Indian healthcare: Big, bad and cheap

25 October, 2012

Despite India being one of world’s largest healthcare markets and pharmaceuticals exporters, the country’s health statistics are among the worst owing to a large extent to low public spending

India’s annual healthcare spending of $65 billion at the market-exchange rate, $160 billion in general purchasing-power parity (PPP) terms and $500 billion in healthcare PPP terms has turned India into a major healthcare market. The Indian healthcare sector, however, represents a confluence of seemingly contradictory trends. The country is world’s largest emerging market exporter of pharmaceutical products and has incubated some of the most-globally-prominent generic pharmaceutical companies. The healthcare system in India is also one of the least expensive in the world. Average cost of healthcare in India turns out to be just 13 per cent of the global average. Besides, healthcare systems in a large number of countries, including advanced economies, are flush with doctors and paramedical staff of Indian origin, and India has emerged as one of the key global destinations for medical tourism.

Contrast this with the fact that India has one of world’s worst records regarding immunisation of children against DPT – diphtheria, pertussis (whooping cough) and tetanus, life expectancy at birth, pregnant women receiving prenatal care, birth attended by skilled health staff and the number of hospital beds and doctors per head. Furthermore, India has one of the highest birth rates as well as infant-mortality rates in the world.

Even the proponents of “small government is beautiful”, who insist that government should desist from participating in commercial activities, generally accept the need for a significant role of the government in areas such as education and healthcare. In India, however, government is involved in a wide range and large number of commercial activities – from banking to power production and airlines to mining. Yet, India represents one of the most-privatised healthcare systems in the world.

At 1.2 per cent of the GDP, public spending on healthcare in India is one of the lowest in the world. The percentage of public spending in overall healthcare spending in India is just 29 per cent, versus 84 per cent in the UK, 83 per cent in Japan, 77 per cent in France and Germany and 53 per cent in the US. In most major emerging market peers, the ratio is also much higher than in India – 75 per cent in Thailand, 62 per cent in Russia, 54 per cent in Argentina and China and 47 per cent in Brazil. Even among the immediate neighbours, Sri Lanka (45 per cent) and Pakistan (39 per cent), the proportion of healthcare spending through public resources is higher than in India.

In order to compensate for the low public spending, private spending by Indians on healthcare, at 2.9 per cent of GDP, is one of the highest in the world. The corresponding ratios for some of the major economies are 1.3 per cent in Indonesia, 1.6 per cent in the UK, 1.7 per cent in Japan, 1.9 per cent in Russia, 2.4 per cent in China, 2.6 per cent in France and 2.7 per cent in Germany. The concoction of low public and high private spending in India renders the healthcare system highly inequitable in terms of income category, rural-urban residence status as well as state-wise residence status.

The latest survey of consumer expenditure by the National Sample Survey Organisation (NSSO) reveals that the share of the bottom-half of the Indian population in private healthcare spending is meagre, while it is very high for the richest 10 per cent of the population. Of private healthcare spending, the bottom 50 per cent of the Indian population account for 21 per cent for medicine, 17 per cent for doctor’s/ surgeon’s fees, 11 per cent for medical diagnostics and 11 per cent for hospital/nursing home fees. The corresponding shares of the richest 10 per cent of Indians are 35 per cent, 42 per cent, 53 per cent and 62 per cent, respectively. As is evident from the above description, income elasticity of demand for healthcare in India at over 1.5 is high.

Rural consumers in India use a larger proportion of overall consumption spending on healthcare than urban consumers. Although the difference has dipped over the years, rural India still accounts for 57 per cent of the overall private healthcare spending. It is, however, interesting to note as one moves from less to high-value healthcare services, the percentage of rural consumers in private healthcare spend slips – from 60 per cent for medicines to 55 per cent for medical diagnostics to 52 per cent for doctor’s/surgeon’s fees and to 48 per cent for hospital/nursing home fees.

Inter-state divergence in per-capita spending on private healthcare is also glaring. Apart from the special category states such as those in the North-East or Jammu & Kashmir which secure special grants from the Union Government for healthcare, there is a strong positive correlation between public and private healthcare spending. In states with high per-capita income, the capacity of individuals to spend on private healthcare is high. The capacity of the state governments to mobilise resources for spending on public healthcare is also high. This explains the positive correlation between public and private healthcare spending. Adjusted for population, private healthcare spending is disproportionately high in Maharashtra, Kerala and Tamil Nadu, while such spending is disproportionately low in Bihar, Odissa and Assam.

The healthcare system in India obviously needs mending through a much larger public outlay and better quality of healthcare spending. In certain states, 80 per cent of the healthcare outlay goes towards paying wages and salaries leaving little resources for spending on medicine or medical diagnostics. The National Healthcare Policy, 2002, aimed at raising public healthcare spending to three per cent of GDP by 2012. In reality, such spending stands at 1.2 per cent of GDP in 2012. Two current flagship public healthcare schemes – the Rural National Health Mission (RNHM) and the Rashtriya Swasthya Bima Yojana (RSBY) – are once again attempting to rejuvenate the public healthcare system and increase access of the poor to quality healthcare facilities. Perhaps this time will be different? We keep our fingers crossed.

(Sujan Hajra is Executive Director, Research, and Chief Economist, Institutional Equity, AnandRathi Financial Services. He can be reached at sujanhajra@rathi.com.)


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2 Comments
Phoenix . 5 years ago

Well written informative article. Bit verbose and charts would have definitely helped. Regarding, “healthcare system in India obviously needs mending through a much larger public outlay”, pray , is this is right solution ? Why not private sector initiative ? What is the right level of govt participation? Beyond what point could this be taxing on people ? How does one control quality in govt hospitals ? Look forward to few solutions in the next article ! ! !

D . 5 years ago

Well written informative article

Indian healthcare: Big, bad and cheap

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