While this year’s budgetary allocation towards health signals a continued investment, it does little to address the long-standing resource gap in public health infrastructure
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Good governance, FM Nirmala Sitharaman reminded the nation, was about being responsive—a government that keeps an ear to the ground and a finger on the pulse of the people. Citizens look to leadership for policies that strengthen the foundations of public welfare. This expectation is all the more important for healthcare, where access and affordability shape the well-being of millions.
Healthcare spending in India has witnessed an incremental rise in the last decade, yet it continues to fall short of the National Health Policy (2017) recommendation that public health expenditure should account for 2.5 per cent of Gross Domestic Product (GDP). The 2025 Union Budget was expected to prioritise this goal and the growth of the health sector, and experts called for a substantial increase in allocations to the current healthcare spending to meet the growing demands. Public health advocates had also pushed for a dedicated healthcare cess, with a 35 percent GST (Goods and Services Tax) on tobacco and sugary products, which did not find a place in this year’s budget.
The 2025 Union Budget was expected to prioritise this goal and the growth of the health sector, and experts called for a substantial increase in allocations to the current healthcare spending to meet the growing demands.
The government has allocated INR 95,957.87 crore to the healthcare sector for FY26 (Fiscal Year), a 9.46 percent increase from the FY25 budget estimates. While this figure signals a continued investment in this sector, it does little to address the long-standing resource gap in public health infrastructure. This year, the healthcare sector accounts for 1.94 percent of the total budget, reflecting a declining trend compared to previous years. From 2017 to 2023, healthcare allocations consistently remained above 2 percent of the total budget, except during the COVID-19 years when emergency spending temporarily boosted the share. However, for the past two years, the proportion has declined which raises concerns.
Moreover, the allocation structure continues to diverge from NHP 2017, which envisioned two-thirds of the health budget being directed towards primary healthcare. Instead, this proportion remains at around 40 percent*, with the National Health Mission (NHM)—witnessing a declining share within the overall health budget in the last five years. This shift signals a preference for tertiary care investments such as AIIMS over strengthening preventive and primary healthcare—a trend that contradicts global best practices.
The allocation structure continues to diverge from NHP 2017, which envisioned two-thirds of the health budget being directed towards primary healthcare.
The Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB PM-JAY) also received an allocation of INR 9,406 crore, around a 29 percent increase from last year’s budget, while the Pradhan Mantri Ayushman Bharat Health Infrastructure Mission (PMABHIM) was granted INR 4,200 crore, marking a 40 percent increase from the previous year. These hikes reflect the recent expansion of PMJAY to include all 70+ population and the focus on tertiary infrastructure.
Table 1: PMJAY and PMABHIM Allocations as a percentage of the Health Department Budget, Sourced from budget documents. (1), (2), (3) and (4).
| Year | PMJAY Budget (INR Crores) | Total Department of Health and Family Welfare Budget (INR Crores) | Proportional Percentage PMJAY | PMABHIM Budget (INR Crores) | Proportional Percentage PMABHIM |
| 2021-22 | 6400 | 71,268.77 | 8.98 | - | |
| 2022-23 | 6412 | 83,000 | 7.72 | 4176.84 | 5.03 |
| 2023-24 | 7200 | 86,175 | 8.35 | 4200 | 4.87 |
| 2024-25 | 7300 | 87,656.90 | 8.32 | 3200 | 3.65 |
| 2025-26 | 9406 | 95,957.87 | 14.26 | 4200 | 4.37 |
One of the key missed opportunities was the push for a unified 5 percent GST on all healthcare goods and services, which experts had argued could lower the input costs for hospitals and medical providers. Instead, fragmented tax structures and high GST rates on essential medical products will continue to remain an ongoing challenge.
Despite the rising costs, the penetration of Insurance in India is low, especially among the ‘missing-middle’ (middle-class families) and workers from the informal sectors. An anticipated budgetary measure was the reduction of GST on health insurance premiums from 18 percent to 5 percent, a move that could have made policies more affordable and expanded coverage. Similarly, increasing the tax deduction limit under Section 80D from INR 25,000 to INR 50,000 was expected to provide further incentives for individuals to invest in their health. However, the budget did not address these demands.
Figure 1: Health Insurance and Financial Incentives, Compiled by Author from (1), (2), (3) and (4).
The Union Budget 2025’s increase in the exemption threshold for Income Tax from INR 7,00,000 to INR ~12 lakh annually can be expected to boost disposable income, which could potentially drive higher insurance penetration. While the budget maintains the status quo on health insurance, it misses the opportunity to introduce reforms that could have significantly improved affordability.
