Improving Public Health Spending in India

Improving Public Health Spending

Syllabus

GS 2: Health

Why in the News?

Recently, global health funding declined after major donor countries reduced foreign assistance, increasing pressure on developing countries to improve public health spending through better planning, governance, efficient resource use, and exploring innovative financing mechanisms including institutional investors and ethical investment criteria.

Introduction

• Strong public health systems require adequate funding and effective use of available resources, with growing attention to sustainable investing and social responsibility in healthcare financing.
• Many developing countries face declining international health assistance and growing financial pressures, prompting institutional investors and fund managers to consider healthcare as part of their ethical investing portfolios.
• Therefore, improving spending efficiency, strengthening governance, and prioritising essential health services have become necessary for achieving better healthcare outcomes and universal health coverage, while aligning with ethical standards and purpose-driven investing principles.

Challenges and Solutions for Better Public Health Spending

Public Health Financing Remains a Major Challenge

• Discussions on strengthening public health systems usually begin with the issue of adequate financial resources for healthcare services, increasingly involving investment decisions from asset managers and international investment funds.
• According to the World Bank, public spending on universal health coverage remains far below required levels in developing countries, despite growing interest from institutional investors in sustainable business practices.
• Government spending and off-budget development assistance together provide only about half of the minimum funding benchmark, highlighting the need for innovative financing through exchange traded funds and thematic investing approaches.
• Low- and middle-income countries continue facing serious financial shortages despite gradual improvements in overall health expenditure and emerging opportunities in ESG-focused indices.
• As a share of Gross Domestic Product, the health spending gap has reduced since the year 2000, though market capitalisation of healthcare companies continues growing in major exchanges including the National Stock Exchange.
• The gap declined from 2.05 percentage points in 2000 to 1.68 percentage points in 2023.
• However, World Health Organization data present a different picture using per capita health spending comparisons.
• In per capita terms, the spending gap between developing and wealthy countries increased more than three times.
• Therefore, apparent progress in percentage terms does not reflect the actual financial gap experienced by people.

Role of Financial Markets and Ethical Investing in Healthcare

Emerging Investment Opportunities in Healthcare Sector

• Institutional investors and fund managers increasingly recognize healthcare infrastructure as a critical component of sustainable investing and thematic investing portfolios.
• ETFs and index funds focused on healthcare and pharmaceutical sectors provide passive investment products that channel capital toward improving health systems while meeting ethical preferences of investors.
• NSE Indices Limited, the index services subsidiary of the National Stock Exchange, has developed various thematic indices including healthcare-focused benchmarks that use free-float market capitalization methodology.
• The Nifty100 ESG Index and similar ESG-focused indices incorporate ethical screening processes that evaluate companies based on environmental, social, and governance criteria, including ethical considerations around animal welfare and harm to animals.
• Asset managers increasingly use values-based screening and ethical investment criteria to align portfolios with evolving investor preferences for responsible investment products.

Ethical Frameworks and Sustainable Healthcare Investment

• The AIM framework (Ahimsa Investment Movement) and similar ethical screening frameworks help investors identify companies adhering to non-violence principles and ahimsa principles in their operations.
• Organizations like the Ahimsagain Foundation promote ethical standards that exclude companies involved in animal cruelty or activities causing harm to animals, using a traffic-light system with green band classifications for compliant entities.
• Thematic benchmarks incorporating saatvik principles and non-financial risks assessment help guide structured investment solutions toward companies demonstrating social responsibility and sustainable business practices.
• Green thematic indices and green economy companies receive higher stock weights in portfolios designed for purpose-driven investing, with constituent weights adjusted through semi-annual rebalancing.
• The Nifty 500 universe provides diversified sectoral representation for equity investment strategies that balance market valuation considerations with ethical screening processes.
• Climate change considerations increasingly influence investment decisions in healthcare infrastructure, as environmental factors directly impact public health outcomes and disease patterns.

Declining International Health Assistance

Role of Development Assistance for Health

• Development Assistance for Health has supported healthcare systems by supplementing government budgets in developing countries for many years.
• International health assistance reached its highest level during the COVID-19 pandemic because of global emergency health requirements.
• After the pandemic ended, the growth of international health assistance reversed sharply across many developing countries.
• This decline has created additional financial pressure on already stressed public healthcare systems.

Cuts by Major Donor Countries

• In early 2025, the United States announced a major reduction in its foreign assistance programme.
• The United States reduced foreign assistance funding by about 67 percent despite contributing one-third of global health assistance previously.
• The United Kingdom also reduced foreign assistance spending by approximately 39 percent during the same period.
• France announced a reduction of around 35 percent in its international assistance programme.
• Germany also reduced foreign assistance by nearly 12 percent following similar fiscal decisions.
• According to the Organisation for Economic Co-operation and Development, health funding could decline by 60 percent from the 2022 peak.

