Effects of economic growth towards government health financing of Indian states: an assessment from a fiscal space perspective

ABSTRACT

This paper analyses the performance of government health financing situation of Indian states and evaluates the long-run effects of rising economic growth on assessing fiscal space for health over the period 1980–2014. Our empirical result shows that rising state’s gross domestic product stimulates the growth of government health expenditure in the long run. Further, the elasticity of government health financing with respect to state’s gross domestic product is less than one, which implies that healthcare is no longer a luxury good. Overall analysis of fiscal space for health transition exhibits that there is not only a huge inequality in public health expenditure measured in terms of percentage share to state’s gross domestic product but also less prioritization of health budget due to the lower fiscal capacity of the government. We propose the following policies; first, the government should give more importance to the healthcare by allocating more resource in the budget; and second, the government should emphasize on fiscal capacity by raising revenue, which would eventually result into mobilizing more funds towards the health sector.

KEYWORDS:

• Health financing
• Indian states
• fiscal space
• economic growth
• panel data
• panel cointegration
• Granger causality

Acknowledgements

The authors wish to thank the editor and anonymous referee for helpful comments and suggestion. The usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Health system includes all the activities whose primary purpose is to promote, restore or maintain health. In precisely, health systems are not just concerned with improving people’s health but with protecting them against the financial costs of illness. The challenge facing governments in low-income countries is to reduce the regressive burden of OOP payment for health by expanding prepayment schemes, which spread financial risk and reduce the spectra of catastrophic healthcare expenditures (World Health Organization, 2010).

2. UHC provides assurance of health services to all needy people under three objectives such as equity in access, quality of health services and ensuring financial risk protection (World Health Organization, 2010).

3. The definition and performance of these three health financing indicators are clearly discussed in Section 3.

4. India is subdivided into 29 states and 7 union territories. The study has taken 21 states because of the data availability over the entire study period.

5. The time period used in this study is dictated by the availability of data for India. The prime reason for the choice of the sample size is that the use of a long data set not only increases the total number of observation but also enables the empirical estimation to have higher degrees of freedom. To some extent, it reduces noise coming from the individual time series cointegrated regressions and also establishes the long-run relationships between the series.

Additional information

Funding

No funding.

Notes on contributors

Deepak Kumar Behera

Deepak Kumar Behera is a doctoral scholar in the Department of Humanities and Social Sciences, Indian Institute of Technology Madras. His primary research interests are in the economics of healthcare and health system financing. E-mail: [email protected].

Umakant Dash

Umakant Dash is a professor in the Department of Humanities and Social Sciences, Indian Institute of Technology Madras. His primary research interests are in the economics of healthcare and economic evaluation of healthcare programmes. E-mail: [email protected].