India - Policy and finance strategies for strengthening primary health care services

Report No. 13042-IN India Policy and Finance Strategies for Strengthening Primary Health Care Services May 15, 1995 Population and Human Resources Division South Asia Country Department II (Bhutan, India, Nepal) (*mav  ABBREVIATIONS AND ACRONYMS AIDS Acquired Immunodeficiency Syndrome ANM Auxiliary Nurse Midwife ARWSP Accelerated Rural Water Supply Program CCHFW Central Council of Health & Family Welfare CGHS Central Govermnent Health Scheme CHC Community Health Center CMO Chief Medical Officer DALY(S) Disability Adjusted Life Years DC District Collector DGHS Directorate General of Health Services DMS District Medical Superintendent ESIS Employees State Insurance Scheme FP Family Planning FW Family Welfare GDP Gross Domestic Product GIDR Gujarat Institute of Development Research GOI Government of India HIV Human Immunodeficiency Virus ICDS Integrated Child Development Services ICMR Indian Council for Medical Research IM Initiating Memorandum IMR Infant Mortality Rate IMRB Indian Market Research Bureau MCH Maternal & Child Health MOHFW Ministry of Health and Family Welfare NCAER National Council for Applied Economic Research NGO Non-government Organizations NHP National Health Policy NIPFP National Institute of Public Finance & Policy NLEP National Leprosy Eradication Program NMEP National Malaria Eradication Program NMNP National Minimum Needs Program NSS National Sample Survey NTCP National Tuberculosis Control Program O&M Operations and Maintenance OPD Out Patient Department ORG Operations Research Group PHC Primary Health Center PPP Purchasing Power Parity SC/ST Scheduled Caste/Scheduled Tribe STD Sexually Transmitted Disease SUBC Sub Center TB Tuberculosis UP Uttar Pradesh VHG Village Health Guide WB World Bank WDR World Development Report  ACKNOWLEDGEMENTS This report has been prepared by a team led by Tawhid Nawaz. Major contributions were made by Shreelata Rao-Seshadri, Salim Habayeb and Damianos Odeh. Peter Berman of the Harvard School of Public Health was the principal field investigator and V. J. Ravishankar acted as field coordinator for the various sectoral pieces that were produced by Indian research institutions. The new research carried out for the sector study was undertaken by the following institutions: National Institute of Public Finance and Policy (Dr. V.B. Tulasidhar), National Council of Applied Economic Research (Dr. Prem Vashishtha), Gujarat Institute of Development Research (Dr. Pravin Visaria and Dr. Anil Gumber) and the Foundation for Research in Community Health (Dr. Ravi Duggal). The peer reviewers were: I. Porter, K. Subbarao and D. Jamison. The report benefitted from comments from J. Salop, R. Anderson, K. Uchimura, R. Zagha, V. Kozel, V. J. Ravishankar, A. Measham, 1. Pathmanathan and M. Chatterjee. The document was produced by Nischint Bhatnagar and Jane Mukira. The report is endorsed by Richard Skolnik, Chief, Population and Human Resources Division and Heinz Vergin, Director, South Asia Country Department II (Bhutan, India and Nepal). The extensive collaboration of the Ministry of Health and Family Welfare (MOHFW), Government of India is acknowledged. The report was discussed at two workshops: one in Hyderabad organized by the Administrative Staff College of India in November, 1994, and the other in Jaipur organized by the Indian Institute for Health Management Research (IIHMR) in March, 1995. Participants at the Jaipur workshop, who discussed the report extensively, included senior officials from MOHFW, Secretaries of Health and Directors of Medical Services from 11 State Governments, representatives from SEARO-WHO, the Asian Development Bank, IIHMR, Gujarat Institute of Development Research, National Council of Applied Economic Research, Centre for Enquiry into Health and Allied Themes, All India Institute of Hygiene and Public Health and the Indian Institute of Management at Ahmedabad. MOHFW provided a summary of the main conmments made at the Jaipur Workshop. These have been incorporated into the present version of the report.  I  INDIA POLICY AND FINANCE STRATEGIES FOR STRENGTHENING PRIMARY HEALTH CARE SERVICES TABLE OF CONTENTS PAGE NO Executive Summary ............................................ v-xiv Table on Main Findings & Recommendations .......................... xv-xxii INTRODUCTION A. Background .......................... 1 B. Terms of Reference for the Study ........... ............... I C. Structure of the Report .......................... 2 D. Definitions and Reference Points .......... ................ 3 2. OVERVIEW OF THE HEALTH SECTOR A. Mortality, Morbidity, Fertility and the Burden of Disease ................... 5 B. National Health Policy ........................................ 10 C. Administrative, Budgeting and Financing Structure ....................... 12 3. PUBLIC EXPENDITURES ON PRIMARY HEALTH CARE SERVICES A . Introduction ............................................... 18 B. Public Expenditures on Health .................................... 21 C. Government Financing for Health ................................. 27 D. Trends in the Level and Composition of Government Spending .... ........... 30 E. Impact of Government Spending on Health Status ........................ 36 F. The Effect of Adjustment on Government Health Spending .................. 38 4. PUBLIC PRIMARY HEALTH CARE SERVICES: STRUCTURE. INPUTS, PERFORMANCE AND ESTIMATES OF FINANCING REOUIREMENTS A. The Development of Health Services ................................ 48 B. Inputs for Public Sector Health Programs at Primary Level .................. 50 C. The Financial Implications of Input Gaps ............................. 61 5. PRIVATE HEALTH EXPENDITURES AND PROVISION OF PRIMARY HEALTH CARE SERVICES A. Introduction ......................................... 66 B. Private Health Expenditures and Primary Health Care ..................... 68 C. Private Provision of Health Services ................................ 72  6. PUBLIC AND PRIVATE SECTOR ROLES IN MEETING THE DEMAND FOR HEALTH CARE A. Introduction ............................................... 75 B. Outpatient Treatment of Illness ................................... 77 C. Preventive Care ............................................. 90 D. Treatment in Hospital ......................................... 92 7. SUMMARY OF MAIN CONCLUSIONS AND RECOMMENDATIONS FOR ACTION A. Introduction .............................................. 101 B. Increase Government Expenditure on Primary Health Care ................ 102 C. Improve the Structure of Public Financing for Primary Health Care .... ....... 103 D. Ensure Adequate Financing of Public Primary Health Care Facilities at the State Level . .......................................... 103 E. Increase Supplementary Central Funding to Needy States .................. 104 F. Mobilize Resources through Financing Innovations ..................... 104 G. Strengthen Private Primary Health Care through Improvements in Service Quality . ............................................ 105 H. Encourage Private Sector Participation in Preventive and Promotive Health Services ............ ............................... 105 I. Improve Sectoral Effectiveness and Efficiency by Strengthening the Referral System . ........................................ 106 J. Improve Understanding of the Health Needs of Women Beyond Those Covered by the Family Welfare Program .................. 106 K. Strengthen GOI/MOHFW Planning and Analysis Capacity ................. 107 L. Strengthen Training; Increase Awareness of Health-Related Issues; and Initiate Community Participation in Existing Health Education Programs ......................................... 107 M. Need for Further Analysis ..................................... 108 BIBLIOGRAPHY . .................................................. 109 CHAPTER 6 APPENDICES Appendix 1: Demand for Non-hospital Illness Care and Determinants of Expenditure: Multivariate analysis ........................ 116 Appendix 2: Hospital use and Expenditure: Multivariate Analysis ................................. 118 STATISTICAL ANNEXES Annex 1: National Statistics of Health Care Financing and Provision ...................................... 132 Annex 2: Detailed Tables on Finance, Inputs, and Performance of Primary Health Care in Four States. ....................... 154 Annex 3: Detailed Tables on Health Care Use and Expenditures Based on NSS 42nd Round (1986-87) from Five Major States. ............. 182  TABLES 2.1 India: Burden of Disease in 1990 .................................... 7 2.2 Goals for Health and Family Welfare Programmes to the Year 2000 .............. 11 3.1 National Health Spending: An Estimated "Sources and Uses" Matrix .............. 20 3.2 Growth of Health Sector Expenditure Classified by Inputs ..................... 26 3.3 Growth of Expenditures by Sources: Total and Health ....................... 34 3.4 Per-Capita Health Expenditures, 1970s to 1980s ........................... 35 4.1 An Estimate of the Financing Requirement at State Level to Complete the Rural Primary Care Delivery System ......................... 65 5.1 Household Out-of-Pocket Health Expenditure and Primary Care ................. 69 5.2 Percent of Total Household Expenditure to Health and to Non-Hospital Treatment by Expenditure Quintiles .70 6.1 Differences by Age and Sex in the Probability of Use of Non- Government Providers for Non-Hospitalized Illness Treatment .................. 78 6.2 Public/Private Services, Poverty and Specific Diseases ..................... 83-84 6.3 User Expenditure for Illness Treatment by Expenditure Quintile ................. 86 6.4 Cost per Treated Episode as a Percent of Monthly Household Consumption Expenditure (Users Only) ............................... 88 6.5 Access to Free Care for Illness Treatment ............................... 89 6.6 Illness Treated by Non-Government Providers Outside of Hospital for Total Population and Insured Population ........ ...................... 91 6.7 Role of Government Providers in Routine Preventive Care .................... 93 6.8 Expenditure Per Episode for Hospitalization by Expenditure Quintile and Type of Provider ..................... 98 6.9 Access to Free Hospital Beds ..................... 