Federal financing of health: Implications for capacity and priority

The paper seeks to understand (i) the role of National Health Mission (NHM) in defining/resetting health priorities in states and addressing horizontal inequalities; (ii) the constraints faced by States within the federal structure for delivering effective health care services; and (iii) the mechanisms through which states manage these constraints. The NHM helped reverse the declining trend in health spending by states by providing them with non-wage resources in the context of their low own revenues. However, health continues to be a low priority in state budgets, with the share of health spending in the total expenditure of State budgets remaining broadly unchanged over the past 30 years. Political leadership often plays a key role in determining health as a priority. Post-NHM, horizontal inequalities have reduced to a small extent. Generally, states feel constrained by the Union government taking the lead in designing health schemes and setting priorities, with their role being reduced to mere delivery and implementation bodies. They also face uncertainty in fund flows, and there are no clearly defined platforms for communication. States address these constraints by exercising flexibility within the broader NHM framework, relying on their own funds using different platforms for communication. This, however, often occurs in an ad hoc manner, based on needs and issues faced.