Introduction

The unprecedented and unanticipated scale of the COVID-19 pandemic and the devastation it has caused has meant that countries have had to respond swiftly and efficiently to ward off economic, medical, and social crises of varying dimensions. Demographics, social and economic conditions, as well as the less-understood immunity factors combined with country-level policies around prevention and treatment determined to a large extent the rate of transmission, the magnitude of infection, and morbidity and mortality from COVID-19. While the world continues to battle COVID-19 and its impact on economies and societies, the question confronting countries is how to minimize the costs of illness and deaths and the overall impact of the pandemic.

The massive social and economic disruptions triggered by the pandemic required governments to undertake a series of measures to avoid the larger humanitarian crisis faced by countries in the wake of COVID-19. These have, in turn, depended on the economic health of the country and on the fiscal and monetary measures implemented to ease the financial situation for an adequate COVID-19 response [1].

Country-level health sector capacity has remained a key variable that has determined the extent to which countries have been able to cope with the impact of the pandemic, especially excess morbidity and mortality [2]. The need for governments to quickly mobilize enough resources for essential activities like testing, protective gear, and hospital bed availability has, therefore, been equally important. The ability of a country’s health sector to respond efficiently or its resilience in turn is determined by the cumulative investments that have been made over time to make the sector reasonably shock-proof. Even developed countries have been overwhelmed by the caseload on their health sectors and have highlighted the need to strengthen healthcare systems [3]. There are examples of how epidemics extracted a huge toll in countries that were ill-equipped to deal with even routine care [4]. While some argue that the pandemic requires the world to reimagine the dysfunctional system of global health, the same can be said about countries as well [5]. Many countries have recognized the gaps and weaknesses in their health systems during the pandemic and the benefits of strengthening their health systems so that costs are minimized the next time there is such a crisis.

Whether it is to build a resilient health system or to respond on an emergency footing to crises such as a pandemic, health finances have remained the fundamental policy tool of governments and development agencies [6]. A resilient health system has been described as one that is vigilant, responsive, flexible and adaptive, equitable and community-centric [1]. Adequate financing is necessary to move the health system toward a resilient one—a system that can cater to people under normal circumstances and respond equally well to emergencies.

Clearly, the impact of COVID on economics and societies will be felt over many years, and it is, therefore, important to analyze, reflect on, and understand the key lessons learnt, for now and later [7].

In this chapter, we examine the Indian health system and its financing using the lens of a crisis like the COVID-19 pandemic, point out the possible reasons for the way the country responded, the steps that were taken subsequently, including in the new budget, and conclude by discussing prognosis and prospects.

Responding to COVID in India and Health Sector Preparedness

The first confirmed case was detected in Kerala toward the end of January 2020 [8]. By January 12, 2021, India had a cumulative caseload of 10.5 million cases and 151,000 deaths. Though India still has the second highest cases of COVID-19 globally, belying expectations, India has also one of the lowest mortality rates. While a much higher burden of illness and death was anticipated halfway through the year 2020, it has been extremely serendipitous that India could avoid the very high burden of deaths witnessed by developed countries. Currently, official data shows that many states in India are experiencing a slowdown in new cases as well as in additional deaths. While some of this could be due to low testing, there is yet to be conclusive evidence on other reasons such as differential immunity that could explain these trends.

That testing remains low compared to other countries is a fact. Figure 13.1 indicates new tests per 1000 for selected countries with high total burden of COVID-19 cases sourced from the database Our World in data [9]. While India did manage to increase tests quite rapidly, it happened several months after the first case, around June 2020, and testing levels never reached the levels of these countries. New tests per 1000 remained low in India.

Fig. 13.1
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New tests smoothed/1000. Source Our World in Data

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This is better understood from Fig. 13.2 which shows new cases smoothed per million and new tests smoothed per 100,000. The figure shows that tests had been slow to increase till about June and increased to a peak around October, but since then the tests have declined somewhat. New cases have been coming down from October but so have been the tests. There always remains a possibility that had new tests increased at a rate similar to the earlier months, more cases would have been detected. However, it is certainly heartening to see the gap widening between tests and cases, something that could not have been anticipated when the pandemic started picking up momentum.

Fig. 13.2
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New tests and new cases, India. Source Our World in Data

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India’s position in total cases is second in the world, after United States, but its position in terms of deaths per million is more than 85th, indicating that India has escaped the heavy death toll experienced by other countries with a high burden of cases, even allowing for some underreporting. There are speculations about the reasons for this but no firm conclusions have yet emerged [10].