100  iv FIGURES 2.1 India: Burden of Disease by Age and Cause .............................. 9 2.2 The Structure of Government Health Financing ........................... 13 3.1 National Health Spending ......................................... 19 3.2 Estimated Composition of Government Health Budget ....................... 23 3.3 Shift in Input Composition ........................................ 24 3.4 Center and State Shares in Different Components of Government Health Budget: 1991-92 .......................................... 28 3.5 Changing Composition of Health Spending .............................. 31 3.6 Infant Mortality and Per Capita Health Spending in Indian States ................. 37 3.7 Channels Through Which Structural Adjustment Affects Health Spending ... ........ 40 3.8 Composition of Center's Fiscal Adjustment Measures ........................ 42 3.9 Differential Impact on Health Budgets for States Grouped by Income Levels ... ...... 46 3.10 Weighted Average of Percentage Changes in Real General Health Expenditures ... .... 47 4.1 The Completion of Facility Norms in Sample Districts ....................... 53 4.2 Gaps in Total Staffing Relative to Norms in Existing Government Health Facilities: 12 Districts, 4 States ......................... 55 4.3 Distribution of Qualified Staff at CHCs and PHCs Compared to Norms .... ........ 56 4.4 Qualitative Assessment of Adequacy of Supply of Sample Drugs ................. 58 4.5 Facilities and Staff Levels Relative to Norms Against Overall Performance Score . ............................................. 60 4.6 Relationship Between Imbalance in Inputs and Overall Performance ............... 62 5.1 Health Expenditure as a Percent of GDP: Asian Countries (1990) ................ 67 6.1 Treatment of Illness Outside of Hospital by Provider Type .................... 79 6.2a Use of Non-Government Services by Different Expenditure Quintiles .............. 81 6.2b Government and Non-Government Providers ............................. 82 6.3 Hospital Treatment of Illness: Roles of Government and Non-Government Facilities ........................................ 95 6.4 Non-Government Hospital Use by Different Expenditure Quintiles ................ 96 BOXES 1. India's Main Public Health Programs .................................. 14 2. Key Findings on Public-Private Sector Roles in Meeting Health Care Demands ... ..... 76  INDIA POLICY AND FINANCE STRATEGIES FOR STRENGTHENING PRIMARY HEALTH CARE SERVICES EXECUTIVE SUMMARY SECTORAL BACKGROUND AND THE CHALLENGE OF THE FUTURE 1. India has made considerable progress in the last several decades in expanding its public health system and reducing the burden of disease. The Government has established a health policy based on the primary health care approach to provide free curative and preventive health services to a large section of the population. The National Health Policy (NHP) of 1983 has set targets for improving the health status of India's population and for reducing fertility. An extensive infrastructure has been developed during the last decade for the public provision of primary health care services. Partly as a result of these efforts, the infant mortality rate has been reduced from 137 per 1,000 live births in 1970 to 90 per 1,000 live births in 1991 and life expectancy at birth has increased over the same period from 50 to 61 years. 2. Yet, the present health care system has serious problems with respect to access, efficiency, effectiveness and quality, despite the high level of overall private and public expenditures on health. Key health indicators remain low when compared to some other Asian countries, such as Sri Lanka and China. These problems prevent the health system from achieving desirable outcomes. Moreover, India faces a formidable challenge in providing health care services to its people for several reasons: There is still an important unfinished agenda for addressing childhood and maternal morbidity and mortality, and communicable diseases. These health problems take a heavy toll on individuals and on society as a whole, but are largely preventable. The leading sources of Disability-Adjusted Life Years (DALYs)' lost, as estimated by the World Development Report (WDR, 1993) for 1990, were maternal and perinatal causes (35 million DALYs), respiratory infections (33 million DALYs), diarrheal diseases (28 million DALYs), and tuberculosis (11 million DALYs). In addition, the risks of infection from communicable diseases, such as malaria and leprosy, remain high. * New health problems such as AIDS and drug resistant forms of several communicable diseases, including malaria and tuberculosis (TB), have emerged. * The composition of the Indian population is changing towards an increasing fraction of older individuals, and as such the country must deal with a rising incidence of non- communicable diseases, such as cardiovascular diseases and cancers. In 1991, cardiovascular diseases and cancers accounted for the loss of about 28 million and 12 million DALYs respectively. This will mean that India will have to simultaneously deal with high rates of both communicable and non-communicable diseases, and that the DALY is defined as a unit for measuring both the global burden of disease and the effectiveness of health interventions, as indicated by reductions in the disease burden (World Development Report, 1993).  vi Government will have to bear some of the burden of either providing for or financing the budgetary needs for addressing this problem. * Without careful attention to the provision and financing of primary health care services in general, and preventive and promotive services in particular, India risks spending an increasingly large share of its GDP on health while still failing to get sufficient return for that investment, somewhat like the pattern in the United States. * Financial constraints facing India are likely to affect Government health spending both at the state and central levels. 3. The above factors suggest that it is very important for India and its constituent states to review their approach to the provision and financing of health care and develop a coherent framework for meeting present and emerging health needs. The existing health care system is founded on the notion of universal primary health care, that is, the Government can provide and finance a wide range of health care services for a large section of its population. However, experience has shown that this approach has not worked and cannot constitute the basis for meeting the health needs of the future in an efficient, effective and equitable manner. 4. In the light of these conclusions, this report reviews some of the key challenges for the development of the health sector in India and provides recommendations for addressing the main constraints with respect to the effectiveness and efficiency of India's primary health care services. The report synthesizes the findings of several years of collaborative sector work between the World Bank and the Government of India and builds on the study "India: Health Sector Financing: Coping with Adjustment and Opportunities for Reform", that was completed in 1992. It provides a detailed analysis of private health care, evaluates the adequacy, efficiency, and effectiveness of current expenditures in the health sector, identifies and quantifies the resource gaps for delivering public primary health care services, and provides initial evidence of the impact of structural adjustment on the provision of health care. However, since the initiation of background work and primary data collection for this sector work, new themes have emerged regarding the development of the health sector in India on which the Government and the Bank have broad agreement. These include, in particular, a focus on state level health reform and state health systems development since the states account for about three-quarters of health expenditures in the public sector. This report covers some aspects of state level health reform and provides direction on further health sector work based on an emerging dialogue between the Bank and the Government of India. POLICY AND FINANCE ISSUES RELATED TO PRIMARY HEALTH CARE SERVICES 5. Two issues are most significant when considering further development and financing of primary health care in India. The first concerns the role that the public sector will play in both the provision and the financing of health care. The second concerns the amount of funds which the public sector will make available for health in India and how those funds will be allocated. These issues are discussed briefly below. There are a number of institutional issues that are also very important for further health sector development. Those are treated in the text of the report.  vii The Roles of the Public and Private Sectors in the Provision and Financing of Health Need to be Revised. 6. There is a difference in emphasis in the type of health services provided by the public and private sectors. Government provided services are by far the dominant source of preventive health care, such as immunization, ante-natal care, and infectious disease control services in both rural and urban areas. Private providers are dominant when it comes to the provision of ambulatory care for acute illnesses, or illnesses not requiring hospitalization, even among the poor. This is despite substantial public investment during the past ten years in establishing an enhanced publicly financed health care system. 7. The demand pattern for inpatient treatment in hospitals is, however, sharply at variance with that of ambulatory care. Government provision to meet this demand reflects a high degree of equity. In contrast with outpatient or ambulatory care, where equity is much more of an issue, treatment of inpatients reflects the fact that the lowest expenditure quintile is more likely to receive subsidized care than the higher expenditure groups. In almost all states, for both rural and urban areas, hospitalized episodes reported by the lower expenditure classes were more likely to be treated in Government facilities. Most of those using Government hospitals report not paying any bed charges, although it is more common to pay for specific additional services, such as diagnostic tests and surgery. For these services, private hospitals are far more costly on average than public facilities. On average, about 60% of all hospitalized cases are admitted to public facilities. 