Avani Kapur on India’s Health Financing: Challenges, Priorities, and What Needs to Change
By Arunima Rajan
Avani Kapur is Founder and Director of ResGov, and Senior Visiting Fellow at the Centre for Policy Research. She is a public finance expert with nearly two decades of experience studying India’s welfare architecture, including budget tracking, fund flows, data systems, governance, and state capacity. She also examines how governments engage with citizens.
She previously led the Accountability Initiative at the Centre for Policy Research. She has authored several articles, reports, and opinion pieces on state finances, India’s welfare programmes, and governance. She has also trained Indian Administrative Service officers, Members of Parliament, Members of Legislative Assemblies, Indian Economic Service officers, and officers of the National Audit and Accounts Academy.
In an interview with Arunima Rajan, she discusses the challenges and priorities in health financing in India.
Why hasn’t health become a bigger fiscal priority in India’s growth story?
Health financing is always tricky, as on one hand there’s no doubt about underinvestment, but on the other, in some areas we aren’t even able to spend the funds we have, or not necessarily on the right things. Some analysis by Nachiket Mor and Sudheer Kumar Shukla found that quite a few states are already spending significantly per capita and should, in theory, have been able to provide near-universal health coverage (UHC), but outcomes remain uneven.
Be that as it may, the typical reasons for underinvestment in many sectors are as follows. First, health competes with other pressing fiscal priorities such as defence, infrastructure, and subsidies, sectors that often promise quicker political returns. Preventive care and system-strengthening measures, while critical for long-term outcomes, lack the visibility that large-scale infrastructure projects offer. For instance, announcements like setting up new AIIMS or medical colleges are politically attractive but often overshadow investments in less visible areas like primary care or human resources.
Second, health is constitutionally a state subject, and there is often this tussle about who should shoulder the majority of public health funding. During the pandemic, the Centre said it was the states’ responsibility, yet states often rely on centrally sponsored schemes (CSSs) like the National Health Mission (NHM) or Ayushman Bharat (PMJAY), and other central sector investments by the Union, which also sometimes try to direct where states’ investments should go.
Finally, I think there is a broader systemic undervaluation of health as a driver of economic growth. We don’t fully recognise the impact even air pollution has on health, and while COVID-19 briefly highlighted the importance of robust healthcare systems, allocations have since reverted to pre-pandemic levels.
How might we realign incentives to foster true cooperative federalism in health financing?
We had done a study (the paper is available here: https://csep.org/wp-content/uploads/2024/05/Federal-Financing-of-Health-Implications-for-Health-System-Capacity-and-Priority-3.pdf) and found that there continues to be somewhat of a mixed bag when it comes to CSSs and the incentives they create. Theoretically, the role of NHM was to free up non-wage funds, give states the power to innovate, and build technical and fiscal capacity for health.
However, we’ve observed several trends. First, some studies have pointed to a substitution effect, wherein states, instead of increasing health spending, diverted their funds towards NHM allocations by pulling back on other areas of state health expenditure. Our analysis showed, for instance, in a few sample states that between 2000–01 and 2004–05, the rate of health expenditure grew more slowly compared to total expenditure (Centre plus states). That trend reversed after NHM launched. However, from 2014–15 to 2020–21, growth in health spending again declined across these states.
Second, CSSs like NHM and PMJAY form a large part of the Union government’s contributions. These schemes require co-financing (for example, 60:40 for NHM), but their design often limits states’ ability to innovate or respond locally. Across states, we’ve seen instances of the Union pushing for reforms without adapting to the local context.
I think we need a far more flexible model, returning to how NHM was originally envisaged, with flexipool funding that allows states to spend as required. Unfortunately, it shifted toward rigid, line-item budgeting over time.
We also need to rethink the equity element. Some analysis I had done showed that due to conditionalities for fund release, states with better health outcomes were receiving more per capita resources, an outcome that contradicts equity goals.
Your report highlights a noteworthy shift in funding priorities: the National Health Mission received a modest 7% increase in the recent budget, while Ayushman Bharat’s Pradhan Mantri Jan Arogya Yojana saw a 24% jump. What does this divergence signal about the government’s healthcare strategy? Is there an implicit shift from strengthening primary healthcare towards financing hospital-based care through insurance?
Over the years, there’s definitely been a shift towards financing hospital-based care through insurance models. This isn’t just an Indian phenomenon; it mirrors a global
trend where curative care takes precedence over prevention. PMJAY’s focus on tertiary care, providing up to ₹5 lakh per family annually for hospitalisation, while critical for financial protection during health crises, has also introduced perverse incentives. Government hospitals, which earlier provided many services for free, now often check whether the patient holds an Ayushman Bharat card.
Health and Wellness Centres, meant to be the bedrock of preventive care, haven’t achieved the desired outcomes. Unfortunately, we’re a little delayed in getting recent health statistics, but as of March 2023, there were still significant shortfalls in both physical infrastructure and human resources.
