Health Cess Fails to Deliver: Centre's Spending Dips Below Pre-Cess Levels
In a concerning trend for India's healthcare sector, the Centre's expenditure on health has actually decreased compared to pre-cess levels, despite collecting a dedicated health cess since 2018. This decline is evident both as a percentage of the total government budget and as a proportion of the Gross Domestic Product (GDP), raising serious questions about the effectiveness of this funding mechanism.
Budget and GDP Share Decline Significantly
Before the implementation of the health cess in 2018, the allocation for health stood at 2.4% of total government expenditure during the 2017-18 fiscal year. However, according to the Budget Estimates for 2026-27, this figure has dropped to just 1.9%. When examined as a proportion of GDP, the decline is equally stark, falling from 0.28% to 0.26% over the same period.
What makes this situation particularly troubling is that the money collected through the health cess now represents over 30% of the total allocation for health and family welfare in 2026-27. Without this cess component, health spending would account for a mere 1.3% of the total Budget, which is barely half of what it was in 2017-18.
Cess Masks Steep Cuts in Health Funding
When the health cess was initially introduced, there was a clear understanding that it would supplement existing government allocations to boost overall health expenditure. However, this anticipated outcome has not materialized. Instead, the cess appears to be masking what would otherwise be a significant reduction in the share of health within both the total Budget and GDP.
From 0.32% of GDP in 2019 (the year before the COVID-19 pandemic), the share has fallen to 0.27% even with the cess component included. If we remove the cess component entirely, the share of health in GDP drops dramatically to just 0.18%.
National Health Policy Targets Remain Distant
The National Health Policy had set an ambitious target of allocating 2.5% of GDP to health by 2025, with the central government expected to contribute 35% of this amount. This would translate to approximately 0.9% of GDP or Rs 3.5 lakh crore in funding. However, the current allocation falls significantly short, representing less than one-third of this target.
If we examine the revised Budget allocation for 2025-26, which was Rs 92,926 crore, and strip away the cess money, it reduces to Rs 78,279 crore. Applying the same calculation to the 2026-27 allocation brings it down to Rs 70,984 crore, marking a 9.3% decrease compared to the 2025-26 revised allocation without cess.
Alternative Perspective Reveals Funding Gap
Looking at the situation from another angle provides further insight into the funding shortfall. If the government had maintained the same share of the total Budget (2.4%) as it did in 2017, the allocation for this year would have been approximately Rs 1.2 lakh crore without the cess. Instead, even with the cess included, the allocation has reached only Rs 1 lakh crore.
Expert Analysis Highlights Systemic Issues
Economist Dr. Varna Sri Raman has pointed out several critical issues with the current cess system. The health and education cess creates an illusion of increased Budget allocation without actually increasing funding from the consolidated fund, she explained. Cess money flows from a reserve fund outside the regular Budget process, which means there are no outcome monitoring requirements and minimal parliamentary accountability.
Moreover, states have no claim on cess funds, as their allocation is entirely at the discretion of the central government. This creates a situation where the impression of enhanced health funding is created, while the reality may be quite different.
Implementation Delays and Revenue Diversion
The implementation of the health cess has been marked by significant delays and questionable fund management. When then Finance Minister Arun Jaitley introduced the health cess in 2018, he stated that the 3% education cess was being increased to a 4% health and education cess to address the needs of education and health for Below Poverty Line (BPL) and rural families.
However, as Dr. Sri Raman notes, the Finance Act does not specify how the 4% is to be divided between health and education. The central government decides annually how much goes into the Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN), which was established in 2021 to hold the health component of the cess—two years after the cess was introduced.
Perhaps most concerning is that the health cess collected during 2018-19 and 2019-20, amounting to approximately Rs 20,600 crore, was directed into general revenues without any specific earmarking for health purposes. This represents a substantial sum collected in the name of health that never reached its intended destination.
The current situation raises fundamental questions about the transparency and effectiveness of health funding mechanisms in India, particularly as the country continues to grapple with healthcare challenges in the post-pandemic era.
