Effects of economic growth towards government health financing of Indian states: an assessment from a fiscal space perspective

This paper analyses the performance of government health financing situation of Indian states and evaluates the long-run effects of rising economic growth on assessing fiscal space for health over the period 1980–2014. Our empirical result shows that rising state’s gross domestic product stimulates the growth of government health expenditure in the long run. Further, the elasticity of government health financing with respect to state’s gross domestic product is less than one, which implies that healthcare is no longer a luxury good. Overall analysis of fiscal space for health transition exhibits that there is not only a huge inequality in public health expenditure measured in terms of percentage share to state’s gross domestic product but also less prioritization of health budget due to the lower fiscal capacity of the government. We propose the following policies; first, the government should give more importance to the healthcare by allocating more resource in the budget; and second, the government should emphasize on fiscal capacity by raising revenue, which would eventually result into mobilizing more funds towards the health sector.