Increased Healthcare Spending Key to Economic Growth in India

In order to achieve universal health coverage, India must increase its health spending, an investment that can lead to increased workplace productivity and economic growth.


The public sector in India spent 1.16% on health as a percentage of GDP in 2015. Credit: Reuters

The health of a country has far-reaching effects. It doesn’t just impact the people and their quality of life, but it also has the ability to increase or slow a country’s economic development and growth. There is enough data to show how an increase in the health status of a population can contribute substantially towards the economic development of a country via improved productivity, improved learning, demographic effects, health and capital accumulation, and reduced treatment burden.

Hence, rather than measuring improvements in health status simply as population health outcomes, the perspective needs to be broadened to include the effects it has on a country’s economic growth.

Bad news first

On the healthcare front, things don’t look too good for India right now. The country’s healthcare system is characterised by inadequate infrastructure and limited resources. In fact, India’s healthcare infrastructure metrics is amongst the lowest in the world. According to the WHO World Health Statistics 2015, the public sector in India spent 1.16% on health as a percentage of the GDP, ranking 187th among 194 countries.

The investment in healthcare is inadequate. Global evidence on health spending shows that unless a country spends at least 5-6% of its GDP on health, basic healthcare needs are seldom met. Even in a small country like Mexico, the average spending on health per capita in 2013 was $1,045 as compared to a dismal $214 for India. We need to introspect and maybe even take cues from other countries who are showing success along these lines.

Examples worth emulating

It is increasingly clear that emerging economies can benefit from allocating additional resources for healthcare and treating healthcare as an investment rather than a cost. According to CDC estimates, there is a $10 return on investment for every $1 spent on childhood vaccinations, of which Peru and China are good examples.

In fact, in 1971, China spent less than 2.5% of its GDP on healthcare, its life expectancy was less than 62 years and there was only one doctor per 1,100 people. Today, health expenditures have doubled to more than 5.5% of its GDP, and with it, its life expectancy has increased to more than 71 years.

The successful model of performance-based financing being followed in Rwanda and its neighbouring countries is also worth emulating. This can be replicated and moulded to the needs and requirements of the health sector in India.

Lessons learnt

One approach to consider could be that public funding consolidated at a national level and allocated to states could be combined with broader private and community insurance schemes. A mixed insurance model similar to that of Germany, China, US and Mexico, allows for increased flexibility in administration and provides additional resources for investing in both healthcare and new infrastructures such as primary care clinics.

However, while improved efficiency and reduced waste at the state level is a necessary condition for success, it is not sufficient. To achieve universal health coverage, India must increase health spending as a percentage of GDP through general taxation and additional private sector payments.

There are lots of case studies that we can analyse before working towards improving our system. While it is clear that the tax based single payer systems that are followed by countries like the UK and Canada have limitations – such as long waiting times for receiving care – the diversity of funding models that the US and Singapore follow can definitely be a better fit as it provides greater flexibility, choice and innovation. But their gaps and equity concerns need to be addressed.

Social insurance in countries like Germany and Netherlands provide financial protection and offset high out of pocket payments. This approach could also work because we in India need to work very diligently towards bringing the out of pocket payment down from the 70-80% level (one of the highest in the world) that it is sitting at now.

These high out of pocket payments are a major trigger for pushing people into poverty – 55 million Indians fell into poverty because of their healthcare spending during 2011-12. The fact is that about 47% and 31% of medical services in rural and urban India, respectively, were paid for with the assistance of banks, adding to the financial woes of millions.

It is about time we did some serious thinking on increasing our investment in healthcare. The additional investment will improve the health of the population, and increase workplace productivity and economic growth.

Kenneth Thorpe is the chairman of Partnership to Fight Chronic Disease.