Budget 2022: Healthcare allocation must be raised to achieve govt plans of spending 2.5% of GDP by 2025

The healthcare industry has been in the limelight over the past two years. A strict, nationwide lockdown impacted the delivery of healthcare services during the first wave of the COVID-19 resulting in operational disruptions for most industry players. In stark contrast to the first wave, patients scrambled for medical resources during the second wave of COVID-19, in April and May 2021 following a huge number of cases and the requirement of critical care in many patients.

The second wave further exacerbated the need for quality healthcare services in India, which has been a massively underpenetrated market in terms of both medical infrastructure and medical personnel. On top of these inefficiencies, the out-of-pocket expenditures towards healthcare are one of the highest, necessitating increased public spending on healthcare which is the need of the hour.

Dismal allocation to healthcare as a percentage of GDP

At Rs 74,602 crore, the budgetary allocation for the healthcare sector for FY2022 translated to a drop of 9.8 percent, if compared to the Revised Estimates for FY2021. Given that the allocation to healthcare as a percentage of GDP continues to be lower for India as against most developing nations and given the backdrop of the pandemic, ICRA expects a sizeable increase in allocation to the sector in the forthcoming budget. Higher allocation is necessitated, also to enable the Government to achieve its target spend of 2.5 percent of GDP on healthcare by 2025, from the current sub 2 percent levels.

During the previous budget, Rs 35,000 crore was allocated towards COVID-19 vaccination. This budget was partially utilized towards vaccinating the majority of the adult population in the country. With a resurgence in COVID-19, the partial cost towards children’s vaccination and booster shots for the adult population is also expected to be part of the upcoming allocation towards the sector.

Give tax incentives for private sector investments in healthcare

To boost investments in the sector, tax incentives for private sector investments in modernising medical facilities and developing greenfield hospitals in rural areas will be a welcome step. Further, given the low number of doctors to people and nurses to people ratio (aggregate density of health workers is 23 per 10,000 population, which is significantly lower than that recommended by WHO), increased allocation towards training medical personnel in addition to improving infrastructure in tier-2 and tier-3 cities would be a welcome move.

Increase allocation to promote local R&D

The upcoming Budget is also likely to focus on preventive healthcare given the significant rise in non-communicable and lifestyle diseases in the country. The government is also expected to increase the budgetary outlay towards improving the footprint of diagnostic labs across the country. In continuation with the production-linked incentive scheme for medical devices announced in March 2020 and allowance of 100 percent FDI for the sector, incremental allocation towards promoting local R&D and manufacturing of healthcare equipment will help India become self-reliant. This is important given that a sizeable proportion of the devices used in surgical and diagnostic procedures continue to be imported.

Amid rising stress levels and incidence of mental health problems that have been brought to the forefront by the pandemic, the budget outlay towards the National Mental Health Programme (NMHP) is also expected to increase.

Increase allocations for telemedicine, home-based healthcare

Further, increased allocation towards price increases under the PMJAY scheme would also be a welcome move to achieve the target of universal healthcare. Given the increasing penetration of technology in rural areas, incremental budget allocation for telemedicine, home-based healthcare, and the implementation of the National digital health mission will aid in the development of a stronger healthcare ecosystem.

Overall, healthcare is expected to remain a key focus area in the upcoming Budget given the backdrop of the ongoing pandemic. However, to achieve equitable and robust healthcare delivery to its large population, it is imperative that India continues to do the same in future Budgets as well.

The writer is Assistant VP and Sector Head, ICRA Limited.

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