8. The above findings confirm earlier evidence on this subject in a rigorous manner and suggest a number of important implications for further development of the health sector in India: * Public involvement in the provision of health must build upon the fact that the private sector is currently the largest provider of health services overall and is likely to remain so in the near future. In particular, the Government needs to re-examine the role of the public and private sectors with respect to provision versus financing of health services. Greater opportunities for public financing of health services provided by the non- governmnent voluntary sector need to be examined as well. * The extensive involvement of the private sector provides an opportunity to focus public expenditure on primary health care, especially preventive and promotive services, which are the most cost-effective and best serve the needs of the poor. * Public provision for inpatient care at both rural and urban hospitals in general reflects a high degree of equity and lower costs compared to services provided at private facilities. This implies that public hospitals providing first referral services at the secondary level are a key input for the Government's package of basic health services. * Since the private sector provides a wide range of health services, it is imperative that Government create an environment which encourages the private sector to provide cost- effective services of acceptable quality.  viii Public Spending on Health Needs to be both Increased and More Efficiently Allocated to Provide Satisfactory Outcomes. 9. Overall health spending is sizable. but the contribution of public spending on health is inadequate. Total health spending in India in 1991 accounted for about 6 percent of GDP, which is about US$13 per capita or Rs. 320 (1990-91 prices). As a percentage of GDP, this is a higher level of spending on health care than in other Asian countries such as China, Indonesia, Thailand, the Philippines, Pakistan, Bangladesh and Sri Lanka (World Development Report, 1993 -- Table A9), most of which have better health outcomes than India. Public health spending, however, at about 1.3% of GDP is in the middle range of low income countries -- less than in China, Sri Lanka, Bangladesh and Pakistan but higher than in Indonesia and the Philippines. Moreover, the portion of GDP and Government expenditure devoted to disease control programs is very low compared to many other countries at India's level of per capita income. 10. Of the total health spending in India, 75% or Rs. 240 per capita in 1991 prices is out-of-pocket spending of private households and about 3 % is contributed by corporate or third party insurance (Table 1). The Government's overall contribution, including center, state and municipalities, accounts for 22% or Rs. 70 (US$2.5) per capita (1990-91 prices). State and local Governments contribute about 16% (Rs. 50 per capita), most of which is the contribution of the state Governments (15%). The central Government contributes about 6% (Rs. 20 per capita). Table 1: National Health Spending: An Estimated "Sources and Uses" Matrix (in percent of total expenditure)* Sources State & Central Local Corporate/ Uses Government Government 3rd Party Households Total Primary Care 4.3 5.6 0.8 48 58.7 (7.3) (9.5) (1.3) (81.7) (100) Curative .35 3.0 .8 45.6 49.7 (.7) (6.0) (1.6) (91.7) (100) Preventive and 3.95 2.65 2.4 9 Promotive Health (43.9) (29.4) (26.7) (100) Secondary/Tertiary .9 8.4 2.5 27 38.8 Inpatient Care (2.3) (21.7) (6.4) (69.6) (100) Non-service provision .9 1.6 n.a n.a 2.5 Total 6.1 15.6 3.3 75 100 * Note: Row percentages are in parenthesis  ix 11. Three important observations related to the above follow: (i) public spending on health is inequitable across states, and compensatory central financial measures need to be taken to improve the health status of people in those states; (ii) a disproportionate burden of household out-of-pocket spending falls on the poor; and (iii) the paucity of funds for operations and maintenance has an adverse effect on the quality and effectiveness of health services. 12. Public Spending on Health is Inequitable Across States and Fiscal Constraints Will Add to the Equity Problem if Compensatory Measures are not taken. As noted above, state and local Governments account for about 72 % and the central Government about 25 % of total public expenditures on health. Center and state roles have shifted marginally during the 1980s, with the center's contribution increasing moderately. There is, however, significant variation in health spending and its composition across states. Public spending on health overall is significantly lower in the poorer states, where the population has a lower health status. The ratio of per capita spending on public health between the highest and lowest state was 7:1. States where the health status has improved relative to others have been those with higher levels of per capita income, suggesting that overall state Government resource constraints persist as a major impediment to improving health spending in the poorest states. 13. Central allocation of health resources in the past has not been in proportion to the needs of individual states as indicated by socio-economic and health indicators. Some of the centrally-funded communicable disease programs, including the National Malaria Eradication Program, which is the largest one, are funded on a 50-50 matching basis by state and central budgets. However, the poorer states are unable to come up with sufficient matching funds to mnake optimum use of these programs. These states are least able to mobilize state resources but are most in need of supplementary central allocations. 14. Moreover, there is a distinct possibility that significant cutbacks and imbalances at the state level due to stabilization policies are likely to be introduced into a system that in fact needs to be expanded and strengthened. Stabilization can affect Government health spending through: reductions in central plan scheme allocations; reductions in central untied transfers to states; reduced Government revenue at state level; and autonomous state reductions in actual health spending in response to their general fiscal constraints. Sizeable reductions in health spending have not yet appeared, although where reductions have occurred they have affected poorer states and disease control programs the most. 15. The Burden of Household Out-of-Pocket Expenditures for Health Care Fall Disproportionatelv on the Poor. In addition to its large share in overall health spending, private spending is dominant in the provision of primary care services, accounting for 82% of the total (Table 1, column 4). If primary care services are disaggregated by curative and preventive care, the share of private spending for curative care is about 92%, while only 27% is accounted for by preventive and promotive services. Private household expenditure is also dominant for secondary/tertiary inpatient care at 70%, although it is somewhat less so than for primary care services. Extrapolating the share of direct household spending from its contribution to national health spending, it is estimated that household ambulatory curative care spending accounts for about 50% of national health expenditures.  x 16. Surveys undertaken in five states show that the burden of household health expenditure falls disproportionately on the poor and on rural populations.2 Out-of-pocket expenses for serious illnesses are large and disproportionately affect the poor. Household health spending in rural areas averaged 5% of total consumption expenditure, while in urban areas it averaged only 2.3%. This inequity in the financial burden of health care on the poor and those living in rural areas is particularly related to household out-of-pocket spending for ambulatory care. 17. Expenditure per episode for private providers averaged 1.5-2 times the cost to patients of consultations at Government facilities. For in-patient care, privately hospitalized episodes are much more costly than those in public facilities on average, with state averages ranging from 1.3 to 9 times higher. 18. Public Spending on the Operation and Maintenance of Health Programs is Inadequate and Constrains the Ouality and Effectiveness of Health Services. Inefficiencies related to operations and maintenance of health programs occur due to two reasons: (i) inappropriate allocation of health spending; and (ii) low level of funding of non-salary recurrent costs. Overall, about 45 % of the total health sector budgets of the center and states is spent on curative care and health facility operations (Chapter 3, Fig. 3.2). This reflects well on the prioritization of public investment on health since this figure is often well over 60% in a country at India's level of per capita income. Preventive and promotive services come next with 30%, of which about equal shares go to prevention and control of communicable diseases, and family planning and immunization. In addition, 7% of the budget is allocated for insurance for central Governnent employees (ESIS) and organized industrial workers (CGHS); 9% for research, education and training of doctors and paramedical staff; and 9% for capital investment and administration expenses. The category labeled "medical head" by the Government, which comprises hospital based services, some inputs which support primary care, and medical education and research accounted for about 60% of health expenditure in FY93. Since the mid-1980s through the FY93 budget estimates, "the medical head" category and FW grew, while expenditures on disease control programs declined in real per capita terms. Within the "medical head" category, expenditure on medical education and research increased from 10% in 1974-78 to 14% in 1986- 90. It is apparent from this allocation pattern that there is considerable scope for reallocation of resources by major categories. For example, spending on medical education could be reduced in order to provide additional funds for preventive and promotive services. 