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Same-Day Analysis

India cuts healthcare spending by 10% in 2014–15 government budget

Published: 18 February 2014

The Indian finance minister has announced that INR337 billion (USD5.4 billion) will be allocated to healthcare in the 2014–15 financial year, down 9.7% on funding in 2013–14. The reduced funding allocation has been attributed to a historic underspend by the Ministry of Health and Family Welfare, despite a need for more funding.



IHS Global Insight perspective

 

Significance

The Indian finance minister has announced funding allocations for government spending in the 2014–15 Indian financial year. Allocated funding for healthcare is to total INR337 billion (USD5.4 billion), down from INR373 billion allocated in 2013–14. The budget is an interim fiscal plan, as Indian elections are due to take place in the short term. Following this election, healthcare spending may be revised in a new budget.

Implications

The reduced funding has been attributed to historic failures on the part of the Ministry of Health and Family Welfare (MHFW) to spend its budget allocation fully. This is despite India's public healthcare system crumbling under increasing demand, continued poor access to care, and high out-of-pocket expenditure on healthcare.

Outlook

With the MHFW using pharmaceutical price cuts and a weakened intellectual property environment to drive cost savings and funding now set to remaining tight, we can expect the Indian pharmaceutical market to remain a challenging environment. Furthermore, a lower budget allocation for drug regulatory authorities is likely to present further challenges.

Indian finance minister P Chidambaram has put forward the Indian interim budget for the 2014–15 Indian financial year (1 April 2014 – 31 March 2015), allocating INR337 billion (USD5.4 billion) to healthcare, reports LiveMint. This is a 9.7% reduction on the 2013–14 budget, whereby INR373 billion was allocated to healthcare. It should be noted, however, that budget allocations might be altered around June or July when the new government (sworn in after elections due to be held before 31 May) presents its budget.

The report goes on to highlight spending patterns over the 2013–14 spending year. Despite an allocation of INR373 billion for the year, the minister underspent, with a reported surplus of INR50 billion. Programmes that failed to spend allocated funding included public healthcare, where only INR11 billion of INR24 billion was spent, and the "creating human resources in health" project, where INR775 million of INR1.1 billion was spent. Other areas in which underfunding was also recorded included cancer care, disaster management, and vaccination programmes.

The 2014–15 budget comprises a number of measures that may affect the pharmaceutical and medical device industry. These include a lower allocation of funding for drug regulation, with INR1.25 billion being allocated in the 2014–15 budget against the INR1.33 billion actual spend for 2013–14 and the INR2.62 billion allocated for this in the 2013–14 budget. Sangita Reddy, executive director of Apollo Hospitals, has suggested that continued import duties on medical equipment may damage efforts to improve diagnostics provisions across the country.

Outlook and implications

It appears from the funding allocation that healthcare spending in the next year is likely to remain largely flat. This comes at a time when India's public health service is crumbling under the weight of demand, healthcare coverage in rural areas remains poor, rates of expensive-to-treat non-communicable chronic diseases are rising, health insurance rates remain low, out-of-pocket expenditure on healthcare pushes many below the poverty line, and India ranks 163rd in terms of life expectancy at birth (source: CIA Factbook). Indeed, the time has perhaps not been more pertinent for increases in healthcare expenditure.

The Indian cabinet is probably aware of this, having allocated money to cancer care, the construction of healthcare facilities, and the Urban Health Mission last year. However, with the Ministry of Health and Family Welfare (MHFW) struggling to spend all this allocation, the finance minister is probably facing pressure to allocate unspent money elsewhere. Given that funding is being made available but is not being spent, despite the dire state of Indian healthcare, criticism must likely fall on the MHFW. Indeed, there has already been a high-profile case of severe mismanagement of funding after the health minister failed to renew funding for the country's HIV treatment programme, despite funding being available. This resulted in a two-year hiatus in funding during which patients faced severe shortages of HIV drugs and NGOs had to step in to provide basic services that should have been provided by the ministry (see India: 13 February 2014: India's National AIDS Control Program enters fourth stage amid controversy over drug shortages).

Instead of acknowledging its own failings in providing adequate access to care and addressing the high-out-of-pocket expenditure on healthcare with measures such as improved insurance uptake, the Indian government has instead tried to drive savings from the pharmaceutical industry. This has included the extension of pricing controls and a weakened IP environment. With funding remaining tight in 2014–15 and no sign of a shake-up of management at the MHFW, it seems likely that the Indian government will continue its policy of driving savings from the pharmaceutical industry.

Moving to pharmaceutical regulation, reduced funding comes at a time when the clinical trials industry in the country continues to remain in limbo because of a lack of impetus to reform regulations from the MHFW and concerns over standards at Indian pharmaceutical companies are rebounding in the United States following a number of high-profile certificate of good manufacturing practice (cGMP) failings. A lack of funding may therefore arguably impede the resuscitation of both the clinical trials industry in the country and hinder India's efforts to revive its reputation for drug manufacturing abroad.

With recent opinion polls showing the opposition Bharatiya Janata Party gaining support, there remains the possibility that a new government will be sworn in after the upcoming election, overturning this budget.

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