CHAPTER – V

PUBLIC EXPENDITURE ON HEALTH IN TAMILNADU

The main objective of this chapter is to examine the size, distribution,

trends, composition and rate of growth of Tamil Nadu State Health Expenditure
during the period from 1999-00 to 2012-13. Improvement in human development
indicators and reduction in inequalities are clearly linked to economic and social
priorities of the governments and also to the outlays in social sector infrastructure.
In this context public health budgets become relevant because it is expected to
mirror the priority of the governments in terms of financial allocation towards the
health sector.

Increasingly the governments are facing pressures to increase the budgetary

allocations to the social sector. Recently there has been a suggestion to increase the
budget allocations to the health sector and to increase it to 3 per cent of GDP. Is
this a feasible goal? We certainly need some understanding of the behaviour of
public expenditures on health. Health is a state subject in India and therefore an
analysis of public health expenditures by states assumes greater significance. The
analysis of health care expenditures in general has been a topic of research and
discussion in recent times globally. In particular, the relationship between the
income and the health care expenditure (HCE) has been the focus of research for
the reason that it helps us to understand the key determinants of healthcare
expenditures and also provides insights into linkages between the income variable
on the one hand, and the demand and supply side of health on the other. Since in
India we are talking about increasing the public expenditures on health to 3 per
cent of GDP, this analysis would provide some insights into our proposed goal.

One of the areas of this analysis has been the focus on understanding the
income elasticity of health expenditures. This research has used standard demand
theory framework. Since the seminal work of Newhouse (1977) which estimated
the relationship between the health care expenditure and the gross domestic
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product (GDP), a large number of studies has been carried out to examine this
relationship in different contexts and to answer the question what makes health
care expenditure to increase. We are asking a similar question in our context. What
are the necessary and sufficient conditions for public health expenditures to
increase? One important determinant is income or GDP. Most of the studies on this
topic have been carried out in developed country context. In some of those settings
the health care costs have gone up significantly over the years and expenditure-
income analysis provides some interesting insights into health policy issues. A
number of studies agree that there is a relationship between GDP and HCE. These
studies vary from country level analysis to a much-disaggregated level like
province or state level analysis. Most of the studies in this field have focused on
health care expenditure including both the private and the public expenditures.

In India health is the responsibility of the state governments and therefore

the budget allocation of each state includes the allocation to health sector
programmes. Besides this the state governments also receive support from the
central government through the central sponsored programmes and various
national programmes. In India the government budget allocations to health sector
would reflect more of the supply side factors than the demand side whereas the
private sector health care expenditures would represent more of the demand side
conditions than the supply side. Hence, the analysis based on the combined
expenditure may not be appropriate and may produce erroneous results. Moreover,
by analyzing them separately we get more insight into the behaviour of
expenditures and their determinants. In this chapter the researcher focusses on an
analysis of the trend and elasticity of the Government health expenditure in Tamil
Nadu state using the state level data. For this purpose time-series data on the
public expenditure on health from 1999-2000 to 2012-13 is used.

In India health care expenditure is gradually increasing like the other

developed countries. However, public health expenditure has been grossly
inadequate right from the 1940s. The government has been spending less than

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what the private sector spends on health. The Bhore Committee report stated that
the per capita private expenditure on health was Rs. 2.50 as compared to the state
per capita health expenditure of just Rs. 0.36 which is 1/7th of private
expenditures. In the 1950s and 1960s the private health expenditure was 83 per
cent and 88 per cent of the total health expenditure respectively. According to the
latest figures the proportion of public expenditure on health to GDP in India is
around one per cent of GDP while the average public spending of less-developed
countries is 2.8 per cent of GDP. Only 17 per cent of all health expenditure in
India is borne by the government, the rest being borne privately by the people,
making it one of the most highly privatised healthcare systems of the world.