19. The second inefficiency related to operations and maintenance of health programs results from inadequate resources for non-salary recurrent costs. Because of the massive infrastructure that is already in place, a sizeable operations and maintenance budget is needed to provide an adequate level of services. This is, however, not available since salaries continue to consume an increasing share of resources. Salary shares, based on data from 12 sample districts and 8 municipalities, indicate that they are in the range of 70-80%.3 Salaries have grown faster than all other components of health spending, averaging 10% growth annually in real terms, 2 Visaria, P. and A. Gumber, "Utilization of and Expenditures on Health Care in India, 1986-87" Gujarat Institute of Development Research, 1994. 3 Vashishtha, P. et al, 'Survey of Primary Health Care", National Council of Applied Economic Research; 1994.  xi compared to 5% or less for other inputs. In other words, the proportion of salaries in total Government health spending has increased at the expense of non-salary maintenance expenditure. As a result, funds for operations and maintenance purposes have fallen from nearly 30% to less than 20% of the budget since the mid-70s. The fact that less than 20% is allocated for operations and maintenance, including drugs, is a cause for serious concern. Lack of availability of medicines and other supplies at publicly-managed facilities, especially in rural areas, is a major cause for the low quality of care provided at primary health facilities. This is an important reason for the lack of demand for some services. RECOMMENDATIONS 20. In response to the systemic problems discussed above, the report makes the following specific recommendations. Coordinate and Integrate the Roles of Public and Private Sectors in the Provision of Primary Health Care Services. 21. A major recommendation of this sector report is that the roles of the public and private sectors in the provision and financing of primary health care services need to be re- thought. A strategy needs to be developed by the Government that takes into consideration the existing levels of private provision of services. The Government's health care strategy should be to: (i) re-assess the role of the public and private sectors with respect to provision versus financing of health services in areas of preventive and curative care; (ii) encourage the private sector to continue to play the important role that it is already playing in the delivery of health care services; (iii) create an environment which encourages the private sector to provide cost- effective services of acceptable quality; (iv) monitor and regulate private care provision, such as licensing and certification; and (v) increase public expenditures on preventive and promotive care services. 22. Following this strategy, the Government would need to target its own resources to where critical gaps exist so as to increase the return from the substantial private spending on health services. Those areas of primary health care services which are already being provided by the private sector, but for which there are excess demand and positive externalities, could be supported by selective increments in public provision. Such areas include treatment of acute illness and routine curative care for priority diseases of children and adults. The focus of public spending, however, would be in areas where private investment is negligible such as preventive health care, infectious disease control and limited clinical interventions providing inpatient treatment. The public sector should provide enhanced support to a basic package of public health measures and clinical services that will reduce the burden of disease in a cost-effective manner. This will mean scaling back on some current public investments, such as public support of medical education and tertiary care, and allowing the private sector to play a greater role in those areas. 23. The Government would also need to reduce the burden of out-of-pocket spending on the poor. While maintaining the emphasis on cost-effectiveness, it could be possible for the Government to improve equity aspects of public sector health spending. For example, if public sector health spending, which has been estimated at about Rs. 70 per capita in 1991 prices, were targeted only to the bottom forty percent of the population in terms of income, it would mean a  xii considerably larger per capita health spending (about Rs. 115) on that segment of the population. Since targeting poor people on the basis of household income is difficult administratively, the Government could target districts which are characterized by low income and poor social indicators. 24. Primary health care, especially preventive and promotive services, is an area in which the private and NGO sectors could become more involved through the following actions: (i) encouraging the central and state Governments to develop incentives and schemes to finance, train, and integrate private providers in case-finding, diagnostics, referral treatment and monitoring for priority problems such as TB, STDs, ARI, diarrhea, malaria, leprosy and high risk pregnancies; (ii) increasing public support for voluntary agencies in health in such areas as social marketing of essential drugs and contraceptives, and behavior-changing health education activities; and (iii) contracting-out services to the private sector where possible, especially support services, in order to cut costs and increase efficiency. Re-evaluate Financing Priorities for Public Expenditures on Health. 25. Increase Government Expenditure on Primary Health Care. In the light of fiscal realities faced by central and state Governments, it would be very difficult to obtain sizeable increases in health expenditures overall. The Goverrunent must, however, redirect or increase spending on primary health care, especially preventive and promotive services. The amount of money currently allocated is inadequate to meet the primary health care needs as defined by Government of India norms and the WDR (1993) recommendation of an essential clinical and public health package. 26. For the Government to achieve its objectives of providing minimal essential services at primary health care facilities that have been established, it would require that expenditures on primary health care services be increased from its current level of 0.65% to at least 1.0% of GDP. There is a strong argument for providing at least this level of additional funds for primary health care services to make optimal use of physical infrastructure that has already been built. In addition, it is critical for the Government to provide a basic package of clinical interventions to reduce the burden of disease in a cost-effective manner. Alternatively, providing the WDR package of essential public health and clinical services, which is estimated to cost US$12 per capita in low income countries, would cost several times more than the approximately US$2.5 per capita that is currently being spent by the Government. Even if these services are provided somewhat less expensively in India, it would still require substantial amount of additional funids. 27. The additional resources for a basic package of primary health care services and limited clinical interventions could be achieved by: (i) redirecting funds from tertiary hospitals to primary and secondary health care services, particularly preventive and promotive aspects; (ii) substituting public funds with private funds in secondary and tertiary hospitals by instituting means-tested user-charges; (iii) implementing full cost recovery from private and Government- subsidized insurance schemes as well as by enhancing non-tax schemes; (iv) reducing public subsidies for medical education; and (v) increasing the overall central and state health budgets taking into consideration the Government's stated public health priorities and fiscal constraints. At the least, expenditures on preventive and promotive services should be protected from fiscal cuts engendered by the stabilization program.  xiii 28. Increase Supplementary Central Funding to Needy States. To accomplish its health aims and to enhance inter-state equity, there is a need to develop mechanisms to provide increased supplementary central funding to the poorest states in cases where alternative sources of revenue are limited. Thus, supplementary financing should be provided to those states most in need, but only when these states are already taking credible steps to improve their finances. 29. Strengthen Financing Strategies at the State Level. There is a critical need to focus on state level financing issues, including overall resource adequacy as well as input mix. In addition to augmenting state health budgets, a strengthened finance strategy applying new Government approaches to financing is also needed. It is best to envisage a period of substantial experimentation during which new approaches to financing can be adapted to Indian conditions. In particular, these would include: user charges in urban tertiary and referral hospitals, financing of non-Government providers, and allowing private insurance and ESIS reimbursement at full cost for publicly-provided services. 30. Mobilize Resources through Innovative Financing. Innovative financing at the hospital level should address the fact that administrative responsibility and financial accountability are artificially separated between the responsible Government agency and hospitals. The lack of appropriate management arrangements and financial authority to act means that there are few incentives for hospitals and their staff to improve hospital operations and quality of services. State Governments should undertake necessary administrative, regulatory and legal actions to ensure that greater devolution of autonomy to hospitals be allowed so that they are able to retain income generated by them. These measures, which allow each hospital to retain most of the income it generates through user charges, would go a long way to ensure that more funds are available for drugs and medicine and for operations and maintenance purposes. Such measures would strengthen service delivery management by improving the implementation capacity of these hospitals. User-charges could be implemented with the principle that they would: target the receipts, particularly on non-salary recurrent costs; charge for amenities such as private beds at hospitals; and charge for procedures that are low in cost-effectiveness in order to pay for those interventions which are high in cost-effectiveness. 