exploring impact of India’s federal architecture particularly its tax-sharing structure and system of fiscal transfers, on the state of country’s healthcare
Abstract
This paper explores the impact of India’s federal architecture, particularly its tax-sharing structure and system of fiscal transfers, on the state of the country’s healthcare. It examines the existing system of intergovernmental transfers and pays particular attention to the Fourteenth Finance Commission’s new devolution framework that has enhanced the previously constrained fiscal spaces of states. This, in turn, will likely have implications on India’s overall performance in healthcare.
Introduction
Like in most federal countries[i] in the world, healthcare in India is listed as a State subject—meaning that states are the primary agents tasked to deliver health-related services. For India, this setup has met with various issues as under existing federal arrangements, states are not vested with adequate financial powers to meet their expenditure responsibilities. After all, the Centre holds maximum control over tax revenues. The pathway to bridge such gaps is through loans and intergovernmental transfers (from various central ministries to states and local governments). This apart, as most federal countries routinely do, the central government makes specific-purpose transfers or grants on critical areas such as health and education. For example, the Union Government runs the National Rural Health Mission (NRHM), one of the largest healthcare programs in the country catering to the health needs of the rural poor. Of course, states have their own resources to design and implement social schemes in their own ways.[ii] Beyond finance, the federal government plays a dominant role in the setting up and management of institutions, health infrastructure and policies—such architecture creates an impact on the state’s health outcomes which, in turn, affect the country’s overall ranking in healthcare. It is the federal government that frames and anchors a wide variety of national programs such as those concerned with diseases like leprosy, malaria, polio, tuberculosis and HIV/AIDS.
Thus, the current power sharing arrangement between the centre and states is such that the federal government carries the most responsibility in decision-making. How has this addressed the issues of access, equity and regional inequalities in healthcare? Has the multiple levels of intergovernmental transfers—in particular, the specific-purpose transfers to the health sector—achieved the desired goals? To be sure, these central transfers have many positive effects in terms of creating institution, building infrastructure and improving healthcare delivery, particularly under NRHM.[iii] Evidence suggest, however, that the federal transfers architecture has generally failed the country’s healthcare system. Proof of this is the country’s poor showing in key health indicators. In fact, many of India’s poorer neighbouring countries perform better on several indicators. Given that the states are mostly in-charge of program implementation (besides shouldering the bulk of the financial burden) they are to be held accountable for the country’s poor performance in key health parameters. But this paper’s aim is not to pin the blame solely on either the Centre or the States for the challenges facing the country’s healthcare; rather, the imperative is to examine the current institutional architecture for healthcare.
This paper seeks to understand the correlation between India’s federal system, existing inter-governmental mechanisms for resource transfers, and policies and schemes to achieve health goals. It also studies the likely implications of the recommendations made by the Fourteenth Finance Commission (FFC) on health outlays.
Healthcare in India: A Snapshot
The opening words of the draft National Health Policy (NHP) 2015 perhaps best illustrate the state of healthcare in the country: “India today, is the world’s third largest economy in terms of its Gross National Income (in PPP terms) and has the potential to grow larger and more equitably, and to emerge to be counted as one of the developed nations of the world. India today possesses as never before, a sophisticated arsenal of interventions, technologies and knowledge required for providing health care to her people. Yet the gaps in health outcomes continue to widen. On the face of it, much of the ill health, disease, premature death, and suffering we see on such a large scale is needless, given the availability of effective and affordable interventions for prevention and treatment.”[iv]
This is not to say that there has been no progress at all in India’s healthcare. Indeed, gains have been achieved in certain health areas;[v] the overall picture, however, is that of a nation that remains beset with huge challenges. For example, the proportion of underweight children in India has gone down from 53.5 percent in the 1990s to 40 percent in 2015. However, this performance is well below the global goal of 26 percent. Similarly, India has missed—by a significant 65 points—the Millennium Development Goal for maternal mortality ratio (MMR) of 109 per 100,000 live births by 2015.[vi]
India’s performance in infant mortality rate (IMR) has also been below par, at 38 per 1000 live births. The country’s poorer neighbours have achieved more in this area: for Bangladesh and Nepal, IMR is much lower at 33 and 32 per 1000 live births, respectively (see Table 1).
India’s performance varies across states and regions. For instance, the difference in infant mortality rate between the best-performing state of Goa and the worst performing states (Madhya Pradesh and Assam) is nearly six-fold. Further, sharp variations are to be found across social groups. The dalit and adivasi, for example, are over-represented among India’s undernourished children.[vii]
Among the primary reasons for the country’s poor showing on health is the continued low levels of public spending, which today represents less than 30 percent of total health spending. This represents only about 1.04 percent of GDP, which is approximately 4 percent of total government expenditure. Numerically, this translates to INR 957 per capita at current market prices. The Central Government share of this is INR 325 (0.34 percent of GDP) while State Government share translates to Some INR 632 per capita at baseline scenario. Global evidence on health spending suggests that unless a country spends at least five to six percent of its GDP on healthcare—and the major part of it is from government expenditure—basic healthcare needs are rarely fulfilled.[viii]
Other factors that contribute to underachievement in health include flawed policies, a lack of capacity, inefficiency, and the weak execution of programmes. Corruption worsens the situation further.[ix] Yet very few analysts talk about the institutional and political aspects contributing to the poor delivery of healthcare services in the country. In many ways, India’s ailing healthcare system has roots that go deeper into the country’s federal system, the inter-governmental transfers system, and centralised policies and schemes.