Within India we also see that there is a huge gap among different states in
economic terms and also in terms of development of health sector. Ahluwalia
(2000) in his article raises this issue while analysing the performance of individual
states. The paper states, “The economic performance of the individual states in
post-reforms period has received less attention than it deserves in the public debate
on economic policy. There is very lively debate in the academic world and in the
press on our national economic performance and the success or failure of various
aspects of national policies, but there is relatively little analysis of how individual
states have performed over time and the role of state government policy in
determining state level performance.” The researcher examines the state level
public health expenditure. In fact the state as a unit of study needs to be studied
because of the following structural and methodological reasons:

5.1 STRUCTURAL AND POLITICAL ISSUES:

India is a federal democracy in which the constitutional division of powers

between the centre and the states makes the states pre-eminent in many areas and
co-equal with the centre in other areas. Health is a state subject and the state
policies would have an important bearing on the public health expenditures in
India. Nowadays government at the state level is run by different political parties
and the competition among them should make the performances of individual
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states a matter of high political and electoral interest. After liberalisation the
degree of control exercised by the centre has been reduced in many areas leaving
much greater scope for states to improve their performance level and initiatives.
This is particularly true as far as attracting investments, both domestic and foreign,
is concerned.

5.2 GROWTH AND TREND OF PUBLIC EXPENDITURE ON HEALTH IN

TAMIL NADU:

One of the more obvious indicators of the inadequacy of public health

spending in India is the very small amount of such spending relative to GDP. In
developed countries, especially those with ageing populations, government health
spending accounts for around 5 per cent of GDP or more. Even in the Asian
developing countries excluding India, the average is around 3 per cent of GDP.
This makes it quite remarkable that India, which is currently seen internationally
as an economic powerhouse and one of the success stories of global economic
growth in the past decade, has government health expenditure amounting to less
than one per cent of GDP. Further, this ratio is not only low internationally, but is
even low compared to past experience.

Health is a concurrent subject under the Indian Constitution, but the state
governments are dominantly responsible for most health provision, both curative
and public health aspects. However, in addition to direct central government
spending on specific budget items, there is a range of centrally mandated
expenditures which are also effectively spent by the state governments, as well as
some joint spending. Tamil Nadu is not exempted from this and it is observed that,
the Tamil Nadu government spends a greater proportion to revenue expenditure
(essentially, the payment of salaries) than the capital expenditure for creating the
much-needed basic physical infrastructure.

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 TABLE 5.1

GROWTH OF REVENUE EXPENDITURE ON HEALTH IN TAMIL

NADU FROM

1999-2000 TO 2012-13

Revenue Expenditure
Annual Growth
Year on Health (Rs. in
Rate
Millions)
1999-2000 9641.90 ---
2000-01 9716.80 0.777
2001-02 9666.30 -0.520
2002-03 9499.70 -1.724
2003-04 10935.10 15.110
2004-05 11113.00 1.627
2005-06 11079.00 -0.306
2006-07 13097.20 18.216
2007-08 14422.30 10.117
2008-09 18950.60 31.398
2009-10 25205.00 33.004
2010-11 33955.80 34.719
2011-12 34872.30 2.699
2012-13 40483.20 16.091
Source: State Finances: A Study of Budgets; Various issues by RBI, India.

Data on Revenue expenditure on health is given in the Table- 5.1 for the
period from 1999-2000 to 2012-13. It shows that the revenue expenditure on
health has gradually increased from Rs.9641.90 millions in 1999-2000 to
Rs.40483.20 in 2012-13 except the years 2001-02 and 2003-04. The annual
Growth Rate of revenue expenditure on health indicates an oscillation in the
government spending on health between – 1.724 per cent and 34.71per cent. For

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example in the year 2002-03 it indicates a negative growth rate but in the
following year it has increased to 15 per cent.

TABLE 5.2

GROWTH OF CAPITAL EXPENDITURE ON HEALTH IN TAMIL NADU

FROM 1999-2000 TO 2012-13

Year Capital Expenditure Annual Growth

on Health (Rs. in Rate
Millions)
1999-2000 639.70 ---
2000-01 268.90 -57.96
2001-02 352.20 30.98
2002-03 483.40 37.25
2003-04 659.30 36.39
2004-05 477.90 -27.51
2005-06 2449.80 412.62
2006-07 1015.70 -58.54
2007-08 741.60 -26.99
2008-09 1240.90 67.33
2009-10 3531.70 184.61
2010-11 3247.20 -8.06
2011-12 2450.00 -24.55
2012-13 4552.20 73.56
Source: State Finances: A Study of Budgets; Various issues by RBI, India.

