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Although health spending increased from 1.2% to 2.1% of GDP between 2016 and 2023, a gap still exists
Healthcare Budget
The Indian health sector is experiencing significant growth. The combined Center and State general government expenditure on health nearly doubled between 2015-16 and 2022-23 reaching INR 5.4 lakh crores. This increase in spending was fueled by the need for strengthening health infrastructure and essential service delivery, which became more prominent during the addressing COVID-19 pandemic, shortages in human resources for health, increased focus on preventive and primary care, growing non-communicable disease burden, and financial protection and economic growth ambitions. Recently, disease surveillance & research and digital health infrastructure have seen considerable allocations.
The Government of India is making constant efforts to increase investments in the sector through a conducive policy environment, for example, liberalized foreign direct investment rules, production-linked incentives for boosting domestic manufacturing; financial provisions for public health infrastructure at district and block levels; grant-in aids for promotion of bulk drug and medical device parks; promoting innovation through establishing public sector enterprises, which acts as industry-academia interface and provides access to capital. Various State governments are doubling down on these efforts.
The National Health Policy, of 2017, set a target for general government expenditure on health to reach 2.5% of GDP by 2025 to achieve the highest possible level of health and well-being for all ages. Although health spending increased from 1.2% to 2.1% of GDP between 2016 and 2023, a gap still exists. It is anticipated that the Union Budget 2025-26 will increase allocations to the health sector to meet the recommended target.
The changing climate is expected to increasingly affect health directly through more injuries, the spread of diseases, and deaths, and indirectly through impacts on natural and socio-economic systems. Given the urgent need to build climate-resilient and sustainable low-carbon health systems, it is anticipated that specific allocations will be made for strengthening health system capacity to implement adaptation plans, develop monitoring and surveillance systems, and progress towards net-zero emissions.
With the growing threat of outbreaks and pandemics, health and wellness for all are increasingly at risk. Addressing this concern will require a One Health approach that integrates human, animal, plant, and environmental health. Antimicrobial resistance (AMR) is another major public health challenge, hindering efforts to control infectious diseases and leading to increased health and economic losses. To tackle these challenges, it is anticipated that significant investments will be made in integrated disease surveillance, pandemic preparedness, monitoring drug usage and disease research, advanced testing facilities, and training. Primary healthcare needs significant attention for robust disease preparedness and management.
The government has been increasing budget allocations to various digital health initiatives, with the Ayushman Bharat Digital Mission (ABDM) being the most prominent. This trend is expected to continue in FY 2025-26, with a greater focus on increasing the adoption of digital health practices by healthcare providers. Additionally, tax incentives for investing in digital health are anticipated.
With the growing use of Artificial Intelligence (AI) in healthcare, investments in AI-driven diagnostics and data privacy are expected to rise. The Centers of Excellence for AI in Healthcare may see higher budget allocations for research and development, as well as for developing new solutions.
The Goods and Services Tax (GST) on health insurance premiums is expected to be lowered to increase insurance penetration and bridge the missing-middle gap in coverage. Additionally, the deduction limits under Section 80D for medical insurance are expected to be increased from the existing INR 25,000 to INR 50,000.
Introduced in 2020, the Production-linked Incentives (PLI) scheme offers financial incentives for manufacturing critical Active Pharmaceutical Ingredients (API), Key Starting Materials (KSM), and medical devices. With the list of products covered under this scheme expected to grow, additional funding is anticipated. Tax deductions for expenditures incurred on training and skill development related to the PLI scheme are also expected. The reduction of customs duties on the import of capital goods are predicted to benefit the medical devices sector.
It is anticipated that medical education will receive higher budget allocations to establish new and upgrade existing infrastructure to bridge the gap in human resources for health. More development is expected through public-private partnerships in tier-2 and tier-3 cities. Significant investments are expected in skill development programs to enhance the capabilities of medical professionals and the health system’s capacity.
The Union Budget 2025-26 is expected to follow the trend of growing general government expenditure on and increasing investments in the health sector, particularly, climate change and health initiatives, disease surveillance and pandemic preparedness, and digital health are expected to see increased allocations.
Authored By – Vikram Anand, Partner, Deloitte India and Gurminder Singh Talwar, Director, Deloitte India
Disclaimer:The views expressed in this article are those of the author and do not represent the stand of this publication.
