Decentralisation and Public Expenditure on Health in India: Learnings from the Fourteenth Finance Commission

Abstract

This article examines public expenditure on health in India in the context of decentralisation. The Fourteenth Finance Commission (FFC) recommended higher tax devolution to states (from 32% to 42%). It also recommended a rearrangement of the funding pattern for the National Health Mission (NHM), a centrally sponsored scheme (CSS) launched by the Union Government in 2005. As part of the recommendations, the funding ratio of NHM between the union and state changed from 75:25 to 60:40 in most of the states of the country. The article analyses the impact of these changes in intergovernmental transfer between the union and the states following the FFC recommendations in 2015 on healthcare expenditure by the states. The study uses the National Health Account (NHA) framework to capture both NHM and non-NHM expenditures by the states. Our findings, based on an analysis of 16 states, suggest that there is a positive association between fund transfer by the Finance Commission and non-NHM expenditure by the states. This implies that the availability of extra untied funds at the state level can go a long way in improving the fiscal space for health at the state level.