Budget 2026 outlines an ambitious vision for India’s health sector, but modest funding increases, persistent underspending, and muted fiscal action reveal a gap between policy intent and budgetary follow-through
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Finance Minister Nirmala Sitharaman’s Budget speech on 01 February opened with the announcement of Biopharma SHAKTI (Strategy for Healthcare Advancement through Knowledge, Technology and Innovation), an INR 10,000 crore government initiative designed to transform India into a premier global manufacturing hub for biologics and biosimilars over the next five years. This strategic mission directly addresses the nation’s shifting disease burden toward chronic non-communicable conditions like cancer and diabetes by fostering a robust domestic production ecosystem for affordable, high-quality medicines. Biopharma SHAKTI aims to bolster India's academic and research foundation by establishing three new National Institutes of Pharmaceutical Education and Research (NIPER) and modernising seven existing ones.Parallel to these plans, the government also intends to create a massive clinical trial infrastructure through a network of over 1,000 accredited clinical trial sites to accelerate research and development. Finally, the strategy includes a comprehensive regulatory overhaul of the Central Drugs Standard Control Organisation (CDSCO), which will involve hiring a specialised cadre of scientific reviewers to ensure that drug approval timelines and safety oversight meet rigorous global standards.
Despite increases in allocations to the health sector every year, actual spending has remained considerably lower in every year since 2021-22. Even last year, the revised estimates (RE) were below the Budget estimates (BE), with a real possibility that actual expenditure may fall further, as in the previous year.
Overall, the health allocations across three ministries—the Ministry of Health and Family Welfare, the Ministry of Ayush, and the Ministry of Chemicals and Fertilisers—have seen a modest increase of 7 percent this year, rising from INR 1,09,121 crore (BE 2025) to INR 1,16,870 crore (BE 2026). Figure 1 illustrates the allocations and the general direction of actual spending over the last nine union budgets. Despite increases in allocations to the health sector every year, actual spending has remained considerably lower in every year since 2021-22. Even last year, the revised estimates (RE) were below the Budget estimates (BE), with a real possibility that actual expenditure may fall further, as in the previous year. High vacancy positions in healthcare institutions and other systemic constraints impact the sector’s capacity to absorb incremental increases.
Source: Compiled and analysed by the author from Budget documents, various years.
The year 2025 saw some focused attention on health policy with a range of strong policy measures to protect public health. Aggressive strategies were championed by Finance Minister Nirmala Sitharaman, including substantial increases in central excise duties on cigarettes alongside a revised GST structure that places tobacco in the maximum demerit bracket. This fiscal intervention was designed to drive the total tax incidence on cigarettes from 53 percent toward the WHO-recommended 75 percent standard. This effort was further bolstered by the legislative passage of the Health Security se National Security Cess Act, 2025, which introduced a targeted levy on pan masala to further safeguard national health. Given the strength of tobacco-sector lobbies, these measures were widely viewed as a bold policy direction to safeguard citizens’ health.
Maintaining the momentum, the Economic Survey 2025-26 explicitly suggested exploring fiscal measures to curb the consumption of unhealthy food items, specifically targeting Ultra-Processed Foods (UPFs). The Survey proposed imposing the highest GST slab along with an additional surcharge on UPFs that exceed specific thresholds for sugar, salt, or fat content. It also discussed more extreme options, including a marketing ban on UPFs across all media between 0600 hours and 2300 hours, as well as stricter restrictions on the marketing of certain products targeting infants and toddlers.
This divergence between expected and actual spending under Jan Aushadhi is a major concern, and the underlying bottlenecks need to be identified and addressed.
The combination of higher tobacco taxes and the Economic Survey’s strong advocacy for fiscal action against unhealthy foods raised expectations within the health policy community that similarly robust measures would be announced to address junk food consumption and new age problems such as digital addiction. However, the Budget remained muted on several of the Economic Survey’s more radical and aggressive fiscal recommendations.
With more than 18,000 medical shops across the country selling generic medicines and delivering substantial household savings, Jan Aushadhi remains a key and popular health sector initiative. However, its budget allocation this year has seen a sharp reduction to INR 201 crore, down from INR 354 crore last year. In the 2024 Budget, the allocation was almost tripled from the previous year (Figure 2). However, the actual spending remained low. The upward trend in allocation continued even last year, but the revised estimates suggest low utilisation, resulting in a lower allocation this year. This divergence between expected and actual spending under Jan Aushadhi is a major concern, and the underlying bottlenecks need to be identified and addressed.