Clearly, one cannot wait to see what turn a pandemic will take. India was not prepared for the pandemic and it was unable to increase testing rapidly in the initial months. The Parliamentary Standing Committee on Health and Family Welfare, in its report submitted to the Parliament in November 2020, noted that poor contact tracing, low testing, and large scale use of rapid antigen tests (RAT) instead of the more reliable reverse transcriptase-polymerase chain reaction (RT-PCR) tests, could have impacted India’s containment strategy adversely [11]. The Committee recommended that the number of testing facilities should be increased and accurate tests, such as the RT-PCR test, should be utilized. One reason for delayed ramping up of testing had to do with inadequate capacity—kits, reagents, infrastructure, and trained personnel—that prevented states from rapidly increase testing; the state-level variation in testing rates has been a major feature of India’s response [12].

In addition to the lack of adequate and quality testing and the galloping cases that India had to confront, the reality was that India’s totally unprepared health sector reeled from the sheer onslaught of COVID-19 cases. In terms of hospitals, hospital beds, health personnel, and medical supplies including personal protective equipment or PPE, the country was found floundering and trying to rectify the gaps in real time. The story of PPE, in fact, is interesting. At the start of the pandemic, India had negligible capacity for producing PPE and was dependent on imports. But by July, 2020, India had become self-sufficient in PPE production due to high-level engagement of the government, especially the Ministry of Health and Family Welfare (MoHFW) and the Ministry of Textiles [13].

The fact that this could happen within a few months is heartening. But at the same time, no estimates are available of the number of infections and possible deaths that happened due to the lack of protective gear for healthcare providers. Increasing infections among providers during these months, reported in the media, does raise the question of the costs of being unprepared to deal with catastrophic shocks like the COVID-19 pandemic [14].

Clearly, India was not prepared. Its health infrastructure, personnel, medical supplies, and logistics—all were found inadequate to deal with the increasing load of COVID-19 cases. The question is why was it not better equipped? India had faced epidemics and pandemics before this as well and each time it had been offered an opportunity to refocus on the health sector. While nothing like the scale of COVID-19 had occurred before, there are instances of effective interventions around prevention and containment, especially at state level. Some examples are the plague in Surat and more recently the Nipah virus outbreak in Kerala [15, 16]. In both cases, state/local governments undertook a variety of actions and took note of the gaps that existed in the health systems as also in basic civic amenities that needed rectification. Lessons were learnt from the way Surat cleaned up the city and subsequently became one of the cleaner cities in the country. As for the Nipah outbreak, Kerala government’s swift actions have been widely acknowledged as a model to be emulated [17]. However, it does not seem that such state-specific learnings were incorporated in modifying the national approach to dealing with epidemics and pandemics.

In its Annual Report 2020, the Global Preparedness Monitoring Board pointed out five areas of action: responsible leadership, engaged citizenship, strong and agile national and global systems of global health security, sustained investment in prevention and preparedness commensurate with the scale of a pandemic threat, and robust global governance of preparedness for health emergencies [18]. Clearly, sustained investment is a critical factor in preparing the health sector. While there is almost always complementary funding from other sectors given the nature of health goods and services, core financing for the health system always takes place via the department of health, making such financing a critical tool in the hands of policy-makers [19, 20].

Preparing the Health Sector for Shocks: The Role of Health Financing

The WHO Health Financing Team has laid down two objectives of health financing in the current context: (1) ensure sufficient funding for common goods for health (CGH) and (2) remove financial barriers for health services. CGH includes comprehensive surveillance (including laboratories), data and information systems, regulation, and communication and information campaigns [21]. Financial barriers can be removed or reduced by strengthening the health services within the government sector, removing user fees, and ensuring universal health coverage. To achieve these twin objectives, it is necessary to prioritize the health sector through increased and sustained government funding as well as reprogramming funds to achieve greater efficiency. Specifically, adequate funds are required to strengthen health infrastructure, personnel, medical supplies, drugs, health administration, medical education, and health coverage—the major heads of expenditure.

  1. 1.

    Availability and functionality of health systems in India

A recent attempt at ranking countries based on a number of indicators for global health security capabilities in 195 countries gave India an overall score of 46.5, with 100 as the best security condition [22]. Of the six sub-domains that go into making this index, India does the worst in ‘prevention of the emergence or release of pathogens’ and ‘sufficient and robust health system to treat the sick and protect health workers.’ India also gets fairly low scores on ‘commitments to improving national capacity, financing and adherence to norms,’ and ‘early detection and reporting for epidemics of potential international concern.’