31. Strengthen GOI/MOHFW Planning and Analysis Capacity. GOI/MOHFW's planning and analysis capacity could be strengthened through the following actions: (i) implementing systematic analysis of Government health priorities based on disease burden, cost-effectiveness of health interventions, and current public and private sector health care coverage (the ongoing study in Andhra Pradesh is a useful contribution to this); (ii) establishing a substantial operations research program to determine essential input norms for health facilities and programs and linking this to planning and budgeting. An alternative scenario, if such work cannot be supported by the health policy and finance unit in MOHFW, could be to establish a formal linkage with an external unit, such as the National Institute of Public Finance and Policy; (iii) providing a cohort of Indian experts and Government officers with advanced training in health financing, including short- and long-term training, both local and international; (iv) expanding the role of the policy/finance unit to include design, review, and evaluation of financing innovations experiments; (v) accelerating current efforts to develop a standard health information system by enhancing capacity in MOHFW through management information related to inputs and outputs by facility and program; and (vi) drafting an appropriate strategy for urban primary health care which includes financing projections.  xiv 32. Other specific recommendations of the report are presented in the policy matrix on Maeor Findings and Actions Recommended. NEED FOR FURTHER ANALYSIS 33. This sector study has covered a number of major themes on health sector financing issues. There still remain several health sector issues in India where further work would be beneficial for policy analysis. A few suggestions follow: * Issues related to performance and quality of health care at the state level. Since three- quarters of health expenditures are incurred at the state level, a study of key issues related to strengthening performance and quality of health care at the state level is a logical extension of this report. The outcome of such a study would be to suggest action- oriented recommerldations for implementing a coherent strategy and a policy reform package for the development of the health system at the state level, adding to state level issues discussed in this report. * Financing and provision of primary care for poor populations in urban areas. Urban health needs are likely to increase substantially in coming decades. Poor urban populations face a very different environment from that prevalent in rural areas. A study that would include the role of public financing and provision in urban environments could be very useful in the light of an active private sector. Differences by size of cities, levels of current public and private provision facing consumers, and the role of regulation and quality control could also be analyzed. - Efficiency in public hospitals. Public hospitals remain a major part of the public expenditure programn in health and a very important factor constraining expanding finance for primary care. An assessment of the current level of efficiency of public hospitals, the potential gain to the Government from improving efficiency and the cost implications of quality improvements could be analyzed. * The potential of new approaches to financing public hospitals. The potential for user charges and private insurance to finance public hospitals while maintaining protection for the poor could be studied. In addition, the lessons learned from Government grants to NGOs and their potential for expanded coverage of key programs to the poor could also be analyzed. * Primary care and the unqualified practitioner. The study could analyze the nature of practice of undocumented private primary care providers, the role of these providers in expanding primary care coverage, and the terms of regulation, quality control, and pricing structure. * A follow up could be undertaken to the sector report on Issues in Women's Health in India, with a focus especially on the disease burden on women.  INDIA: POLICY AND FINANCE STRATEGIES FOR STRENGTHENING PRIMARY HEALTH CARE SERVICES Maior Findinps and Actions Recommended OBJECTIVES ISSUES ACTION Strengthen the capacity of state health systems About three-quarters of public spending on Develop a coherent strategy that will: to deal with the evolving burden of disease. health is accounted for by the state budgets and review the financing and provision of health the states are primarily responsible for care in the public and private sectors; address implementing various health programs. both the preventive and curative aspects of However, a coherent strategy with regard to the health care in a cost-effective and efficient development of a health system at the state manner; and analyze coverage of health care level is lacking. Budgetary issues, including issues more broadly than has been covered in overall allocation to the health sector and this report. optimal allocation between different tiers of the health system, remain unaddressed; health Undertake further sector work on key planning capacity to assess sectoral needs based operational issues related to the performance on epidemiological monitoring is weak; and quality of health care at the state level. institutional capacity, including surveillance development, continues to be neglected; persistent technical and qualitative inefficiencies adversely affect the performance x of the health care system; and the role of private health sector in delivering quality health care remains underdeveloped. Increase government expenditure on primary India is in the middle range of low income . Increase spending by state and central care through reallocation of existing resources Asian countries in terms of the percentage of governments on primary health care from the and allocation of additional funds. GDP spent by government on health (1.3%). current level of 0.65% to about 1.0% of GDP. The share of government health spending on This could be achieved by: primary health care is 43%. Nonetheless, given India's substantial health needs and the link (i) redirecting incremental resources almost between health care and poverty alleviation, a entirely to primary and secondary health care, significant increase in govemment primary particularly preventive and promotive aspects; health care expenditure is needed, especially on preventive and promotive health services. (ii) substituting public funds with private funds in secondary and tertiary hospitals by instituting means-tested user-charges; (iii) implementing full cost recovery from private and govemment-subsidized insurance schemes as well as enhancing non-tax revenues; (iv) reducing public stibsidies for medical  OBJECTIVES ISSUES ACTION education; and (v) increasing the overall central health budget against the background of the present fiscal constraints. At the least, protect expenditures on preventive and promotive services from fiscal cuts engendered by the stabilization program. Improve the structure of public financing for The existing fiscal and administrative structures Initiate, jointly through the Ministries of primary health care. for primary health care are complex and impede Finance, and Health and FW, a substantial effective financing and accountability for local review of the fiscal structure and procedures in area management, programs, and health the health and FW sectors. facilities. The structure of two departments (Health and Family Welfare), plan/non-plan Review and reform the role of central, expenditures, center-state financial transfers and state, and local govemment financing in the jointly financed schemes is ineffective in: public health sector in terms of national health (i) assuring essential inputs for health facilities policy objectives and provision of basic inputs. and vertical schemes; (ii) correcting inequities in health expenditure between states and Develop program budgeting tools at the increasing spending in states with the worst central and state levels to monitor and assess health indicators; (iii) providing flexibility and expenditure for important schemes. accountability to local officials; and (iv) supporting essential monitoring of program Develop flexible decentralized financing inputs and outputs. tools at the state and district levels to allow local administrators to respond to local needs. Develop fiscal tools to enable greater experiments with resource reallocation, cost recovery, and financial incentives to NGOs and other private providers. Review, at the state level, state governments' fiscal structures and procedures and implement recommendations. At the state level, ensure adequate functioning Much of the planned system of rural primary . Prioritize and ensure that state govemments and improve efficiency of public primary health health care facilities has been created, with the maintain sufficient funds in their non-plan care facilities. lowest, most peripheral facilities being most health budgets to provide adequate and timely complete. In contrast, essential staff and supply supply of essential inputs to existing facilities. inputs are below stated govemment norms or The following package is recommended for adoption:  OBJECTIVES ISSUES ACTION adequate levels, and are most lacking in the (i) Review staff norns and ensure that more peripheral facilities. Financing the necessary nursing care can be provided; provision of staff, drugs and other inputs to norms would require about 26% increase (ii) Allocate at least Rs. 50,000/- per above current public sector health expenditures. annum at current prices for drug purchase to each PHC; (iii) Rationalize personnel policies to ensure adequate staffing of posts at rural PHCs; (iv) Ensure that doctors provide two years of rural service as a pre-condition for eligibility for admission to post-graduate medical courses; (v) Provide for staff quarters where critically needed, and electricity and water; (vi) Undertake studies to decide an optimal annual maintenance budget for each PHC; (vii) Ensure better communication arrangements; (viii) Provide regular training for medical/paramedical staff in health management/health economics; and (ix) Strengthen sub-centres by providing an additional worker for looking afker general health care. Following the adoption of the above package, consider and carefully evaluate whether financing the expansion of physical infrastructure to meet established norms is critical in the light of limited resources.  