Table - 5.2 shows data on capital expenditure on health for the period from
1999-2000 to 2012-13. The year 2004-05 indicates a negative growth rate that is –
27.51 but in the following year it has increased by 11 folds (412.62 per cent). It is
a remarkable growth rate in the health sector. But during the periods of 2000-01,

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2004-05, 2006-07, 2007-08, 2010-11, 2011-12 the capital expenditure meets
negative growth rate. During the periods from 2001-02 to 2005-06, 2008-09, 2009-
10, 2012-13 the capital expenditure shows a positive growth rate. From this table it
is observed that, there is instability in health expenditure.

TABLE 5.3

GROWTH OF TOTAL EXPENDITURE ON HEALTH IN TAMIL NADU

FROM 1999-2000 TO 2012-13

Total Expenditure on
Annual Growth
Year Health
Rate
(Rs. in Millions)
1999-2000 10281.60 ---
2000-01 9985.70 -2.878
2001-02 10018.50 0.328
2002-03 9983.10 -0.353
2003-04 11594.40 16.140
2004-05 11590.90 -0.030
2005-06 13528.80 16.719
2006-07 14112.90 4.317
2007-08 15163.90 7.447
2008-09 20191.50 33.155
2009-10 28736.70 42.320
2010-11 37203.00 29.461
2011-12 37322.30 0.321
2012-13 44735.40 19.862
Source: State Finances: A Study of Budgets; Various issues by RBI, India.

Table- 5.3 displays data on total expenditure (Revenue plus Capital) on

health in Tamil Nadu from 1999-2000 to 2012-13. The lowest value of Rs.9983.10
million is recorded in the year 2002-03 and the highest value of Rs.44735.40
136

million is registered in 2012-13 and it shows a continuous increase after the year
2003-04. The annual growth rate of total expenditure on health indicates an ebb
and flow in government spending on health between – 2.88 per cent and 42.32 per
cent. In the year 2004-05 it indicates a negative growth rate that is –0.03 but in the
following year it has increased to 16.72 per cent.

From the regression analysis we can get a clear picture about the trend of
public expenditure on health. For this purpose Simple Linear Regression (SLR)
and Semi-Log Linear Regression models are used and the model specification is
explained in the methodology chapter.

TABLE 5.4

RESULTS OF TREND ANALYSIS OF REVENUE EXPENDITURE ON

HEALTH IN TAMIL NADU DURING 1999-00 – 2012-13

Model A B SEb t Sig. R2 Adj.R2 CGR

SLR 602.50 2325.74* 347.27 6.697 .000 .789 .771 --
Semi-
8.755 .120* .013 8.986 .000 .871 .860 12.74
Log
Source: Calculated based secondary data. *significant at one percent level.

Results of trend analysis are given in the Table-5.4 that shows that the
revenue expenditure on health has increased by Rs.2325.74 millions per year and if
we calculate percentage, the revenue expenditure on health has increased by 12 per
cent per year. Both the models significant at one percent level and the values of
adjusted R2 indicate a good model fit. The Compound Growth Rate for the period
1999-00 to 2012-13 is 12.74 per cent which indicates a normal growth in the
revenue expenditure on health.

137

 TABLE 5.5

RESULTS OF TREND ANALYSIS OF CAPITAL EXPENDITURE ON

HEALTH IN TAMIL NADU DURING 1999-00 – 2012-13

Model A B SEb t Sig. R2 Adj.R2 CGR

SLR -430.23 265.08* 53.32 4.972 .000 .673 .646 --
Semi-
5.549 .190* .032 5.927 .000 .745 .724 20.92
Log
Source: Calculated based secondary data. *significant at one percent level.

Results of trend analysis given in the Table-5.5 clarify that the capital
expenditure on health has increased by Rs.265.08 millions per year and the Semi-
Log Linear Regression model results reveal that the capital expenditure on health
has increased by 0.19 per cent per year. It is notable that the capital expenditure on
health is a more fluctuating one in Tamil Nadu. Both the models significant at one
percent level and the values of adjusted R2 indicate a moderate model fit. The
Compound Growth Rate for the period from 1999-00 to 2012-13 is 20.62 per cent
which indicates a good growth in the revenue expenditure on health during the
period.

