Health reform: With a mix of competitive & cooperative federalism, Centre incentivising states to identify problem areas

Centre’s health reform push...

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The Seventh Schedule of the Constitution pretty much sets the tone for the country’s federal structure, through the Union List, State List, and the Concurrent List, which prescribes the legislative and administrative powers of the Union Government and state governments. Item 6 on the State List is: “Public health and sanitation; hospitals and dispensaries”. States (and UTs) therefore have primary control over general administration and delivery of public healthcare in the country. Few related matters such as family welfare, medical education, prevention of food adulteration are in the Concurrent list. Despite such clear constitutional boundaries, the Centre is driving the much-needed structural reforms in the public healthcare sector through a judicious mix of competitive and cooperative federalism policies. Some of them are discussed in this article. 

Consider the public expenditure in healthcare sector first. This has been a major concern for some time now. Estimates indicate that in 2014-15, Governments (both Union and States/UTs combined) spent around 1.1 per cent of the GDP on public healthcare. In contrast, Russia and China spent more than 3 per cent of their GDP around the same time while others like Australia more than 6 per cent. That said, public spending in India is a function of available fiscal resources and subject jurisdiction too. Healthcare being a State subject, under-investments in this sector could not be addressed if States don’t have sufficient fiscal space. To attempt this fiscal rebalancing, the Centre implemented the recommendations of the 14th Finance Commission with effect from FY 2015-16. As a result, tax devolutions to States jumped from 32 per cent (of divisible pool of Union’s taxes) to 42 per cent. The financial transfers to States thus got a significant boost. Concurrently, the Centre also rationalised Centrally Sponsored Schemes (CSSs) by accepting the recommendations of a sub-group of Chief Ministers. While CSS rationalisation changed funding pattern (reduced grants from Centre), the States could now tailor core programs to fit their individual needs. For the healthcare sector, these two reforms led to a significant increase in public spending. Some of the statistics pertaining to spending are numbered one, two, three in the infographic (inset). 

Another crucial policy lever that furthers co-operative federalism in healthcare is the recently announced National Health Policy 2017. While the policy lays down specific strategies to achieve its objectives, it also encourages linking resource allocations to States with State development indicators, absorptive capacity and financial indicators. It thus creates a framework where States are inherently incentivised to increase financial and institutional resources for achieving desired outcomes in public health.

Taking competitive federalism policy measures next. NITI Aayog and MoHFW are implementing some innovative policy initiatives to foster healthy competition among States. The recent launch of “Health Outcomes Index” and “District Hospital Rankings” are prominent examples. These initiatives would help States understand their relative performance across key healthcare inputs (hospital services, infrastructure, etc.) and outputs (quantitative outcomes such as U5MR, MMR etc.). States could then identify specific problem areas and target appropriate interventions to address the deficiencies. The Centre, on its part, would extend all possible technical and financial support to help States realise the desired outcomes.

The above policy actions highlight some innovative steps being adopted by the Centre to address legacy deficits in the healthcare sector. And these are not the only ones. Besides the above, the Centre is promoting insurance, increasing vaccination coverage through Mission Indradhanush and other measures to improve healthcare outcomes in a time-bound manner. But given that health challenges are deep-rooted and complex, the Centre would need to continue keeping the States enthused by balancing this cooperative and competitive approach. Only a healthy country can reap dividends from its demographic structure. 

The authors are economists with the Niti Aayog. They tweet @bibekdebroy and @kishore1810. Views personal.

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