Table1: Key Health Indicators: India vs. Neighbours
| Indicator | India | China | Bangladesh | Sri Lanka | Pakistan | Brazil | Nepal |
| Infant Mortality Rate (per 1000 live births) | 38 | 9 | 31 | 8 | 66 | 15 | 29 |
| Under-5 Mortality rate (per 1000 live births) | 48 | 11 | 38 | 10 | 81 | 16 | 36 |
| Maternal mortality ratio (per 100,000 live births) | 174 | 27 | 176 | 30 | 178 | 44 | 258 |
| Per capita government expenditure on health (PPP, $) | 75 | 420 | 31 | 127 | 36 | 947 | 40 |
| Out-of-pocket health expenditure | 89.2 | 72.3 | 92.9 | 95.8 | 86.8 | 47.2 | 79.9 |
Source: World Health Statistics Report, 2015 and The World Bank Data 2015.
Healthcare and India’s Federal System: Issues and Challenges
The Constitution of India defines the distribution of power between the Centre and the States under various heads, namely, legislative, administrative and executive. The legislative section is divided into three lists: Union list; State list; and Concurrent list. The Union list consists of 99 items on which the parliament has exclusive power. The State list consists of 61 items on which state legislature has exclusive power to make laws, and the Concurrent list has 52 items of joint responsibility.[x] Healthcare belongs to the State list: it is the states that carry the primary responsibility to deliver health-related services.
At the same time, however, states are not vested with adequate financial powers to meet their expenditure responsibilities. At present, States raise about 38-40 percent of total current revenues, while they incur on an average 58-60 percent expenditure on a range of items including health and family welfare.[xi] Such vertical fiscal imbalance (limited tax bases with maximum expenditure responsibility)—which is in-built in the original constitutional design[xii]—is addressed through the inter-governmental transfers carried out via multiple channels, mainly the Finance Commission (FC), the Planning Commission (PC)[xiii] and various central ministries. Of these, the Finance Commission plays the pivotal role. Appointed every five years, the FC is vested with powers to recommend the shares of personal income tax and union excise duty and grants-in-aid to the states. The transfers through the FC consist of general purpose transfers (formula-based tax devolution and block grants), specific purpose transfers (education, health), and state-specific grants (disaster relief and special needs).[xiv] Overall, The FC’s primary role is to recommend resource transfers aimed at correcting the vertical and horizontal fiscal imbalances in an equitable and efficient manner.[xv]
The second major source of transfers to states are plan grants and loans mainly by the Planning Commission (abolished in 2014) to meet non-plan requirements in the current account.[xvi] Although a large chunk of such transfers are discretionary in nature, like the FC, the PC too disbursed funds mostly on the basis of a formula (the Gadgil-Mukherjee formula)[xvii] mainly to bridge regional imbalances and address specific needs of the states concerned. Besides these two important channels, various Central ministries provide specific-purpose transfers to states to bridge financial gaps and to help states improve their key human development indicators (such as health, education, food security, and social safety). These transfers are carried out in the form of centrally sponsored schemes (CSS) to address issues of regional imbalances and income inequality, and promote cross-learning among states. On health alone, the Centre runs a number of flagship programmes such as the National Rural Health Mission (NRHM) and Rashtriya Swastha Bima Yojana (RSBY). There are also large programmes being managed by the Centre, like the Integrated Child Development Services (ICDS), which directly bear on health.
Beyond the instruments of central transfers, the federal government also dominates the policy and program architecture concerning the health sector in various other ways. Constitutionally speaking, the Centre’s dominance stems from the fact that while public health and sanitation, and hospitals, for example, are within the domains of the states, the tasks related to “population control and family planning” (Entry 20A), “legal, medical and other professions” (Entry 26) are in the “concurrent list”—which means they fall under the jurisdiction of the Union Government. Moreover, institutions and organisations declared by parliament to be of national importance and institutions for professional and technical training and research come under the purview of the Union Government.[xviii] As a consequence, key policies and the planning framework for the health sector have been provided by the Central government, contrary to the response of most federal countries. In the real sense, it is the federal government that frames and anchors various national programmes (such as vertical programmes for leprosy, tuberculosis, blindness, malaria, smallpox, diarrhoea, filaria, goitre and HIV/AIDS) in which the states have little say in deciding the design and components. This, in some sense, goes against the spirit of “cooperative federalism”[xix] as it distorts the principles of subsidiarity. The larger question is this: Has such a Constitutional arrangement effectively addressed the issues of access, equity and regional inequalities in healthcare?
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