Severe shortages in both infrastructure and personnel have persisted over the years and are present in both rural and urban areas [23]. This was apparent during the early months of the pandemic crisis, when it had become difficult to find sufficient number of hospitals, hospital beds, or testing centers, and the government had to set up additional facilities in real time. A less discussed aspect of limited preparedness during pandemics is the squeezing out of other kinds of care. During the COVID-19 pandemic, for example, non-COVID care was bound to get squeezed out, especially in resource-constrained settings with inefficient health systems [24].

In terms of infrastructure and personnel, India compares poorly with other countries in the group of lower middle-income countries. Table 13.1 presents three indicators on physicians, nurses, and midwives, and hospital beds for selected countries with geographic spread. Bolivia, Ghana, the Philippines, and Sri Lanka from the lower middle-income group of countries like India and China, Indonesia and Thailand from the upper middle-income group, based on the World Bank classification. India, Indonesia, Sri Lanka, and Thailand are also in the South and South-East Asia WHO group. Thailand has one of the most successful universal health coverage (UHC) programs in the region.

Table 13.1 Key health system parameters across selected lower middle- and upper middle-income countries, latest year available
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Generally, the ratio of physicians per 1000 population is low for all the countries except China. India is somewhere in the middle on this indicator. In absolute terms, the ratio of less than 1 for physicians per 1000 is an impediment in delivering adequate health services to the population. However, India is unequivocally doing poorly in terms of nurses and bed availability, especially when compared to China, Sri Lanka, and Thailand.

The latest Rural Health Statistics 2018–19 brings out sharply the serious shortages in health personnel and infrastructure. For example, community health centers, which provide specialized medical care, had 79.9% of surgeons, 64% of obstetricians and gynecologists, 77.5% of physicians, and 69.7% of pediatricians positions vacant as of March 2019. In the case of primary health centers, there were shortfalls for health assistant (female), lady health visitor (LHV) (47.9%), male health assistant (59.8%), and allopathic doctors (6%) of total requirements at all India level. The shortages were worse in the empowered action group (EAG) states requiring extra focus like Odisha, Rajasthan, Chhattisgarh, Madhya Pradesh, Uttar Pradesh, Jharkhand, Uttaranchal, and Bihar. There are serious shortages of infrastructure in many states, but more so in the EAG states [26].

The area that is less amenable to analysis pertains to drugs and medical devices. Inter-country comparisons are not easily available since this is one area that is affected by numerous domestic policies around pricing, procurement, and trade. For India, this sector comes under the Department of Pharmaceuticals which is under the Ministry of Chemicals and Fertilizers. But unlike drugs—where India is leading in generics—India has been dependent on import for medical devices; 80% of its medical devices were import-dependent at the start of the COVID-19 pandemic [27].

As discussed above, during the COVID-19 crisis, the first few months witnessed a severe crunch in terms of essential medical supplies like PPE, testing kits, and disposables among others. The shortage of hospital beds was widely reported daily in the media. All energies and much of the resources went into fixing the system, and impacted all types of care. However, estimates are not as yet available to help us understand the costs of foregoing non-COVID care.

Fortunately, India could step up its production capabilities in some medical supplies and is now exporting a number of items that it had earlier mainly imported; the Atmanirbhar Bharat (self-reliant India) call of the Prime Minister was useful in this context. While medical supplies and drugs are funded from the budget of the Department of Pharmaceuticals, the MoHFW’s funds go into supporting the other health system functions including personnel, infrastructure, medical education, health coverage, and health administration. Drugs and medical supplies complement health system inputs like personnel and infrastructure and together form the backbone of a functional health system.

  1. 2.

    Health finances in India before COVID-19

Table 13.2 shows the National Health Accounts (NHA) estimates for India on key health financing indicators. The first NHA estimates were published in 2004–05, and the latest available estimates are for 2016–17 [28].

Table 13.2 Key indicators of health financing from National Health Statistics, India
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The total health expenditure has gone up marginally from 3.8 to 4.2% of GDP between 2004–05 and 2016–17. However, the key policy tool is government health expenditure which has remained almost the same over the past 12 years, around 1% of GDP. The major part of total health expenditure is from non-government sources comprising out-of-pocket expenditure (OOPE), which has declined somewhat over the years from about 70% but still remains high at 59%.