138

 FIGURE 5.1

TREND OF
F REVENU
UE EXPE
ENDITURE
E ON HEA
ALTH IN TAMILN
NADU

139

 FIGURE 5.2

T
TREND OF
F CAPITA
AL EXPEN
NDITURE
E ON HEA
ALTH IN TAMILNADU

140

 TABLE 5.6

RESULTS OF TREND ANALYSIS OF TOTAL EXPENDITURE ON

HEALTH IN TAMIL NADU DURING 1999-00 – 2012-13

Model a B SEb t Sig. R2 Adj.R2 CGR

-
SLR 2590.82* 378.42 6.846 .000 .796 .779 --
5176300.13
Semi-
8.799 0.124* .013 9.540 .000 .884 .874 13.20
Log
Source: Calculated based secondary data. *significant at one percent level.

141

 FIGURE 5.3

TRE
END OF TOTAL HE
EALTH EXPENDIT
E TURE IN TAMILNADU

142

 Table-5.6 reveals the results of trend analysis of total health expenditure in
Tamil Nadu State. Results show that the total expenditure on health has increased
by Rs.2590.82 million per year and the Semi-Log Linear Regression model results
reveal that the total expenditure on health has increased by 0.12 per cent per year.
Both the models are significant at one percent level and the values of adjusted R2
indicate a good model fit. The Compound Growth Rate for the period from 1999-
00 to 2012-13 is 13.20 per cent which indicates a good growth in the revenue
expenditure on health during the period.

5.3 HEALTH CARE EXPENDITURE INCOME ELASTICITY

Concerning the effect of per capita income, one major question of health
economics is the estimation of health care expenditure income elasticity. Most of
the earlier studies assumed that, the per capita public healthcare expenditure by the
state governments is a function of per capita gross state domestic product. The
present study also follows the same methodology.

The model is specified in log-log form so that the coefficient estimates are
elasticity and therefore it enables us to interpret the relationship of health care
expenditures and income. We use the following model to estimate this
relationship:
lnHCE = Į + ȕ lnNSDP + İ
where ȕ will give the elasticity of HCE with NDP and İ is the residual.

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 TABLE 5.7

RELATIONSHIP OF HEALTH CARE EXPENDITURE (REVENUE) AND

INCOME IN TAMIL NADU DURING 1999-00 – 2012-13

Model a B SEb T Sig. R2 Adj.R2

SLR 672.84 .006* .000 16.554 .000 .958 .955
Double-
-2.774 .842* .071 11.850 .000 .921 .915
Log
Source: Calculated based secondary data. *significant at one percent level.

Table-5.7 demonstrates the relationship and elasticity between the income

and the revenue expenditure on health in Tamil Nadu from 1999-2000 to 2012-13.
Regression results show that there is a positive relationship between the revenue
expenditure on health and income. The value of ‘b’ is .006 and it indicates that a
million rupees increase in the income leads to only .006 million increase in the
revenue expenditure on health. The elasticity value is .842 (less than one) and it
indicates that the revenue expenditure on health is less elastic. Hence it may be
considered as necessary good. Both the models are significant at one percent level
and the values of adjusted R2 indicate a good model fit.

TABLE 5.8

RELATIONSHIP OF HEALTH CARE EXPENDITURE (CAPITAL) AND

INCOME IN TAMIL NADU DURING 1999-00 – 2012-13

Model a B SEb T Sig. R2 Adj.R2

SLR -336.78 .001* .000 5.975 .000 .748 .727
Double-Log -12.496 1.320* .208 6.352 .000 .771 .752
Source: Calculated based secondary data. *significant at one percent level.

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 Table-5.8 exhibits the relationship and elasticity between the income and
the capital expenditure on health in Tamil Nadu during 1999-2000 – 2012-13.
Regression results illustrate a positive relationship between the healthcare
expenditure and income. The coefficient value of b is .001 indicates that a million
rupees increase in income leads to only .001 million rupees increase in capital
expenditure on health in Tamil Nadu. The elasticity value is 1.320 (greater than
one) and it indicates that the capital expenditure on health is more elastic. There
are more ups and downs in government spending on health. Hence it may be
considered as luxurious good. Both the models are significant at one per cent level
and the values of adjusted R2 indicate only a moderate predicting power of
independent variable.