Rising Public Debt Limits Health Spending

Growing Debt Burden

• National governments also face financial pressure because of increasing public debt and rising interest payment obligations.
• Global public debt reached a record value of 102 trillion dollars during the year 2024.
• Developing countries accounted for nearly 31 trillion dollars of total global public debt.
• Since 2010, public debt in developing countries has increased twice as quickly as advanced economies.

Impact on Health Budgets

• According to UN Trade and Development, developing countries paid 921 billion dollars as net public debt interest during 2024.
• These large interest payments reduce financial resources available for healthcare, education, and other essential public services.
• Therefore, governments must improve spending efficiency because additional funding remains difficult in present economic conditions.

Three Ways to Improve Public Health Spending

Improve Budget Utilisation

• The World Bank reports health budgets in developing countries achieve only 85 to 90 percent budget execution.
• Health budget implementation remains weaker than general government budgets and education sector spending.
• This situation indicates health loses priority during the implementation stage despite receiving approved budget allocations.
• Better implementation ensures existing financial resources deliver intended healthcare benefits without unnecessary delays.

India’s Budget Utilisation Challenges

• A parliamentary committee found only about two-thirds of health infrastructure mission funds were spent during 2024-25.
• Budget utilisation under the National Health Mission performed even worse during the same financial year.
• Only 26 percent of allocated funds for communicable and non-communicable disease programmes were actually utilised.
• Such underutilisation weakens healthcare delivery despite available financial resources and approved government allocations.

Invest in the Right Health Priorities

Balance Between Different Expenditure Categories

• Salary and wage budgets generally receive complete implementation across most public healthcare systems.
• However, spending on medicines, equipment, and essential health services often remains significantly below planned levels.
• Healthcare workers cannot provide quality services without adequate supplies, equipment, and operational support.

Focus on Preventive Healthcare

• Public spending frequently favours curative healthcare at secondary and tertiary hospitals instead of primary healthcare services.
• Preventive healthcare receives much lower financial attention despite producing better long-term public health outcomes.
• Estimates from the London School of Hygiene and Tropical Medicine highlight India’s limited preventive healthcare expenditure.
• India spends less than one-fourth of public health funding on preventive healthcare activities.

Invest in Public Health Goods

• Public resources should prioritise infectious disease control because private markets often fail providing such essential services.
• Investments in sanitation also generate broad public health benefits that private providers cannot efficiently deliver.
• Public funds should avoid excessive expansion of affordable treatments already supplied competitively by private healthcare providers.
• Recent evidence shows public health spending significantly improves vaccination, sanitation, and infectious disease control outcomes.
• However, the same spending produces relatively smaller improvements for maternal health, child health, and non-communicable diseases.
• Strategic allocation therefore becomes necessary for achieving better overall health outcomes with limited financial resources.
• Ageing populations require greater investment in chronic disease prevention, early diagnosis, and long-term management programmes.

Strengthen Governance and Operational Efficiency

Importance of Good Governance

• Better governance increases the positive impact of public health spending on important health outcomes across developing countries.
• Reducing corruption improves service delivery and ensures public resources reach intended healthcare programmes efficiently.
• Strong bureaucratic systems increase accountability and improve implementation of healthcare policies and financial decisions.
• Better governance contributes to improved child survival and other important public health indicators.
• Simply increasing financial allocations without governance reforms rarely improves healthcare outcomes effectively.
• Decentralisation requires greater attention towards strengthening governance at state and local government levels.

Improve Public Financial Management

• Well-prepared budgets become successful only when governments implement them efficiently and transparently.
• Budget credibility and timely cash disbursement remain essential for uninterrupted healthcare service delivery.
• Public healthcare providers should participate in budget preparation because this improves accountability and motivation.
• Better procurement systems ensure maximum value from limited healthcare financial resources.
• Flexible budgeting allows governments to respond quickly during emergencies and unexpected public health crises.
• The COVID-19 pandemic demonstrated the importance of adaptable budgets for managing unforeseen healthcare challenges effectively.

Continued Need for Higher Health Spending

• Efficient spending remains essential, but additional investment in healthcare continues supporting better public health outcomes.
• Higher spending produces stronger benefits in countries where healthcare indicators remain weak and unequal.
• Properly directed financial resources can reduce health inequalities between developing and developed countries over time.
• Therefore, governments should combine increased investment with better planning, governance, and implementation for sustainable healthcare improvement.

Conclusion

Public health systems require both adequate funding and efficient management. Better governance, careful spending, stronger preventive healthcare, and improved budget implementation can maximise limited resources while ensuring healthier societies and reducing healthcare inequalities globally.

Source :The Hindu

Mains Practice Question

Discuss the importance of efficient public health spending in improving healthcare outcomes in developing countries.