The Union Budget 2024 saw interesting reallocation decisions within the health sector, which moved funds from schemes with low utilisation to those with high utilisation
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This essay is part of the series "Budget 2024-25"
As the first Budget of the Modi 3.0 cabinet after the election victory, expectations were high on new announcements within the health sector, particularly given the dip in utilisation of allocated resources within the sector in 2022 and 2023. In particular, there were media reports in the run-up to the Budget speech about the Bhartiya Janata Party’s (BJP’s) election promise of making Ayushman Bharat- Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) universal to all citizens of India aged 70 and above, being in the budget priority list. However, this year’s health budget has very little regarding new announcements, and the outlay has remained almost the same as the interim budget in February. While the overall budgetary allocation remains almost the same, there are some interesting reallocation decisions within the health sector, which moved funds from schemes with low utilisation to those with high utilisation, and the National Health Mission (NHM) has been a big gainer in this move.
Earlier this year, Observer Research Foundation, with the World Economic Forum (WEF), the London School of Economics and Political Science (LSE), AstraZeneca, and other partners, published a report titled Sustainability and Resilience in the Indian Health System, which emphasised the need for a robust and adaptable health system in India. To achieve this, we recommended boosting public health investments, strengthening communication and coordination between the Central and local governments, and simplifying major initiatives to reduce complexity and enhance effectiveness.
Despite the slowdown in health sector fund utilisation seen in the post-pandemic years, it certainly sends a positive signal that allocations remain at the levels of the pandemic phase, and schemes like NHM managing utilisation are getting more funds. At the same time, India remains far away from the 2.5 percent of GDP for health, which the government has set itself. This article will analyse the current union budget’s health numbers with a historical perspective, and examine the internal reallocations that have happened between February and July 2024.
In the recent Union Budget speech, “health” was mentioned in contexts such as developing Digital Public Infrastructure (DPI) applications for health services, adopting a saturation approach for inclusive development in human resource, and leveraging technology to improve health access. Notably, the speech also mentioned setting up new medical colleges in Bihar, exempting three essential cancer drugs from custom duty, and duty reductions for certain components used in medical X-ray machines to enhance domestic manufacturing capabilities. The finer details also removed duties on plastics and certain alloys needed for orthopaedic implants and artificial body parts. The duty on PVC flex banners was increased from 10 percent to 25 percent to curb its hazardous footprint on the environment and public health. Additionally, the Budget focused on climate finance, aiming to develop a taxonomy to bolster the availability of capital for climate adaptation and mitigation. This initiative could be crucial as climate resilience is a key social determinant of health at the nexus of public health and environmental sustainability.
Graph 1 represents the health sector’s budget and expenditure over a decade in Indian union budgets, from FY13-14 to FY24-25. The overall trend shows increased health budgets and expenditures over the years.
Graph 1 represents the health sector’s budget and expenditure over a decade in Indian union budgets, from FY13-14 to FY24-25. The overall trend shows increased health budgets and expenditures over the years. Utilisation rates have varied, with a peak of 120 percent during the COVID era, indicating expenditures exceeded the budget during a critical pandemic year, which has now dipped to 88 percent in FY22-23. The budget (Budget Estimate) experienced a Compound Annual Growth Rate (CAGR) of approximately 9.19 percent from FY13-14 to FY24-25 (11 Years), with a Year-over-Year (YoY) growth rate of around 3.11 percent from FY23-24 to FY24-25. The high utilisation rates across the health sector and its ministries suggest a need for flexible and responsive budget planning to address public health needs and emergencies.
Graph 1: A Decade of the Health Sector in Union Budgets
Graph 2 compares budget utilisation percentages across various ministries between FY13-14 and FY22-23 and could be seen as a snapshot of the decade. It highlights the changes in utilisation of the health sector and MoHFW budget in comparison to other ministries that affect the Social Determinants of Health (SDoH), such as labour, R&D, water and sanitation, human resources, senior care and disability, women and child development, and housing. Most ministries show a distinct increase in utilisation over the decade. Ministries and Departments such as Drinking Water & Sanitation, and Housing & Urban Poverty Alleviation show significant improvements with rates increasing from 78 percent to 89 percent and 74 percent to 101 percent respectively.
Graph 2 compares budget utilisation percentages across various ministries between FY13-14 and FY22-23 and could be seen as a snapshot of the decade.