TABLE 5.9

RELATIONSHIP OF HEALTH CARE EXPENDITURE AND INCOME IN

TAMIL NADU DURING 1999-00 – 2012-13

Model a B SEb T Sig. R2 Adj.R2

SLR 336.061 .006* .000 16.613 .000 .958 .955
Double-
-3.118 .871* .067 12.905 .000 .933 .927
Log
Source: Calculated based secondary data. *significant at one percent level.

The relationship and elasticity between the income and the total expenditure
on health in Tamil Nadu during 1999-2000 – 2012-13 is tabulated in Table-5.9.
Regression results illustrate, a positive relationship between the total expenditure
on health and the income. The coefficient value of b is .006 indicates that a million
rupees increase in income leads to only .006 million rupees increase in capital
expenditure on health in Tamil Nadu. Elasticity value is .871 (less than one) and it
indicates that capital expenditure on health is less elastic. Hence it may be
considered as necessary good. Both the models are significant at one per cent

145

level and the values of adjusted R2 indicate a very good predicting power of
independent variable.

5.4 SHARE OF HEALTH CARE EXPENDITURES IN INCOME

The Table 5.10 shows the share of health care expenditure in income in
Tamilnadu. During the year 1999-2000, its percentage of total expenditure is 0.86.
During the period from 2000-01 to 2007-08 the percentage of total expenditure has
continuously declined from 0.77 per cent to 0.48 per cent. The percentage of total
expenditure has continuously increased from 0.56 per cent in 2008-09 to 0.66 per
cent in 2012-13 except the year 2011-12. The average share of the health care
expenditure in income is 0.66 per cent during the period 1999-2000 to 2012-13.

146

 TABLE 5.10

SHARE OF HEALTH CARE EXPENDITURES IN INCOME IN

TAMILNADU

% share of % share of
% share of Total
Revenue Capital
Year Expenditure on
Expenditure of Expenditure of
Health in Income
Health in Income Health in Income
1999-2000 0.805479 0.053440 0.859
2000-01 0.745081 0.020619 0.766
2001-02 0.735686 0.026805 0.762
2002-03 0.687124 0.034965 0.722
2003-04 0.710651 0.042847 0.753
2004-05 0.627067 0.026966 0.654
2005-06 0.484125 0.107050 0.591
2006-07 0.473317 0.036706 0.510
2007-08 0.459584 0.023632 0.483
2008-09 0.527298 0.034528 0.561
2009-10 0.586145 0.082130 0.668
2010-11 0.643209 0.061510 0.705
2011-12 0.580759 0.040802 0.622
2012-13 0.603154 0.063353 0.667
Average 0.619191 0.046181 0.666
Source: State Finances : A Study of Budgets; Various issues by RBI, India.

From the table it may be concluded that from 1999-2000 to 2012-13 the
government did not give much importance to the health of the people. Even the
government of Cuba has launched the door delivery health care services to its
people but in India, the share of government health care expenditure in income has
never exceeded one percent so far.

147

5.5 PERCAPITA HEALTH EXPENDITURE IN TAMIL NADU

Health being the state subject in India and much depends on the ability of
the state governments to allocate higher budgetary support to health sector. This
inter alia depends on what the current levels of spending are, what per cent of
income the states assume to spend on health and given fundamental relationship
between the income levels and the public expenditures, how fast expenditures can
respond to the rising income levels. Improvement in human development
indicators and reduction in inequalities are clearly linked to economic and social
priorities of the governments and also to the outlays in social sector infrastructure.
In this context public health budgets become relevant, because it is expected to
mirror the priority of the governments in terms of financial allocation towards
health sector. Looking at the significance of public health expenditure in achieving
better health outcomes and reducing catastrophic health expenditure, the central
and the state governments in India have been increasing their expenditure on
health, especially since 2005-06.

It is reflected in Percapita Health Expenditure given in the Table 5.11.

Percapita Health Care Expenditure has increased from Rs.166 in 1999-00 to
Rs.657 in 2012-13. Even though the percapita health expenditure has increased by
fourfold, it is not sufficient because of doctor’s high consulting fees, operation
charges, cost of medicines and transporting cost and everything that has increased
unimaginably.

