Healthcare Expenditure: India Vs Rest of the World

India, the second most populous country in the world is home to one-third of the world’s total poor population, which is 1.2 billion. Regardless of the rapid economic growth over the past two decades, consecutive governments have kept a tight rein on healthcare expenditure. According to World Health Organisation (WHO), India’s healthcare expenditure (public and private sector) is among the lowest in the world and it ranks 151st among 193 countries. The public sector spending increased from 0.94 per cent of GDP in tenth plan (2002-07) to 1.04 per cent in eleventh plan (2007-12). The provision of clean drinking water and sanitation as one of the principal factors in control of diseases is well established from the history of industrialized countries. Developing countries such as India should have high priority for provisions of drinking water and sanitation in health related resource allocation. The United States and Luxembourg governments spend more on its people’s health than any other country in the world.

According to OECD, the U.S. spent $8,745 per person on health care in 2012, roughly $2,500 more than Norway, the second highest spender per capita. As per WHO, India’s total health expenditure per capita was US$ 126 in 2010. Among 8 out of 10 highest spending countries, public health expenditure (funding from government sources) accounted for more than 70 per cent of total spending on health. While public spending has grown in the U.S. at 4.8 per cent annually in recent years, its share of total health spending remained at just about 50 per cent, whereas its 28.2 per cent in case of India. The graph on the left panel provides an idea about the total expenditure of India with respect to major economies in the world.
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As an emerging economy, India spends about 1 per cent of its gross domestic product (GDP) on public health, compared to 3 per cent in China and 8.3 per cent in the United States. India’s expenditure is lower than the major economies of the world like Brazil (4.23 per cent), Russia (3.81 per cent), Australia (6.16 per cent), Germany (8.83 per cent), Japan (7.38 per cent), France (8.99 per cent), United Kingdom (7.98 per cent), and Italy (7.37 per cent) among others.
The Indian healthcare sector is growing at a 15 per cent CAGR and is projected to reach US$ 158.2 billion by 2017 and US$ 280 billion by 2020. However, the sector that is dominated by private players is growing at a good pace, despite public spending remaining low than that of Bangladesh and Sri Lanka. This low spending has resulted in a dilapidated network of public hospitals and clinics, especially in rural areas. There were hopes that the new government will increase the healthcare expenditure in the Twelfth Five Year Plan. However, the government has decided to slash more than 60 billion rupees, or $948 million, from budget allocation of around $5 billion for the financial year ending on March 31′ 2015.

The public healthcare system in India comprises of limited secondary and tertiary care institutions in key cities and focuses on providing basic healthcare facilities in the form of primary healthcare centers (PHCs) in rural areas. It is believed that the expenditure on health should increase to 2.5 per cent of GDP by the end of Twelfth Five Year Plan. The move of slashing the healthcare expenditure reflects the government’s struggle to achieve its 2014/15 fiscal deficit target of 4.1 per cent of GDP. This retrenchment also derails the plan to provide all citizens with free drugs and diagnostic treatments, as well as insurance benefits. India’s main competitive advantage over rest of world lies in its large pool of well-trained medical professionals. Apart from this, India’s cost advantage compared to the rest in Asia and Western nations is significant – surgery cost in India is one-tenth of that in the US or Western Europe.

Keeping in line with the global standards, Fiinovation believes India needs to increase its public sector spending significantly. Fiinovation understands the fact that private expenditure on health in India is high at 80 per cent of the total spend which is not sustainable. Taking this into consideration, the need of the hour is of Government interventions through people-friendly policies that will help establish infrastructural support to provide better healthcare access throughout India.
By Rahul Choudhury
Media Team – Fiinovation

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