Union Budget 2025: Stakeholders push for increased healthcare funding

Government healthcare spending remains below global recommendations

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January 30, 2025

/ By / New Delhi

Union Budget 2025: Stakeholders push for increased healthcare funding

The proportion of India’s GDP allocated to healthcare services is insufficient to keep pace with rising inflation

India's healthcare system is facing a growing crisis, with increasing privatisation and inadequate government investment leading to significant disparities in access and quality. With the Union Budget for 2025 on the horizon, stakeholders are pushing for greater funding and systemic changes to address the widening healthcare gap.

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While Indian government’s healthcare spending has seen gradual increases, significant challenges remain in the accessibility and quality of care, particularly in rural areas. As India approaches the Union Budget for 2025, both the healthcare and med-tech industries are advocating for reforms that could transform the sector.

Experts and stakeholders are anticipating increased funding, tax benefits, and reforms to the healthcare system. A key demand is a meaningful increase in healthcare spending. Currently, India allocates just over 1.5 pc of its GDP to healthcare, which is well below the global average of 3.5 pc.

India’s healthcare infrastructure remains underdeveloped, particularly in rural regions. This gap continues to hinder access to quality care for a large portion of the population.

The National Health Policy which aims for universal healthcare is often undermined by the limited reach of healthcare services, especially in rural areas. The divide between urban and rural healthcare access is stark, while major cities have advanced hospitals and better healthcare professionals, rural areas continue to suffer from insufficient facilities, poor quality of care and a shortage of trained medical staff.

“Women and men workers of India, peasants and marginalised communities face several economic, social and geographical barriers on the healthcare front. As the Covid crisis demonstrated and let us add that not much has changed in terms of infrastructure, there is inadequate access to primary and secondary health care facilities, poor infrastructure and limited availability of quality health care facilities, qualified personnel and doctors and even medicines in the public health care facilities especially in the rural areas,” Sandeep Chachra, Executive Director, ActionAid Association, an NGO, tells Media India Group.

From 2019-20 to 2024-25, the Indian government gradually increased its healthcare budget, reflecting an effort to address the country’s healthcare challenges. However, these allocations have not been sufficient to address the deep systemic issues in the healthcare sector. In fact, they have not even covered for inflation, leading to a reduced real funding in absolute terms as well in per capita terms.

In 2019-20, about INR 630 billion was allocated to the Ministry of Health and Family Welfare (MoHFW), with a focus on Ayushman Bharat, India’s national health insurance programme aimed at providing financial coverage for low-income families.

In 2020-21, the budget increased to INR 800.2 billion, largely in response to the pandemic, which demanded an emergency boost in spending for vaccinations, protective gear for medical personnel as well as ventilators and other equipment.

The following year, 2021-22 the allocation rose again to INR 840.9 billion, with a significant portion set aside for the pandemic’s ongoing management, as well as a long-term health infrastructure development plan through the PM Atmanirbhar Swasth Bharat Yojana.

Finally in 2024-25, the government allocated INR 876.57 billion for healthcare, signalling a continued commitment to health reform. However, despite these increases, healthcare remains underfunded, underdeveloped and underutilised relative to the country’s growing needs.

As per the Economic Survey of India 2023-24, public healthcare expenditure is still below global standards, accounting for just 1.29 pc of GDP, far lower than the World Health Organisation’s recommended 5 pc to 6 pc of GDP for robust public health systems.

The proportion of India’s GDP allocated to healthcare services is insufficient to keep pace with rising inflation, which continues to burden families across the country. According to the Ministry of Statistics and Programme Implementation, India’s consumer price index inflation stood at 5.22 pc year-on-year in December 2024, with rural areas experiencing a slightly higher rate of 5.76 pc, while urban areas saw a lower rate of 4.58 pc.

Simultaneously, healthcare costs in India are escalating at a much faster rate. The ACKO India Health Insurance Index 2024 reveals that medical expenses are increasing annually by 14 pc. The index also highlights a concerning trend as 23 pc of hospital costs are funded through borrowing, placing additional financial strain on families.

With 62 pc of healthcare expenses being paid out of pocket, the report highlights the urgent need for enhanced health coverage to shield individuals from unexpected medical crises and reduce the financial burden on families.

Out-of-Pocket (OOP) spending

One of the most alarming trends in India’s healthcare system is the increasing out-of-pocket spending. Despite the rise in government allocations, OOP expenditure remains a significant source of healthcare financing for Indian families.

Although government programmes like Ayushman Bharat aim to provide health insurance for low-income families, many people, especially in informal sectors or rural areas remain uninsured and are forced to pay out of pocket for medical expenses.

According to the State of Health in Rural India Report 2024, Neighbourhoods of Care, jointly carried out by Transform Rural India (TRI) and its initiative, the Development Intelligence Unit (DIU), covering a total of 5,389 households in 21 states, 60 pc of the respondents did not have any life insurance coverage, neither for themselves nor for anyone else in their household.

The reliance on private healthcare and the high OOP costs have deepened the gap between the rich and poor. Wealthier individuals have access to better quality private healthcare, while poorer households, must rely on underfunded government hospitals or forgo treatment altogether.

This disparity in healthcare access is evident in health outcomes and those with financial resources are able to receive timely care, while the marginalised populations face significant barriers to even basic health services.

The paradox of rising spending and poor infrastructure

Despite increasing budget allocations, the divide between urban and rural healthcare access is stark, while major cities have advanced hospitals and better healthcare professionals, rural areas continue to suffer from insufficient facilities, poor quality of care, and a shortage of trained medical staff.

With increasing privatisation, even basic facilities are becoming more and more unreachable for the poor.

According to the National Health Profile 2024 by the Ministry of Health and Family Welfare, nearly 80 pc of healthcare services are now provided by the private sector, a significant increase over the past decade.

Meanwhile, public healthcare facilities continue to struggle with insufficient funding and infrastructure.

This underinvestment has led to overburdened hospitals, particularly in rural areas, and a continued reliance on private healthcare, despite its prohibitive costs.

“The only way to get better and accessible is to scale up the health budget as part of Gross Domestic Product. While the health expenditure as a percent of GDP increased 1.4 pc in 2017-18 to 1.9 pc in 2023-24, this is only a fraction of what is needed to address challenges of public health care. In the short term and beginning the upcoming budget the expectation is to achieve a minimum of 6 pc of GDP for health expenditure,” points out Chachra.

To address the growing healthcare crisis in India, the government needs to prioritise the reduction of out-of-pocket spending and invest in healthcare infrastructure.

“Ensuring quality, free universal and 24×7 public health care facilities within reach of every Indian is a needed and big game changer. Therefore, what is needed a revitalisation, expansion and enrichment of availability and quality of services, personnel, equipment and medicines at the primary and secondary health care level,” adds Chachra

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