and resource allocation.

Inter-state Disparity in Public Provision of Healthcare

In this section, we present the analysis of disparities among states in terms of healthcare provision. The inter-state disparity in healthcare expenditure arises from the differences in the fiscal capacity or the ability of state governments to raise receipts. Sources of state government receipts include own revenue (tax and non-tax receipts) and fiscal transfers. Hence, the public provision of healthcare in each state is determined by the revenue-raising ability of state governments, tax devolution and central sector scheme grants, including NHM. Per-capita healthcare expenditure of state governments is highly correlated with per-capita GSDP, implying that poorer states spend less on healthcare (Table 1). The correlation analysis further reflects that the availability of community health centres (CHC), primary health centres (PHC), beds and doctors in government hospitals strongly correlates with public healthcare spending. Thus, a person from an economically backward state is constrained to avail a lesser level of public service than a person from a better-off state. This difference in entitlement within a country contradicts the principles of justice and equality associated with modern citizenship.

Table 1.

Correlation Matrix.

	PCHE	PCGSDP	CHC	PHC	Beds	Doctors
PCHE	1.0000
PCGSDP	0.6671	1.0000
CHC	0.4911	−0.0569	1.0000
PHC	0.5597	0.1131	0.7804	1.0000
Beds	0.7857	0.7040	0.2154	0.5310	1.0000
Doctors	0.8613	0.5906	0.3381	0.5581	0.8264	1.0000

Source: Authors’ own calculation using data from RBI and National Health Profile.

Notes: The table presents the correlation coefficient of variables of public provision of healthcare in 27 states. Beds and doctors denote beds and doctors in government hospital for million populations.

PCHE: Public per-capita healthcare expenditure; PCGSDP: Per-capita gross state domestic product; CHC: Community health centres per million populations; PHC: Primary health centre per million populations.

There is a widespread disparity in public spending on healthcare across states in India (Figure 1). The per-capita health spending by states exhibits vast disparities. North-eastern states (except Assam) and Goa are frontrunners with high government spending on healthcare. The special category states (including north-eastern states) have a greater allocation of grants and other funds from the union government due to their geographical disadvantages. The average per-capita state spending on health in India, excluding the north-east region, falls below ₹1,300 in constant prices. The widespread disparity underlines the necessity of revamping equalisation policies.

Figure 1.

Source: Authors’ calculation from RBI State Finances.

The widespread disparity in spending provides a fundamental insight into the unequal availability of public services across states in India. Each state has different cost conditions, which make expenditure incomparable across states. The real variables, such as the number of PHCs and government doctors per population, are better inequality indicators of public provisioning than expenditure variables. The PHCs play a significant role in providing healthcare at the grassroots level and ensuring access to affordable healthcare. They serve as the foundation of any healthcare intervention. Indian Public Health Standards of 2022 prescribe a PHC for a population of 30,000 in rural areas and 50,000 in urban areas.

In the post-liberalisation era, the average number of people served by a PHC increased, indicating that the creation of new PHCs could not keep pace with population growth (Figure 2). In other words, the inter-state disparity in economic growth and resource allocation among states led to a variance in meeting the Indian Public Health Standards (IPHS). The deepening inequality among regions concerning the public provision of healthcare is evident from the rise in the coefficient of variation of the population served by PHCs across states (Figure 3). As PHCs serve a greater number of people, the strain on existing infrastructure intensifies, significantly impacting the quality of care.

Figure 2.

Source: Authors’ calculation based on data from Rural Health Statistics.

Figure 3.

Source: Authors’ calculation from the data available with Rural Health Statistics.

The change in the population served by a government doctor across states over the past decade shows the extent of inter-state disparity in public healthcare (Figure 4). Although India achieved a WHO standard of 1 doctor per 1,000 people, the majority of the doctors are in the private sector, as suggested in Figure 4. In the Indian context, Medico-Friends Circle, a professional body of physicians, suggests the availability of a family medical practitioner for every 400–500 households. In densely populated areas, one doctor is enough for 900–1,000 households (Duggal, 2010). If we take the 900–1,000 household criterion, it requires 1 doctor per 5,000 people. We find that no general category state except Goa achieved this standard. The greater number of populations for a doctor in government service implies a greater load on doctors, resulting in a lower quality of public service. The burden on a government doctor in Bihar is four times that of a government doctor in Andhra Pradesh. The population per government doctor is greater in high-income states such as Punjab, Haryana and Karnataka. The greater population ratio to doctors implies that public provision of healthcare receives the least priority among general category states regardless of income status.

Figure 4.