A closer look at Figure 1 highlights the key expectations from this year’s budget, including GST relief, redirected ESIC funds, pension scheme unification, and tax deductions on life insurance annuities, yet most remained absent.
The COVID-19 pandemic brought to attention the longstanding gaps in healthcare infrastructure, creating an urgent need for investments in hospital capacity, beds, disease surveillance, and workforce expansion. The National Health Mission (NHM) received INR 37,226.92 crore to improve disease surveillance, advanced testing facilities, and emergency preparedness. However, NHM, the government’s flagship programme, has remained largely status quo, with no major budgetary allocations.
Table 2: NHM Allocations as a percentage of the Health Department Budget, Sourced from budget documents (1), (2) and (3).
| Year | NHM Budget (INR Crores) | Total Department of Health and Family Welfare Budget (INR Crores) | Proportional Percentage |
| 2021-22 | 36,575.50 | 71,268.77 | 51.32 |
| 2022-23 | 28,859.73 | 83,000 | 34.77 |
| 2023-24 | 29,085.26 | 86,175 | 33.75 |
| 2024-25 | 36,000 | 87,656.90 | 41.06 |
| 2025-26 | 37,226.37 | 95,957.87 | 38.79 |
Another big announcement was the establishment of 200 cancer centres in FY26, alongside the facilitation of day-care cancer centres in district hospitals over the next three years, which could prove instrumental in addressing a major gap in oncology care.
Medical education also saw a significant push, with plans to add 10,000 additional medical seats in the coming year, which will contribute toward a long-term goal of adding 75,000 seats over the next five years. This budget acknowledged the need for more doctors and specialists, noting that 1.1 lakh undergraduate and postgraduate seats had been added over the past decade, a 130 per cent increase. However, despite expectations, there were no major announcements regarding public-private partnerships (PPPs) to enhance medical education in Tier-2 and Tier-3 cities, alternative financing mechanisms to support students or creating a structured faculty pool to meet the growing demand for medical educators.
The budget also outlined initiatives under the ‘Heal in India’ programme. With an INR 20,000 crore allocation for tourism, this includes streamlining visa processes for faster access by international patients, as well as partnerships with the private sector. Experts had called for the establishment of specialised medical tourism zones modelled after Special Economic Zones (SEZs) with tax incentives. With no concrete steps outlined, the expectation remains that future policy measures might address this point.
The Union Budget 2025 took steps to address affordability and accessibility by exempting 36 life-saving drugs from Basic Customs Duty (BCD) and adding 37 new medicines and 13 patient assistance programmes. To strengthen domestic manufacturing, the Production Linked Incentive (PLI) scheme for pharmaceuticals received an allocation of INR 2,445 crore, continuing the government’s push for self-reliance in API (Active Pharmaceutical Ingredient) and MedTech production. However, industry stakeholders had called for broader financial incentives, including weighted tax deductions for R&D to accelerate drug discovery, absent from the budget. As shown in Figure 2, expectations for a significant R&D push and regulatory reforms remain unmet. Industry leaders had also sought higher RoDTEP (Remission of Duties and Taxes on Exported Products) incentives to boost India’s pharmaceutical exports.
Figure 2: Pharmaceutical and MedTech, Compiled from (a), (b), (c), (d) and (e).
While curative healthcare often dominates budget discussions, preventive healthcare remains the most cost-effective strategy for improving public health outcomes. The 2025 Union Budget saw some commitments toward preventive care, particularly in cancer treatment infrastructure. However, key gaps remain in areas such as vaccination programmes. Figure 3 provides a snapshot of the key expectations and gaps in preventive healthcare measures.
Figure 3: Preventive Healthcare, Compiled from (i), (ii) and (iii).
Industry stakeholders urged for an overhaul, advocating for the need for targeted incentives to boost R&D, streamlined GST structures, and expanded financial support for healthcare investments. A key demand was the rationalisation of GST rates on medical devices and essential healthcare goods, ensuring affordability for both providers and patients. Figure 4 illustrates these critical industry demands and highlights the need for fiscal measures.
Figure 4: GST and Tax Reforms, Compiled from (I), (II) and (III).
The Union Budget delivered incremental gains for healthcare, particularly in tax exemptions, coverage of informal sector workers, and cancer care, but left critical gaps. Surprisingly, the budget remained silent on the impending demographic crisis and the urgent need for home, ambulatory care and geriatric care, both critical for an aging population and a shifting disease burden. Without deeper structural reforms in funding, taxation, and regulatory incentives, future policies must take a more aggressive approach to bridge these gaps.
K.S. Uplabdh Gopal is an Associate Fellow with the Health Initiative at the Observer Research Foundation
* Calculated by the author from the budget documents
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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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