India's government is collecting billions of rupees through a dedicated health cess but spending less on healthcare as a percentage of GDP than it did before the levy was introduced, according to a new analysis that raises questions about fiscal priorities in the world's most populous nation.
The findings, reported by the Times of India, highlight a troubling gap between revenue collection specifically earmarked for health and actual expenditure on a sector that serves 1.4 billion people. India currently spends approximately 1.1% of GDP on public healthcare—among the lowest rates globally and well below the 2.5% target recommended by the National Health Policy.
In India, as across the subcontinent, scale and diversity make simple narratives impossible—and fascinating. The health cess was introduced as a way to boost healthcare spending without increasing the fiscal deficit. Instead, the data suggests it may have become another revenue stream that gets absorbed into general expenditure, leaving the healthcare system chronically underfunded.
Follow the Money
The health and education cess, levied at 4% on income tax, was expected to generate substantial dedicated funding for these critical sectors. However, the analysis indicates that despite increased collections, actual health spending has declined relative to economic output. This raises fundamental questions about fiscal accountability and whether earmarked taxes are being used for their stated purposes.
For context, India's healthcare system serves a population larger than Europe, North America, and South America combined. Yet public health expenditure remains far below global standards. The World Health Organization recommends that countries spend at least 5% of GDP on health to achieve universal health coverage. Advanced economies typically spend 8-10% of GDP, while even many developing nations exceed India's current rate.
The consequences of underinvestment are measurable and severe. According to health economists, approximately 63 million Indians fall into poverty each year due to out-of-pocket medical expenses. Unlike countries with robust public health systems, Indian families often face catastrophic costs when illness strikes, selling assets or borrowing heavily to pay for treatment.
Where Are the Billions Going?
The central question raised by the report is where health cess revenues are actually being allocated if not to healthcare. India's Union Budget is a complex document where revenues can be reassigned, diverted, or absorbed into general spending categories. Cess collections, while nominally dedicated to specific purposes, do not always translate into proportional spending increases in those sectors.
This fiscal opacity frustrates health policy advocates who have long argued that India's healthcare crisis stems not from lack of resources but from allocation failures. The country has achieved remarkable success in certain areas—vaccine production, generic drug manufacturing, digital health infrastructure—but struggles with basic healthcare delivery, particularly in rural areas where 65% of the population lives.
State-level spending adds another layer of complexity. Healthcare is a concurrent subject under India's federal structure, meaning both central and state governments share responsibility. Many states spend even less than the national average, creating vast disparities in healthcare access. A resident of Kerala or Tamil Nadu, where state governments invest heavily in health, experiences dramatically different outcomes than someone in Uttar Pradesh or Bihar.
The COVID Legacy
The pandemic briefly increased health spending as the government scrambled to build infrastructure, procure oxygen, and accelerate vaccination. However, the current data suggests that post-COVID health budgets have returned to pre-pandemic patterns, despite the obvious vulnerabilities the crisis exposed.
India's vaccination drive, which administered over 2 billion doses, demonstrated the system's capacity for mass mobilization. Yet that success contrasts sharply with persistent gaps in primary healthcare, maternal and child health services, and chronic disease management. The same government that could coordinate a continent-scale vaccination campaign struggles to staff rural health centers adequately or ensure consistent drug supplies.
Economic and Social Costs
The broader economic implications of healthcare underinvestment are substantial. Poor health outcomes reduce workforce productivity, increase absenteeism, and drain household savings. For a country positioning itself as a global manufacturing hub and technology leader, these health deficits represent a competitive disadvantage.
Moreover, healthcare inequality reinforces other social divides. Wealthier Indians access private hospitals with world-class facilities, while the majority depends on public systems that are often understaffed, undersupplied, and overwhelmed. This two-tier reality undermines social cohesion and violates constitutional guarantees of equality.
As India aims for developed nation status by 2047—Prime Minister Modi's stated goal—healthcare investment will be a crucial metric. No country has achieved sustained economic development while leaving its population's health needs unmet. The question raised by this latest report is whether India's fiscal architecture matches its developmental rhetoric, or whether revenue collection is substituting for actual service delivery.
For the millions who depend on public healthcare, the answer matters far more than budget documents suggest.