Source: Authors’ calculations using the data from National Health Profile 2015, 2020.

The widespread inequality among states has been persisting over time. A few states, including Bihar, Punjab, Karnataka and Jharkhand, show an increase in the population per doctor, implying a significant decline in the availability of doctors. The decline in these states is important as the provision of doctors was already inadequate. The north-eastern states perform better in the availability of government doctors. Similarly, Chhattisgarh, Rajasthan and Uttarakhand, which fall in the Empowered Action Group (EAG), significantly improved.⁴ Among the general category states, Tamil Nadu, Maharashtra and Gujarat show significant improvement in the number of doctors. However, the rate of improvement of economically backward states does not give a promising picture for achieving the target of universal access to healthcare.

A wide disparity exists among states in terms of basic healthcare provisioning across states. The trends in per-capita health expenditure, population served by a PHC and population served by a government doctor show disparity in public provision over time. Although the pandemic induced more recruitment and additional facilities in the health sector, inequality in service provision is continuing. With the rising concerns over public debt, how the deficit-containing measures of state governments would affect resource mobilisation for healthcare provision is a concern.

Public Healthcare Provision and Management of the Pandemic

The COVID-19 pandemic laid bare the vulnerabilities within the Indian healthcare framework when faced with a health emergency. The pandemic exposed the adverse consequences of privatising healthcare and showed the necessity of a robust public healthcare system. India reported the first COVID-19 case on 30 January 2020, prompting a nationwide lockdown on 25 March 2020. However, the lack of coordination between union and state governments and the shortage of resource flows to state governments created hurdles for government actions (Ghosh, 2020). A critical hindrance to effective healthcare interventions was the acute inequality in the distribution of healthcare facilities and human resources. This disparity is evident in the case fatality rates, as illustrated in Figure 5.

Figure 5.

Source: Authors’ calculation from the Ministry of Health and Family Welfare data.

The case fatality ratio (CFR) of COVID-19, as reported by various state governments and the union government, faced criticism for being underreported compared to the actual number of cases and fatalities (Leffler et al., 2021). The lack of standardisation and diverse testing methods employed by states, each varying in accuracy, made the inter-state comparison futile. The lack of proper testing facilities and the adoption of different strategies contributed to the undercounting of actual COVID-19 cases. Additionally, civil society pressure prompted states to revisit their statistics (Chatterjee, 2020). We find an inverse relationship between the number of reported cases and test positivity rates. The regions with higher test positivity rates tended to have a greater number of cases that went underreported (Unnikrishnan et al., 2021). While the MOHFW reported 515,974 COVID-19 deaths in India as of 15 March 2022 (WHO, 2022), Wang et al. (2022) suggested a significantly higher figure of 4 million, implying an excess mortality ratio of 8.33. Importantly, our analysis reveals a positive correlation between the effectiveness of pandemic management and the quality of public healthcare provision in states. States with robust public healthcare systems demonstrated a better ability to navigate the challenges posed by the pandemic.

The challenges in data reporting bring into question the reliability of metrics such as the TPR and CFR. An analysis of the data on tests conducted per million population by states reveals a significant disparity in testing rates. States with more robust health infrastructure and healthcare workers consistently maintained higher testing performance (Figure 6). The negative correlation between the CFR and tests conducted per million people is a concerning trend. This inverse relationship aligns with the findings of Unnikrishnan et al. (2021), who observed that states with lower testing rates tended to have a higher undercount factor.

Figure 6.

Source: Authors’ calculations using data from COVID19india.org.

A crucial factor in the mitigation of the pandemic was testing the population. The inequality in public healthcare infrastructure across the states led to lower testing rates in India. The regional imbalance in testing infrastructure was apparent early on, with six states—Maharashtra, Tamil Nadu, Delhi, Telangana, Kerala and Karnataka—accounting for half of the COVID-19 testing facilities in the country as of 31 March 2020. The states with a lesser testing facility per million population had fewer cases per million, revealing a disturbing trend (Figure 7). The direct relation between the availability of testing facilities and case per million population underscores the regional imbalance and under-preparedness of poor states in managing healthcare emergencies. The shortage of affordable public testing centres further exacerbated the problem, leading to reduced testing and the underreporting of COVID-19 cases. This scarcity, a result of historical negligence in public provision, became particularly evident during the second wave of the pandemic, resulting in a human tragedy (Gupta et al., 2021; Thiagarajan, 2021).

Figure 7.

Source: COVID19india.org.