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 TABLE 5.11

PER CAPITA HEALTH EXPENDITURE IN TAMIL NADU

Per capita Health

Year
Expenditure (in Rs.)
1999-2000 166.91
2000-01 160.59
2001-02 159.68
2002-03 157.63
2003-04 181.49
2004-05 179.94
2005-06 208.35
2006-07 215.68
2007-08 230.04
2008-09 304.15
2009-10 429.96
2010-11 553.02
2011-12 551.47
2012-13 657.24
Source: State Finances : A Study of Budgets; Various issues by
RBI, India.

Although over the last 50 years, India has shown improvements in its health
infrastructure and broad health indicators, on public financing front it is at a far
from satisfactory level. Public spending on healthcare is low compared to many
countries in the world, having declined from 1.3 per cent of GDP in 1990 to
around 0.9 per cent of GDP in 2002, placing India amongst the lowest quintile of
countries. Aggregate expenditure on health is around 6 per cent of GDP, implying
only about 17 per cent is met through public health spending, the remaining by
out-of-pocket expenditure.

149

 This chapter has examined the relationship between the income and the
healthcare expenditures at the state level. The results suggest that at the state level
governments have the target of allocating only about 0.66 per cent of NSDP to
health and medical care. This does not include the allocations received under
central sponsored programmes such as family welfare. This level of spending at
current levels with the fiscal position of Tamil Nadu state government the goal and
of spending 2 to 3 per cent of income on health appears to be a very ambitious
task. The analysis also suggests that elasticity of health expenditure when NSDP
changes by only 0.87 suggests that for every one percent increase in state per
capita income the public healthcare expenditure has increased by around 0.87 per
cent.

The declining allocations to health sector at the state level would have a
detrimental effect on the public health delivery. The less and declining allocations
by the government will lead to dependence on the private sector. This also explains
why the private health expenditures have risen at a very high rate. The impacts are
significant as private sector comprises mainly profit oriented, ‘fee-for-service’
practitioners. Private household expenditure is predominant in curative primary
care. Although direct treatment costs in most public hospitals are largely
subsidised, households have to bear substantial costs for the purchase of medicines
owing to shortages in public health facilities. Illness imposes a heavy burden on
the poor. As recent study estimated, for the poorest tenth of the population, it
amounted to between 10 per cent (in Kerala) and 230 per cent (Uttar Pradesh,
Punjab, Rajasthan and Bihar) of annual per capita consumption expenditure. The
top 10 percent of the population, however, bore a relatively lighter burden, as the
average cost of treatment was between 5 percent and 40 per cent of annual per
capita consumption expenditure of that class.

Augmenting financial resources to health sector through public and private

sources is an important task. However, simple allocation of more resources to
health sector may not produce the desired efficiency. The Health sector is in need

150

of major reforms. Existing facilities in the health sector are not being used by
people because of low quality, irregular attendance of medical staff, inadequate
equipment, and poor maintenance and upkeep. Some of these can be ensured
through better allocation of resources. Most of the problems are more systemic in
nature and needs major reform to make health sector responsible. The commitment
and motivation of providers in the public sector is critical to ensure the allocations
to produce desired results (Bhat and Maheshwari 2004). The reforms have focused
not only on the public domains of health sector but also on the private sector. For
example, a large number of private medical practitioners in rural areas are
untrained and unqualified. Lack of decentralisation has frequently led to a
mismatch between the local needs and the health services on offer, and to low
accountability of services and higher inefficiency. A substantial proportion of the
specialist posts in community health centres are vacant rendering many of them
useless as first referral units. At the same time, the ratio of qualified doctors to
para-medical and nursing personnel is lop-sided in India. There are severe
imbalances in India between the public and the private health care; and within the
public health care between the preventive and the curative services; among the
primary, the secondary and the tertiary health care services; and between the salary
expenses and the other recurrent expenditures.

The central and the state governments are responsible for the provision of
primary healthcare in the country. A spending of less than 1 per cent of the GDP
on public health is not only dismally low but most of the expenditure is on staff
salaries leaving little or nothing for facilities, drugs and other consumables. The
large existing network of public primary care facilities can and should be used
more effectively with the help of private partnerships to enable better delivery.
Building better forward and backward linkages through a superior referral system
would cause the secondary and tertiary care facilities to be more manageable and
would prevent them from being over burdened.

151