OBJECTIVES ISSUES ACTION Increase supplementary funding to needy states. Central allocation of health resources has not . Develop mechanisms to provide increased been in proportion to the needs of individual supplementary central funding to the poorest states as indicated by socio-economic and states in cases where alternative sources of health indicators. Some national disease control revenue are limited. Supplementary financing programs are funded on a 50-50 matching should be provided to those states most in need, basis, but the poorer states are unable to come but only when these states are already taking up with sufficient matching funds to make credible steps to improve their finances. optimum use of these programs. Moreover, because of stabilization policies there is a distinct possibility that significant cutbacks and imbalances are likely to be introduced into a system at the state level that in fact needs-to be expanded and strengthened. Strengthen private primary health care by Private fee-for-service providers are easily . Strengthen Government capacity to register, improving the quality of services provided by accessible to the rural and urban population and certify, regulate and monitor private health care the private sector, particularly private are heavily used by the poor for ambulatory provision, especially qualifications of doctors practitioners and drug suppliers. care. However, many of these providers are and other medical personnel and the quality of unqualified, and they may cause substantial their services. Central and state Govemments harm as well as good. should enact legislation to register nursing x homes, private clinics/hospitals and ensure minimum standards of care by providing appropriate guidelines. Increase Government capacity to control pharmaceutical supply and dispensing, as well as to provide training and information on drug use to primary care providers and general populations. Increase public support for voluntary agencies in health in such areas as social marketing of essential drugs and contraceptives, and behavior changing health education activities. Contract out services to the private sector where possible, especially support services to cut cost and increase efficiency.  OBJECTIVES ISSUES ACTION Encourage the private sector to contribute Government is the major provider of preventive Develop incentives and schemes to finance, more to preventive and promotive health and promotive health care services, but its train, and integrate private providers in case- care services. coverage is very low (20%); the private sector finding, diagnostics and treatment for priority contributes mainly to ambulatory care illnesses problems such as TB, STDs, ARI, diarrhea, but hardly anything for preventive and malaria, leprosy and high risk pregnancies; promotive care. Therefore, neither the public nor the private sector is contributing enough to Publish, through MOHFW, a quarterly the coverage or improvement in quality of newsletter to disseminate information about preventive and promotive care. Given that such schemes in the various states, and other investments in preventive and promotive care innovative activities involving private sector services yield high social returns and benefit participation. from externalities, a strategy to enhance the private sector's contributions to national health goals is needed. Set up Referral Committees at the District Improve sectoral effectiveness and efriciency by Public hospitals are a major source of level to coordinate/manage referral between strengthening the performance of the referral treatment, reach the poor, and appear to be primary care and secondary level diagnosis, system at the state level. progressive in their financial subsidy. However, treatment and care. Referral Committees would: most admissions to public hospitals do not receive prior primary care. The referral system (i) issue administrative directives that x does not function well. Each tier operates as an would specify procedures to be followed in x independent entity providing similar levels of order to make the referral system effective and care and resource utilization is poor. acceptable to the community; (ii) develop referral protocols that specify the types of conditions that should be referred either for investigation or treatment at higher levels; (iii) develop clinical management protocols to provide guidelines and standards for the management of common conditions by doctors who do not have post-graduate qualifications in that specialty; and (iv) provide incentives for priority treatment to those patients using the referral system, such as reduction in user fees and shorter waiting time for diagnosis and treatment of such patients.  OBJECTIVES ISSUES ACTION Mobilize resources by financing innovations The proposed reforms in health policy and Develop innovative national health financing through user charges and private insurance finance would require a variety of new areas of schemes to provide grants to state and local where possible. action in the health sector. Central and state governments, NGOs, and private sector governments have limited experience in these organizations to develop, test, and evaluate new areas. It is best to envisage a period of approaches to financing. substantial experimentation during which new approaches can be adapted to Indian conditions. . Implement user-charges with the principle In particular, these include: user charges in that they would: target the receipts, particularly urban tertiary and referral hospitals and on non-salary recurrent costs; charge for allowing private insurance and ESIS amenities such as private beds at hospitals and reimbursement at full cost for publicly-provided charge for procedures that are low in cost- services. Moreover, at the hospital level, effectiveness in order to pay for those administrative responsibility and financial interventions which are high in cost- accountability are artificially separated between effectiveness. the responsible government agency and hospitals. Lack of appropriate management . Sort out legal/other issues that are arrangements and financial authority to act prohibiting greater devolution of autonomy to means that there are few incentives for hospitals for retaining income generated by hospitals and their staff to improve hospital them. Allow each hospital to retain most of the x operations and quality of services. income it generates through user charges. This will strengthen service delivery management by improving the implementation capacity of these hospitals. Initiate studies at national and state levels and analyze the resource implications of various kinds of innovative financing mechanisms such as user fees, insurance schemes, and additional state and local taxes targeted to improve health care provision.  OBJECTIVES ISSUES ACTION Improve understanding of the health needs of The national average sex ratio of 927 females Undertake in-depth analysis of the special women beyond those covered by the family to 1,000 males is a matter of concem. The health needs of women at the primary and welfare program. informnation base to understand the underlying secondary health care level beyond those cause of this imbalance is lacking and more covered by the family welfare program. Such a analysis needs to be done. Although some study should focus on women's burden of progress is noted in recent years, the central disease, health-seeking behaviour and the and state govemments need to move more resource implications of shifting to the expeditiously towards a reproductive health reproductive health approach. approach that will extend beyond those aspects of women's health covered by the family welfare program. Strengthen GOI/MOHFW and state level Although there has been significant progress in . Implement systematic analysis of planning and analysis capacity. recent years in the availability and use of govermtient health priorities based on disease information on health financing in India, and burden, cost-effectiveness of health despite efforts to create a health policy/ interventions, and current public and private financing unit in the MOHFW, the capacity for sector health care coverage. The ongoing study health planning and policy analysis at state and in Andhra Pradesh is a useful contribution to central levels remains limited. this. x X Establish a substantial operations research program to determine essential inputs norms for health facilities and programs. This should be linked to planning and budgeting. As an altemative scenario if such work cannot be supported by the health policy and finance unit in MOHFW, a formal linkage with an extemal unit, such as the National Institute of Public Finance and Policy, could be established. Provide a cohort of Indian experts and govemment officers with advanced training in health financing. This includes both short- and long-term training, both local and intemational. * Expand the role of the policy/finance unit to include design, review, and evaluation of innovative financing experiments. * Accelerate current efforts to develop a standard health information system by  OBJECTIVES ISSUES ACTION enhancing MIS capacity in MOHFW through management information on inputs and outputs by facility and program. Develop health care MIS at the state level. Draft an appropriate strategy for urban primary health care which includes financing projections. An integral component of strengthening policy and finance strategies for primary health care Strengthen training; increase public awareness services is to improve and introduce some . Strengthen training institutions both in of health-related issues; and initiate community complementary activities that are crucial to the public and private health sectors through participation in existing health education development of the health sector. These training of trainers and regular short and long programs. include the need to improve human resource term courses in: health management and development skills of health practitioners, raise administration; analysis of cost effectiveness of the awareness of health workers and the public various health services; hospital audits; and on health-related issues and encourage greater drug management. community participation in programs on school health and nutrition. Initiate health education activities to x improve awareness of health-related issues - among the public, politicians and health workers. Initiate community participation in school health and nutrition education programmes.  