The prominence of the private sector exacerbated challenges in testing, adding to the spatial divide. In the early stages of the pandemic, the number of private testing centres was limited (Indian Council of Medical Research, 2020), primarily concentrated in urban areas. Subsequently, in many states, private laboratories outnumbered public laboratories (Figure 8). This imbalance in testing centres is rooted in historical rural–urban structural disparities. Private healthcare, driven by profit motives, tends to concentrate in affluent areas, highlighting the necessity for public provision to ensure universal coverage and create an equitable healthcare landscape. Notably, private testing centres were concentrated in high-income states such as Maharashtra, Karnataka, Tamil Nadu, Kerala and Telangana.

Figure 8.

Source: Author’s calculation using data from MOHFW, New Delhi.

The pricing by private labs for RT-PCR tests was exorbitant even after the regulation of these prices by several state governments (Table 2). Such prices were unaffordable for a large section of the population as the average daily wage for rural nonagricultural labour was ₹315 for 2020–2021 (RBI, 2021).

Table 2.

Cost of RT-PCR Test Pre- and Post-price Fixing.

State/Union Territory	Rate of RT-PCR Test (at a Private Laboratory)	Rate Fixed by the Government (at a Private Laboratory)
Delhi	2,400	800
Gujarat	1,500	900
Maharashtra	4,500	800
Andhra Pradesh	2,400	1,600
Telangana	2,800	850
Kerala	2,750	2,100
West Bengal	2,250	1,500
Jharkhand	4,500–2,400	1,500
Rajasthan	2,200	1,200
Uttar Pradesh	—	900
Karnataka	—	1,200

Note: The rates of RT-PCR tests at private laboratories were derived from reports published in Hindustan Times (2020) and Times of India (2020). The rates fixed by the government, shown in the third column, were obtained from the respective Departments of Health and Family Welfare of the states.

Rollout of vaccines at the earliest was a principal strategy to contain the pandemic spread and restore normal life. The initial policy of fixing quotas for procurement by union, states and the private sector at differential pricing led to confusion. The vaccine distribution also revealed the repercussions of an unequal healthcare provision system among states. Although 25% of the total vaccines produced in the country were earmarked for distribution through private hospitals, they could administer only 7% of the total vaccinations between 1 May 2021 and 15 July 2021. Such a disproportionately higher share was earmarked to private hospitals even when their participation was lesser in the universal immunisation programme (Lahariya, 2021). The prevalence of private vaccination centres is notably higher in developed and urbanised states, as depicted in Figure 9. This approach to vaccine distribution through private hospitals accentuated disparities among different economic classes, urban and rural areas and affluent and disadvantaged regions.

Figure 9.

Source: Authors’ computations based on data from ICMR, New Delhi.

An analysis of vaccination coverage across different states reveals an intriguing trend. The vaccine rollout started on 16 January 2021, while the drive for senior citizens began on 1 March 2021. From 1 April, the vaccine was rolled out for the 45 years and above category. From 1 May, vaccination for the 18–44 age group was started in private facilities. Private vaccination centre per population, taken as a reflection of private presence in the vaccination process, reveals a noteworthy concentration in middle-income and high-income states.

In contrast, most of the less affluent states have a lesser number of private vaccination centres. The progress of the vaccination process by states by July 2021 shows a significant trend (Figure 10). The number of doses administered till July 2021 helps understand the pace at which states were administering vaccines. States with a higher number of PHCs performed relatively better in vaccination rollout than states with fewer PHCs. Our analysis shows that disparity in the public health infrastructure leads to undesirable public health outcomes. The trend once again underscores that the success of any public health intervention is closely tied to the significant presence and involvement of public healthcare institutions.

Figure 10.

Source: Authors’ calculation based on data from National Health Profile 2020.

Lessons from the Pandemic for Public Provision and Equity in Healthcare

The pandemic revealed the fault lines of the privatisation of healthcare, which is a fundamental right of life. Also, the pandemic experience uncovers the current inadequate and unequal provision of public healthcare in India. Effectively managing a public health emergency is impossible without a robust public provision. At the same time, the pandemic experience and the public discourse on healthcare provision raise serious concerns. First, the increasing fiscal asymmetry among the states and between union and states is a fundamental problem in India’s provision of healthcare. With the growing fiscal imbalance between union and state governments, the latter’s dependence on the former has increased.

Moreover, events such as the COVID-19 pandemic have revealed the weakness in Indian fiscal federalism. The Comptroller and Auditor General (CAG) indicators show that the state receipts registered a 5% contraction, while expenditure grew in a similar quantum. The delay in transferring GST compensation and a couple of states attempting to bypass the union indicates a lack of cooperative federal spirit (Sengupta & Jha, 2021).