You can find more data in our latest brief here: https://resgov.org/contents/reports/97_Budget_Insights_NHM_2025.pdf
The gap between what the Health Ministry asks for and what it actually receives has been striking. What do such shortfalls tell us about our budgeting process?
These gaps appear across most sectors, except for current political priorities or those with looming deadlines. To a large degree, this reflects our inability to budget effectively. We had done a study some time back with IEG and UNICEF on Anaemia Mukt Bharat and found that the budgets didn’t budget for full coverage, missed key components, and used inaccurate unit costs. But when the budgeting improved, the gap between proposed and approved amounts also fell.
This is true across levels. Without a long-term plan or accurate medium-term expenditure frameworks (MTEFs), we don’t know how much revenue we’ll have or how much can be allocated across schemes or ministries.
That said, there’s a pattern of switching expenditures when revenues tighten, and social sector schemes, including health, are often among the first hit. Even during COVID-19, many activities were stalled due to repurposing of funds.
What drives government’s strong focus on physical expansion? Is there a risk that we’re prioritising visible infrastructure over the more invisible, harder-to-measure aspects of care quality, systems maintenance, and health outcomes?
To some extent, this was already touched on earlier, but yes, infrastructure projects are tangible achievements that are easier to measure and offer political capital. Announcing the construction of medical colleges or launching new AIIMS campuses garners immediate attention. But this approach risks neglecting less visible, but equally critical aspects like care quality, system maintenance, or health outcomes.
For instance, you may construct AIIMS, but if over a third of faculty positions are vacant, those facilities won’t function effectively. Without addressing staffing shortages or improving governance mechanisms, infrastructure alone won’t improve outcomes.
Despite the push to build new AIIMS and colleges, your report notes alarmingly high vacancy rates—over 36% of faculty posts remain unfilled, with some new AIIMS having over 50% vacancies. How do such human resource shortages erode the gains from infrastructure investments? What deeper governance or structural issues do these vacancies point to?
It’s almost ironic. Health has one of the largest cadres of frontline workers like ASHAs and ANMs, who were our strength during the pandemic. But when we shift focus to specialists, nurses, or faculty at AIIMS, we struggle. It’s hard to find qualified people willing to work in remote areas, and these shortages stem from systemic issues: bureaucratic delays in recruitment, lack of career progression opportunities, and uneven distribution of staff across urban and rural areas.
Addressing this requires structural reforms: fast-tracking recruitment processes, creating meaningful incentives for rural postings, and recognising that without professionals, infrastructure investments are wasted.
Why does mental health remain peripheral in policy priorities? What would it take for this space to move from the margins to the mainstream?
The good thing is, it’s picking up. Finally, it’s a conversation. I don’t think we yet know how much we should spend, as there haven’t been any comprehensive costing studies around mental health that I’m aware of. But it’s something that needs to be better integrated into overall health expenditure, especially at the primary care level.
At its core, this marginalisation reflects deep-seated stigma around mental illness versus physical health. Shifting mental health into the mainstream will require sustained advocacy, dedicated resources, and embedding it into day-to-day health system delivery.
How do you see political and bureaucratic incentives shaping our health spending patterns?
The role of the media is important here. For example, announcements about building new AIIMS institutions garner significant media attention, but they mask persistent issues like high vacancy rates or poor maintenance. It’s usually only when a crisis occurs, like the tragedy at Gorakhpur, that issues like fund flow delays or governance challenges get noticed.
It would be valuable to see more coverage of these behind-the-scenes governance issues.
Even when funds are allocated, there are clear bottlenecks in implementation. What do these execution delays tell us about the health system’s governance capacity? Where do you see the real chokepoints?
Execution delays are often a symptom of overcomplicated regulations, weak coordination between the Centre and states, and limited administrative capacity at the district level. Often, when we launch a scheme or make an announcement, we don’t accompany that with a detailed execution plan. Sometimes, even the guidelines take a year to come out.
In our fieldwork, we’ve repeatedly seen that even a year after announcements, state officials only know what they heard during the budget speech.
Strengthening governance mechanisms, including better project management frameworks, will be key to resolving these delays.
If you were to advise hospital CXOs, what are the one or two structural changes in health policy or governance you’d urge them to push for? In your view, what reforms could shift the system from reactive and fragmented to proactive and resilient?
That’s a tough one, since our work focuses on systemic reform rather than institutional fixes, but if hospital CXOs were to take on a policy advocacy role, I’d push for three things:
First, advocate for decentralised planning. Empower states with greater fiscal flexibility while linking central funds to reasonable, measurable outcomes.
Second, prioritise preventive care. Push for increased allocations to primary healthcare systems and wellness initiatives that reduce long-term disease burden. Co-design these with communities to ensure the spending is timely and relevant.
Third, keep abreast of governance challenges and opportunities. That’s something we continue to study at ResGov, tracking fund flows, administrative capacity, and budgets in health and welfare programmes.
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