1. INTRODUCTION A. Background 1.1 Health is a critical investment for human resources development and poverty alleviation in India. Public policy for health has been based on an implicit assumption of health care as a basic right to which people should not be denied access due to inability to pay or other socio-economic reasons. Yet, the resources provided by the Govermment to achieve better health status through the provision of high priority primary health care services for the vast mnajority of Indians has been inadequate. Goals have been achieved only to a limited extent, despite the fact that India spends a higher percentage of its GDP on health care in comparison to other Asian countries that have achieved greater improvements in the health status of its peoples. This is because the current level of public health expenditure in India, especially spending on preventive and promotive primary health care services, is inadequate and has not kept up with the growing demands being made upon the system. If the Government is to achieve its stated objectives, which are reasonable and achievable, reorienting priorities within the health sector is critical. The challenge is two-fold in that a strategy needs to be developed that would encourage the private sector to contribute more resources to preventive and promotive health care services and the public sector to invest more resources in these activities as well as regulate and monitor private care provision. 1.2 The purpose of this report is to provide information that can assist India in improving the effectiveness and efficiency of its public health programs. It does so by focusing largely on questions related to the financing of health services. The report synthesizes collaborative sector work between the World Bank and Government of India (GOI) and proposes a set of action-oriented recommendations to improve sectoral policies on key health issues relating to primary health care services. It includes: a detailed analysis of private health care that has to date not been undertaken; an assessment and quantification of the resource gaps for delivering public health services; and initial evidence of the impact of government spending on health status as well as the effects of structural adjustment policies on health spending in the public sector. B. Terms of Reference for the Study 1.3 An Initiating Memorandum (IM) was issued on June 14, 1991, and included the following agenda: (a) estimate, for selected states the trends in total public health expenditure from state and central sources and, for a sample of districts, expenditures for district, municipal and local government bodies; (b) calculate, in real and financial terms, the gap between current input levels for primary care and planned levels according to government norms. This would include both investment and recurrent cost items; (c) estimate the funds required to complete establishment of services to meet the government's current targets, and the possible impact on primary health care performance of changes in finance levels or the composition of public sector inputs; (d) estimate for private primary health care services reported patterns of need and use of private health services and expenditure for key targeted population groups, using the 42nd round of the National Sample Survey (NSS); and (e) discuss the implications of the above analysis for policies to enhance public financing and policy for primary health care, the contribution of the private sector to primary care, improved regulation of private providers, and the implications for cost recovery in the public sector.  2 1.4 A Yellow Cover Report entitled "India: Health Sector Financing: Coping with Adjustment, Opportunities for Reformn" (June 30, 1992), followed that Initiating Memorandum. Following the earlier report, the Bank and GOI agreed to commission three additional studies on key issues related to primary health care services'. This report synthesizes the major findings of the sector work on health undertaken to date. C. Structure of the Report 1.5 This report covers a number of issues relating to India's health sector. Its primary focus, however, is on Policy and Financing Strategies for Primary Health Care Services in India. 1.6 Chapter 2 provides an overview of the health sector in India. The first part of the chapter describes the health status situation, as summarized in the recent burden of disease estimates developed for the World Development Report (WDR), 1993. The rest of the chapter describes the objectives of India's National Health Policy, the administrative and financial structure of the public sector, the budgeting process and center-state finance issues. 1.7 Chapter 3 summarizes the analysis of public health expenditure levels, composition and trends with a focus on primary health care services. The first part of the chapter provides an overview of both public and private contributions to financing India's health system. The rest of the chapter highlights public financing of health services, impact of government spending on health status and the effect of structural adjustment policies on government health spending. 1.8 Chapter 4 synthesizes the provision of public primary health care services. The emphasis of the chapter is on the structure of the public primary health care system, provision of inputs and performance, and financing requirements. 1.9 Chapter 5 analyzes the pattern of use of private health care services and the important role played by private health care provision on ambulatory curative services. Extensive new analysis of the NSS, 42nd Round data is undertaken in this chapter. 1.10 Chapter 6 focuses on consumer demand for both public and private services, including both service use and household health expenditures. Linkages between public and private service provision and between the primary level of services and hospitalization are also analyzed. 1.11 Chapter 7 outlines the implications for central and state Governments for policy reform and action, and for Bank lending. A number of major areas of reform are highlighted: increasing government expenditures on primary health care; improving the structure of public ' The major studies whose results have been incorporated in this report are: (a) "Survey of Primary Health Care" (Vashishtha. P et. al., National Council of Applied Economic Research, 1994); (b) "Utilization of and Expenditures on Health Care in India, 1986-87" (Visaria, P. and A. Gumber, Gujarat Institute of Development Research, 1994); and (c) "Health Financing Trends in the Public Sector since the mid-1970s and the Impact of Structural Adjustment on the Health Sector" (Tulasidhar, V.B., National Institute of Public Finance and Policy, 1992 and 1993).  3 financing for primary care at the center and state levels; strengthening private primary care through quality improvement; encouraging private sector contributions to preventive and promotive health care; improving sectoral efficiency and effectiveness through improvements in the referral system; mobilization of resources through user charges and strengthening management and financial authority at hospitals; improving the health needs of women beyond those covered by the Family Welfare program; strengthening MOHFW/GOI planning and analysis capacity; and strengthening training, health awareness and community participation in health awareness programs. D. Definitions and Reference Points 1.12 Some key definitions and concepts which have been repeated throughout the text are provided below: (a) Primary Health Care Services: It includes all ambulatory illness treatment services; routine personal preventive care such as ante-natal visits, well-baby check-ups, immunization and other personal disease prophylaxis; maternity care on an outpatient basis; and public health disease and vector control measures. The focus is on all central and state Government services and private services provided by all types of health care providers. It also includes non-profit voluntary agency providers but excludes nutrition and feeding programs and water supply projects. (b) Preventive and Promotive Health Care Services: This is a subset of primary health care services and includes only personal ambulatory services (such as ante-natal care) and population based services (such as spraying for malaria). (c) Ambulatorv Illness/Curative Care Services: This is a subset of primary health care services and complementary to preventive and promotive health care services. It includes personal curative services but does not include treatment as an in-patient in a hospital. (d) In-patient Services: Services availed of at secondary or tertiary hospitals as an admitted patient. (e) Secondary Hospitals: Non-teaching hospitals with bed capacity varying between 30- 350 beds. This includes 30-50 bedded (community), 50-100 bedded (area) and 250- 500 bedded (district) hospitals. Services offered include surgery, clinical and diagnostic that are more sophisticated than those provided at primary health centers (PHCs) or community health centers (CHCs). (f) Tertiarv Hospitals: Teaching hospitals and those providing super-specialty services with a capacity generally exceeding 700 beds.  4 1.13 In addition, the report also uses the two following concepts developed in the WDR (1993). (a) Essential Clinical Package: This includes the following components: (i) pre- natal and delivery care; (ii) family planning services (these two components together constitute a Safe Motherhood Program); (iii) management of the sick child; (iv) treatment of TB; (v) case management of STDs; and (vi) treatment of minor infection and trauma otherwise known as limited care. The delivery of the minimum clinical package is estimated to cost an average of US$8 per capita annually in low-income countries (WDR, 1993; Table 5.3). This was estimated by the WDR to avert 24% of the country's burden of disease in low income countries. (b) Essential Public Health Package: This includes: (i) the expanded program on immunization, including micronutrient supplementation; (ii) school health programs to treat worm infection and micronutrient deficiencies and to provide health education; (iii) programs to increase public knowledge about family planning, health and nutrition; (iv) programs to reduce the consumption of tobacco, alcohol and other drugs; and (v) AIDS prevention program, with a strong STD component. In low-income countries, the WDR estimated that it would avert more than 8 % of the country's burden of disease at a cost of US$4 per capita annually (WDR, 1993; Table 4.7). Combined, these two packages were expected to reduce the burden of disease by approximately 32% in low income countries. 