Second, the increasing concentration of fiscal resources and the increasing role of union in health strategy poses a dilemma to the Indian public healthcare system. Uniform health policies pose a risk of ignoring varied disease burden patterns across states in India. With poorer states lagging in epidemiological transition and rich states experiencing an increase in non-communicable diseases (Dandona et al., 2017), a greater flow of untied resources offers a flexible approach to achieving universal healthcare. The pandemic management highlighted the inadequacy of an approach to public healthcare provision that lacks consultation and cooperation. Several regional experiences of decentralised management have proven successful in containing the pandemic. Strengthening state and local governments in formulating and managing local healthcare policies is a preferable alternative. The procurement of vaccinations has demonstrated that the union government can effectively address specific healthcare provision challenges. The union government should complement the efforts of state governments by devolving resources, procuring essential supplies and investing in Research and Development (R&D). The union government needs to play a crucial role in standardising medical practices and outcomes while allowing fiscal resources to remain with the states.

Third, the attempt to privatise the existing public healthcare facilities and increase the share of the private sector in healthcare provision poses formidable obstacles in ensuring universal access. NITI Aayog has been pitching the privatisation of public healthcare institutions and ensuring universal healthcare through public-funded insurance. The experience from the pandemic shows the necessity of the increased presence of the state in healthcare. The data shows a vast disparity among states not only in terms of public provision but also in terms of private players. In light of the poor performance of private players and frequent market failure in the healthcare sector, the arguments for privatisation in healthcare need to be revisited. The private sector alone cannot ensure universal access and achieve the social goals of healthcare.

Strengthening public healthcare provision demands increased resource allocation to overcome existing shortcomings. The Rural Health Statistics for 2021–2022 highlight notable deficiencies in health infrastructure and human resources. In rural areas, primary health centres register a deficit of 32%, while in urban areas, the shortfall is closer to 40%. According to Rural Health Statistics of 2022, 22% of sanctioned posts of doctors in rural PHCs remained vacant. The shortage of healthcare workers and healthcare facilities needs to be addressed as a top priority. The average cost of operating a PHC amounted to ₹80 lakhs in 2019 (Table A2). Given the shortage of health centres, a 25% increase in current expenditure is necessary to address the deficit in service provision. According to the National Health Account, aggregate public health spending for 2019–2020 was less than 2% of GDP. Therefore, it is imperative to increase public health expenditure to 6% of GDP to achieve universal healthcare.

Conclusion

In this research, our central argument is for the public provision of healthcare against the backdrop of asymmetric fiscal federalism in India. Universal healthcare is a sine qua non for a functional democracy. India is a unique and diverse country on many counts, coupled with a significant portion of the population lacking primary healthcare access. Private mechanism in healthcare suffers from distortions including asymmetric information and moral hazard in the healthcare system in the country. We show the necessity of prioritising the establishment of a comprehensive, inclusive and accessible healthcare system capable of withstanding emergencies. A sustained and substantial investment in public healthcare is indispensable to bridge inter-state disparities and ensure universal access.

Our study reveals that disparities in the availability of health infrastructure and health professionals in public sector hospitals across states pose a substantial challenge to achieving universal healthcare. The escalating concentration of resources at the union level, coupled with widening economic growth disparities among states and increased state dependency on grants, impacts the autonomy of states and disrupts equity in healthcare provision. Addressing both vertical and horizontal fiscal imbalances necessitates the devolution of increased resources to states. While the union government should adopt a supportive role, fostering cooperative federalism through consultative processes with state governments, it is equally crucial for states to actively cooperate with the union in standardising healthcare practices. This collaborative approach ensures public provision with equity, upholding the principles of cooperative federalism.

Footnotes

Acknowledgements

We thank the editor and two anonymous reviewers for their constructive critique and excellent suggestions. Any errors that remain are our own. The present article is part of the PhD dissertation of first author. The earlier version of the paper was presented at Twenty Fifth Annual Conference of the Indian Political Economy Association held at the University of Hyderabad, Hyderabad between March 24–25, 2022.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

Appendix

Table A3.

Expected Cost of Primary Care.

Health Centre	Average Expenditure per Health Centre (in ₹ Crores)	Required Number of Health Centres	Expected Cost (in ₹ Crores)
PHC	1.11	41258.00	45796.38
SHC	0.06	193310.00	12168.83

Source: Authors’ calculation based on data from RHS 2021–22.

Note: PHC: Primary health centre; SHC: Sub-health centres.

Notes

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