An important feature of India’s federal financing structure is that a major part of total health finances comes from the states. As health is a state subject, states are responsible for implementing most of the policies and programs. While earlier, states contributed 3/4th of total government finances on health, this ratio has improved somewhat but still remains mainly tilted toward states as major spenders, with about 70% of total resources coming from the states. Most states spend a very modest share out of their gross state domestic product (GSDP)—much below 2%—on health [29]. For total health finances to increase, states will have to put in major efforts to improve the priority they accord to the health sector. At the same time, the Center has to increase its allocations to the MoHFW to more than the 0.3% of GDP that it allocated to health in the last budget 2020–21. The recommendation has been to raise total government health financing to at least 1–3% of GDP [30, 31]. The National Health Policy has indicated that the aim should be to raise government spending to 2.5% of GDP by 2025.

How does India compare with other countries on health financing indicators? Fig. 13.3 shows two key parameters on which countries have prioritized their health spending. The percentage of government expenditure to GDP for health indicates the overall prioritization and shows that India has been least able to give importance to health in its GDP. The second parameter shows the extent of prioritization within the overall government budget which gives the same story: India spends a mere 3% on health out of its total government expenditure, whereas countries like Bolivia, Thailand, China, and Indonesia spend a much higher portion of their government budget on health, with Thailand spending as much as 15% of its total government expenditure on health.

Fig. 13.3
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Key indicators of prioritization of health, selected lower middle- and upper middle-income countries. Source World Bank Open Data

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Figure 13.4 presents per capita expenditures on health for the government and OOPE for 2018. Countries like Bolivia, China, and Thailand have significantly higher per capita government expenditure on health; India’s number is comparable only to Ghana. As for OOPE, Thailand, with a successful UHC program, spends the least on OOPE and the most on government expenditure per capita, and can be taken as a benchmark for other countries to follow. In fact, based on WHO’s UHC index of service coverage for 2017 in this group of countries, Thailand has a score of 80, followed by China (79), Bolivia (68), and Sri Lanka (66). India’s score is 55. Evidence is clear that UHC is positively correlated with higher investment by the government on the health sector [32].

Fig. 13.4
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Per-capita expenditure, key health finance variables, selected lower middle-income countries, 2018. Source World Bank Open Data

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The reasons for continued high OOPE in India are inaccessible and unavailable services in the government sector compared to a much easier to access but high-priced private services. As Table 13.3 indicates, the National Statistical Survey (NSS) 75th round in 2017–18 showed that 55% of total cases were hospitalized in private hospitals. Government facilities were availed by only 42% cases [33].

Table 13.3 Break-up of hospitalization cases by type of hospital, 2017–18
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This translates into high OOPE. The average medical expenditure per hospitalization case for government hospitals was INR 4452 (61.31 US dollar) compared to INR 31,845 (438.52 US dollar) for private hospitals, a difference of more than seven times between the two. According to the NSS data, more than 80% of individuals reported not being covered by any health program and less than 5% of these expenditures were reimbursed.

Non-hospitalization care or out-patient or OPD care also mainly takes place at non-government facilities. Only 30% of ailments overall were treated at government facilities in 2017–18, though the difference between the two costs are less compared to hospitalizations—private treatment was about 3 times higher than government treatment.

The preceding discussion indicates that available, accessible, and quality public sector services at all levels including for non-hospitalization care need major strengthening in the country if the dependence on OOPE has to be reduced and costs from shocks like pandemic are to be minimized.

Budget 2021–22 and the Health Sector

The 2021–22 budget was announced on February 01, 2021, by the Finance Minister of India [34]. Given the gravity of the situation, the expectations from the budget for the health sector were high, and it was hoped that India would finally take a quantum leap in its health financing situation.

The salient features of the budget are shown in Table 13.4. Some positive steps were taken in the budget for the health sector keeping in mind the pandemic. For example, a significant allocation of INR 35,000 crores (4.81 billion US dollar) was made for COVID-19 vaccination from the Ministry of Finance, which was absolutely essential given the urgency. Also, realizing the need to have resilient health systems in place to combat pandemics and epidemics, a sizeable allocation of INR 64,180 crores (8.82 billion US dollar) was made, to be spent over six years, to strengthen the different tiers of the health system under the program Aatma Nirbhar Swasth Bharat Yojana. This includes investment on health and wellness centers or primary care, integrated public health laboratories, and strengthening existing and adding new public health units, among other interventions. Additionally, the Finance Commission (FC) gave a grant of INR 13,192 crores (1.81 billion US dollar) to the states with the objective of strengthening the state health sector.