The rates for the health sector have improved from 81 percent to 88 percent, aligning with the overall trend of better budget management. It needs to be mentioned here the current utilisation level of 88 percent during the post-pandemic dip does not entirely capture the remarkable improvement in health fund utilisation we saw over the last decade (Graph 1). Additionally, the Ministry of Social Justice & Empowerment shows a lower utilisation rate of 64 percent in FY22-23, indicating potential challenges in execution. The Ministry deals with the empowerment of the disabled and also includes senior care programmes and drug rehabilitation. Improved coordination between health-related ministries can ensure a more well-rounded and streamlined approach to addressing the social determinants of health.
Graph 2: A Decade of Change: Budget Utilisation % FY13-14 vs FY22-23
Graph 3 shows that the sectors that cover the SDOH spectrum have seen an upward trend in budget allocation and actual expenditure over the past decade. Both higher education and school education departments, which represent the largest allocation among the ministries shown, have seen substantial budget allocations, with consistent and high utilisation rates over the years. The housing sector has seen large budget allocations, reflecting efforts to address urban housing and poverty. Drinking water and sanitation has also seen significant increases in budget allocation, especially in recent years, highlighting ongoing efforts under the Swachh Bharat Mission and the Har Ghar Jal initiative.
Graph 3 shows that the sectors that cover the SDOH spectrum have seen an upward trend in budget allocation and actual expenditure over the past decade.
The Health sector should continue increasing its budget allocations and ensure high utilisation across departments, especially in key areas like public health infrastructure, timely delivery, and workforce. The focus should lie on reducing out-of-pocket expenses for families and senior citizens by expanding public health financing and insurance coverage. Fostering innovation, R&D, and promoting evidence-based medicine in AYUSH can strengthen the sector’s global competitiveness.
Graph 3: Budget Estimates across Select Ministries
The trend lines displayed in Graph 4 present the health sector and its components as a percentage of the total union budget from FY13-14 to FY24-25. Despite the increased focus on health and improved allocations, the overall percentage of the budget allocated to the health sector has stagnated and is showing slow decline at around 2 percent. The MoHFW constitutes the largest portion of the health sector, indicating its critical role in managing public health. Both AYUSH and Pharmaceuticals have received consistent but small shares of the total budget, with a 15x expansion recently for the latter. By 2025, India has the stated objective of achieving a government spending of 2.5 percent of GDP on health, as envisioned in the National Health Policy 2017. Clearly, this target is going to be missed. The need for injection of substantial resources into the health sector—like the way done in sanitation, housing and drinking water—cannot be overstated.
Graph 4: The Health Sector as a % of Total Budget
In the context of the resource constraints and the recent trend of low utilisation within the health sector, Graph 5 explores the reallocation of resources between the February and July budgets. Interestingly, many relatively recent schemes like Human Resources for Health and Medical Education, NDHM, AB-PMJAY, and PM-ABHIM have seen cuts in allocation, and a substantial increase in allocation to the National Health Mission (NHM), which seems to have shown high absorptive capacity. In FY2023-24 as well, the revised estimates for NHM were substantially higher than the budget estimates. Plateauing of allocations to NHM has earlier been identified as a major cause for concern.
Graph 5: Reallocation of Health Resources: FY24-25 February vs July Budgets
While more money to NHM is certainly a positive development, it remains a fact that the money was taken from within the health sector, and no fresh funds were infused into the sector between the interim budget and the July budget. Graph 6 shows how the Department of Health and Family Welfare, Department of Pharmaceuticals and Ministry of AYUSH have virtually had the same allocation. This however delays the implementation of the expansion of AB-PMJAY to the elderly population and the creation of public infrastructure in medical education by at least one year.
Graph 6: Reallocation of Health Resources: FY24-25 February vs July Budgets
As with the interim budget in February, the need for injection of substantial resources into the health sector—like the way done in the housing and drinking water and sanitation sectors—remains to be fulfilled. NHM is identified by the 2024 Union Budget as a health scheme where funds are utilised and needed. We hope this leads to enhanced allocations that improve healthcare delivery at the last mile, along with steps towards universalisation of innovative initiatives like AB-PMJAY which leverages the strengths of India’s extensive private sector.
KS Uplabdh Gopal is an Associate Fellow with the Health Initiative at the Observer Research Foundation.
Oommen C. Kurian is Senior Fellow and Head of the Health Initiative at the Observer Research Foundation.
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Dr. K. S. Uplabdh Gopal is an Associate Fellow within the Health Initiative at ORF. His focus lies in researching and advocating for policies that ...
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Oommen C. Kurian is Senior Fellow and Head of Health Initiative at ORF. He studies Indias health sector reforms within the broad context of the ...
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