Source: Compiled and analysed by the author from Budget documents, various years.
The Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (PMJAY) is another major health sector intervention that has been expanding rapidly. Last year saw a substantial expansion of the scheme, with all Indians above the age of 70 being brought under its coverage. This means that if implemented effectively, the Central and State governments have underwritten hospitalisation costs for India’s senior population up to INR 5 lakhs per person per year. Given the high incidence of hospitalisation among older populations, this expansion was expected to necessitate a substantial upward revision in allocations for the scheme. Counterintuitively, last year’s revised estimate for PMJAY was lower than the budget estimate (Figure 3), pointing to a slow rollout. This may partly reflect low awareness among the target population, an issue that would require immediate remedial action.
Source: Compiled and analysed by the author from Budget documents, various years.
At the same time, the National Health Mission (NHM) has consistently recorded actual expenditure exceeding budget estimates over the last few years (Figure 4). This stands in stark contrast to the earlier days of the NHM, when funds were routinely unutilised year after year. The recent trend suggests a significant improvement in the NHM’s capacity to absorb funds, and should prompt higher allocations, particularly with a focus on strengthening comprehensive primary healthcare and establishing a working referral system across India.
Source: Compiled and analysed by the author from Budget documents, various years.
Budget 2026 signalled a robust expansion of India’s healthcare and wellness ecosystem by prioritising the care economy and large-scale professional skilling. Over the next five years, the government aims to add one lakh Allied Health Professionals (AHPs) across ten specialised sectors such as radiology and behavioural health, while training 15 lakh care workers to boost women’s workforce participation and support the elderly. This growing workforce will be integrated into five new Regional Medical Hubs designed to position India as a premier destination for Medical Value Tourism. Simultaneously, the Budget focuses on Ayurveda through the establishment of three new All India Institutes and the upgradation of the WHO Global Traditional Medicine Centre in Jamnagar to support evidence-based research, training, and awareness in traditional medicine.
Beyond its focus on medicine exports and wellness tourism, the Budget also places emphasis on specialised care and direct financial relief for patients through infrastructure and fiscal measures. It proposes a 50 percent increase in trauma care capacity across district hospitals and a landmark expansion of mental health services, including the establishment of NIMHANS-2 in North India, alongside upgrades to institutes in Ranchi and Tezpur. To alleviate the financial burden of chronic illness, the government has exempted 17 cancer medicines and several treatments for rare diseases from customs and import duties, while also reducing the tax collected at source on medical and educational remittances from 5 percent to 2 percent.
Budget 2026 signalled a robust expansion of India’s healthcare and wellness ecosystem by prioritising the care economy and large-scale professional skilling.
While digital health received limited attention, long-term physical wellness is addressed through the Khelo India Mission. Budget 2026 also prioritises the holistic empowerment and dignified livelihoods of Divyangjan through the Divyangjan Kaushal Yojana, which provides customised, industry-relevant vocational training in sectors such as IT and hospitality, and the Divyang Sahara Yojana, which ensures universal and timely access to high-quality assistive devices.
Health being a State subject, the majority of government spending in the sector comes from state governments. Figure 5 illustrates how transfers of resources to States—much of which comprise States’ share in central taxes—have improved over time. Progressive fiscal devolution has increased the capacity of Indian states to invest in the health sector, and evidence from recent years suggests that this is indeed taking place.
Figure 5: Total Central Transfers to States and UTs from 2017 to 2026 (INR Lakh Cr)
Source: Budget at a Glance, 2026
The imperative to infuse the health sector with the same scale of capital investment and policy priority accorded to the housing, drinking water, and sanitation sectors remains a project for the future. While the National Health Mission (NHM) continues to be recognised as a high-utilisation vehicle for funds, there is an expectation that this will translate into even deeper financial commitments to ensure last-mile service delivery. However, this year, it was the defence sector that received priority, with allocations rising by a whopping 20 percent.
Even as the elusive target of public health expenditure at 2.5 percent of GDP remains a critical long-term objective, the Budget’s emphasis on the care economy and preventive behavioural shifts points to a strategy aimed at building a more resilient and efficient health system within existing fiscal constraints.
Oommen C. Kurian is Senior Fellow and Head of the Health Initiative at the Observer Research Foundation.
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Oommen C. Kurian is Senior Fellow and Head of the Health Initiative at the Inclusive Growth and SDGs Programme, Observer Research Foundation. Trained in economics and ...
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