Fiscal Transfers from the Union to States and Healthcare in India

Abstract

The key focus of the study is to assess the role of fiscal transfers from the Union government compared to States’ own revenue in explaining their healthcare spending. The study found that both States’ own revenue and unconditional transfers from the Union impact their health spending. However, own revenue was more significant than unconditional fiscal transfers in explaining health spending by economically well-off states. In contrast, health spending by economically weaker states was determined solely by unconditional fiscal transfers from the Union. Generally, States were substituting their non-National Health Mission (NHM) health spending with NHM health spending. However, this substitution effect was  much less pronounced in the case of economically well-off states compared with economically weaker states. Post-NHM, there was a slight increase in horizontal inequalities. The intricate interplay between fiscal transfers and health spending by Indian states underlines the need for nuanced policy changes. A differentiated strategy is needed for economically well-off and economically weaker states to improve healthcare spending in the country.