Table 13.4 Health outlays in budget 2021–22
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Also, this year, the Finance Minister made a strong argument for including water and sanitation in the country’s agenda for health and well-being, and allocations for water and sanitation almost tripled over the previous year’s budget estimates. The nutrition component—POSHAN Abhiyan—under the Ministry of Women and Child also got a boost.

With all these components added in, the Finance Minister argued that there has been a 137% increase (row 11, last column in Table 13.3) in health and well-being. Water, sanitation, and nutrition, critical social determinants of health, impact health outcomes directly and need strengthening. However, most of the core functions of running the health sector to build a robust health system—spending on infrastructure, personnel, public health, health coverage, and medical education—fall within the domain of the MoHFW. These require a sustainable increase of funding and not periodic grants. Table 13.3 shows that there is an 11% increase in the 2021–22 budget estimates compared to the 2020–21 budget estimates for allocations for MoHFW, which include the Department of Health Research and the Ministry of AYUSH combined. However, if the new allocations are compared to the 2020–21 revised estimates, then there is an actual decline of about 10% in allocations. While some of the commitments of Atmanirbhar Bharat may come from extra-budgetary sources, a significant part—it can be assumed—is already included in the main budget of the MoHFW, as has been the case in past budgets. This decline is because of a significant decrease in allocations under family welfare, human resources for health, medical education, and miscellaneous items like allocations for the Central Government Health Scheme and for international cooperation. The decline in the budget for family welfare is a worrisome feature as is the decline under human resources. Also, the Prime Minister’s flagship program, Ayushman Bharat—which can be quite expensive if it actually achieves the entire coverage of the targeted vulnerable population—also has not received any increase under the current budget [35], nor have HIV/AIDS and STDs. Overall, the National Health Mission component has received a very modest increase.

In sum, while attempts have been made to increase allocations to improve the overall health and well-being of Indians, the allocations for core health sector activities have remained low. MoHFW together with AYUSH has been spending about 0.3% of GDP on health. Given the economic shock and the various alternative estimates of GDP, it is a bit premature to guess what the share of this would be in the 2021–22 GDP. But assuming that the GDP will not contract too much below the 2019 level, we still get a similar number which remains below 0.4%.

Clearly, COVID-related finances cannot replace the much-needed funding for different components of the health sector. It cannot, therefore, be said that India’s health sector has received a major boost in funding in the 2021–22 budget.

Summary and Conclusions

The year 2020 has been a disruptive one in every sense—economically, socially, and health-wise. The loss of economic activity and the consequent slowdown of the economy has hit governments and citizens alike, and budgets have been hit hard. While unemployment has risen significantly and livelihoods have been lost, one would hope that with the opening up of the economy and a significant decline in COVID-19 cases, India will bounce back in the coming years. With a tight budget situation, it is understandable that the government will not be able to allocate significantly higher amounts to its various sectors. However, given the criticality of the health sector, it was hoped that it would get greater prioritization with higher allocations on important budget sub-heads. But that has not happened and with a meager budget, it is not possible for core functions like public health, infrastructure, personnel, and medical education to get the required focus.

The National Health Policy states a goal of 2.5% of GDP by 2025, and the government’s Economic Survey, which precedes the budget announcements every year, states that ‘an increase in public spending to 2.5–3% can substantially reduce out-of-pocket expenditure from the current level of 60–30%’ [36, 37]. Public spending did not increase in the COVID year. However, it is important that public spending should increase soon at least in 2021. One cannot deal with an emergency like a pandemic by fixing the various dysfunctional parts of the health sector in real-time and trying to source funding in a variety of ways including setting up new funds like the Prime Minister’s—Citizen Assistance and Relief in Emergency Situations (PM-CARES) Fund, as was done last year [38]. A routine budget lends transparency to sources and expenditure and is the only way of ensuring sustained prioritization. Transparency in policy-making and policy pronouncements is key to gaining public trust. It is important for information to be precise and clear, instead of being later interpreted by experts and researchers. It is hoped that there will continue to be dialogue, discussion, and information dissemination between the government and other key stakeholders and experts on ways to improve the health financing situation in the country.