1.14 The combined total cost of an essential clinical package and an essential public health package is estimated by the WDR (1993) to be about US$12 annually in low incomes countries. Although the costs for these packages may vary for India, they provide a useful reference point for the analyses that follow in this report. 1.15 Requirements to meet GOI norms. Finally, the report uses estimates of additional resources needed to adequately meet the government's norms with regard to: (a) the funds required to complete the physical infrastructure -- the "missing" facilities -- in accordance with population per type of facility norms set by the government; and (b) the funds that would be required to fill the input gaps (drugs, essential supplies, staff, infrastructure maintenance, etc.) at "existing" facilities. 1.16 With respect to (a), the total finances that would be required to complete the physical infrastructure as a percentage of current annual total government health and FW spending is estimated to be about 90%. Assuming a four to five year construction period, it would imply a 20% increase in capital expenditures annually. In addition, recurrent costs of drugs, supplies and staff at the missing facilities would require about a 14% increase annually. 1.17 With respect to (b), recurrent costs of drugs, supplies and staff would require a 13 % increase over the current annual health and FW spending. However, this estimate does not include maintenance of capital infrastructure, which is typically 6-7%. Therefore, an increase of about 52% over the current spending level on health and FW is at least required to meet GOI's norms. Spending on primary health care services would thus have to increase from 0.65% to about 1 % of GDP to meet GOI's own standards and norms.  5 2. OVERVIEW OF THE HEALTH SECTOR A. Mortality, Morbidity. Fertility, and the Burden of Disease 2.1 Mortality and Morbidity. Considerable progress has been made in improving the health status of the population since India's independence in 1947. Life expectancy at birth has increased from 50 years in 1970 to about 61 years in 1991. The crude mortality rate has declined throughout the country, largely as a result of the considerable decline in the infant and child mortality rates. The infant mortality rate (IMR), a sensitive indicator of both socio-economic development and access to health services, has been reduced from 146 per thousand births in the 1950s to 110 in the early 1980s, and to 91 at the beginning of the 1990s. Inspite of these broad favorable trends, with 16% of the world's population in 1990, India accounted for 19% of all deaths in that year. The risk of death for children under 5 years of age remains high in India at 12.4%, about 30% higher than the average risk faced by the world's population and higher than in all regions of the world except Sub-Saharan Africa. The risk of death for the adult population (between 15 and 60 years of age) in 1990 is estimated to have been 21 % higher than the global average. 2.2 Moreover, comparing India with other countries in the region that started with a similar resource base several decades ago, shows that India has not fared as well as some of its neighbors. The gains in life expectancy over the past three decades, for example, have been 23 % in India compared with 60% in China and 28% in Indonesia (World Development Report, 1993). 2.3 Communicable diseases and maternal and perinatal causes continue to account for a large number of deaths in India, about 470 per 100,000 population (standardized for age), compared to only 117 in China and 187 in the world as a whole. At the same time, the gains achieved in life expectancy have resulted in proportional increases in mortality from chronic and degenerative diseases of adulthood, such as heart ailments and cancers. These trends are likely to persist, and are currently being augmented by the rapid spread of infection with HIV which has not yet appeared significantly in mortality statistics. 2.4 The annual risk of infection with Mycobacterium tuberculosis (TB) in India is 1.5 %, equal to the average for Sub-Saharan Africa and about 55 % higher than the global average. Forty years of a national program has not resulted in a sizeable reduction in either incidence or prevalence of this disease. An estimated 300,000 or more deaths are attributed to TB annually; estimates suggest that by the year 2000, India may have at least 20 million active TB patients if present rates persist, with one-fifth of those being infectious. 2.5 Diarrheal diseases account for more than half a million infant deaths annually. India has about 2.0 million or one-third of the world's leprosy victims. Annual incidence of malaria, after declining dramatically from 75 million in the 1950s to less than one million by 1970, has risen since then and is estimated at about 2 million in recent years. 2.6 AIDS, a newly emerging problem, has already spread within high-risk segments of the population, and there is increasing concern about wider spread of the disease through sexual transmission and unsafe blood transfusions. Currently it is estimated that 2.0 million people are HIV-positive in India.  6 2.7 The national aggregate picture of mortality hides wide disparities between different states as well as between rural and urban areas of each state. The IMR ranges from 122 per thousand live births in Orissa to as low as 22 in Kerala; the rural average for the country as a whole is 98 compared to only 58 for the urban population. There is also considerable variation by caste: the IMR for scheduled castes and tribes is higher than that for the general population, by 22% in rural areas and by 44% in urban areas. 2.8 Sizeable interstate disparities exist in the distribution of communicable diseases, Reported malaria cases are concentrated in the states of Gujarat, Madhya Pradesh and Orissa; leprosy in Andhra Pradesh, Bihar, Tamil Nadu and Orissa; filariasis is most concentrated in Bihar, Kerala and Uttar Pradesh; kala-azar is reported only in Bihar and West Bengal. Tuberculosis, in contrast, is more or less uniformly prevalent in all states. 2.9 India is one of only seven countries in the world in which women have higher mortality (at least up to age 35) and lower life expectancy than men. In general, states with the highest overall mortality levels have the greatest differentials between males and females. The excess mortality of women is greatest in rural populations and especially in the main years of childbearing. Disturbingly, there has been a 5-point decline in the sex ratio over the past decade, from 934 to 929 females per 1,000 males. 2.10 Fertility. In spite of being one of the first countries in the world to accept official intervention in population control as a matter of national policy, the total fertility rate remains relatively high in India. Estimated at 4 children in 1990, it is higher than in China (2.5), Indonesia (3.1) and most other Asian countries. Rural women have 4.4 children on average compared to 3.2 in urban areas. With the sole exception of Kerala, where both urban and rural women have very low (replacement level) fertility rates, all states exhibit the expected rural-urban differential, with only modest declines since 1981. 2.11 On average, women in Kerala and Tamil Nadu have the lowest fertility, due to both relatively high age at marriage and relatively high contraceptive prevalence. Each woman in the poor states of Bihar and Uttar Pradesh has an average of more than 5 children. The most rapid declines in fertility in the past decade have occurred in Tamnil Nadu and Kerala; the slowest in the most disadvantaged states. 2.12 As mortality rates declined in the early decades after independence, the rate of population growth accelerated in India. The latest 1991 Census shows that the rate of growth has remained largely unchanged over the last two decades, at about 2.2% per year, reflecting some success in reducing fertility over that period.  7 Table 2.1: India: Burden of Disease in 1990 Males Females Total Rank DALYs % DALYs % DALYs Total DALYs lost, thousands 145,454.0 100.0 147,191.0 100.0 |292,646.0 | 100.0 Communicable, Maternal and 70,771.0 48.7 77,506.0 52.7 148,277.0 50.7 Tuberculosis 6,282.0 4.3 4,518.0 3.1 10,800.0 3.7 II STDs 530.0 0.4 3,203.0 2.2 3,734.0 1.3 17 HIV 2,707.0 1.9 1,358.0 0.9 4,066.0 1.4 15 Diarrheal Disease 13,643.0 9.4 14,394.0 9.8 28,037.0 9.6 3 Childhood Cluster 9,579.0 6.6 9,874.0 6.7 19,453.0 6.6 6 Meningitis 1,191.0 0.8 815.0 0.6 2,006.0 0.7 22 Hepatitis 143.0 0.1 168.0 0.1 311.0 0.1 28 Malaria 476.0 0.3 475.0 0.3 951.0 0.3 26 Tropical Cluster 1,479.0 1.0 966.0 0.7 2,425.0 0.8 19 Leprosy 259.0 0.2 262.0 0.2 521.0 0.2 27 Trachoma 112.0 0.1 197.0 0.1 309.0 0.1 29 Intestinal Helminths 1,056.0 0.7 1,000.0 0.7 2,056.0 0.7 21 Respiratory Infections 15,568.0 10.7 16,186.0 11.0 31,754.0 10.9 Maternal Causes 0.0 7,824.0 5.3 7,824.0 2.7 14 Perinatal Causes 14,381.0 9.9 12,290.0 8.3 26,671.0 9.1 4 Noncommunicable | 59,908.0 41.2 ] 57,734.0 39.2 [117,642.0 40.2 Malignant Neoplasms 6,633.0 4.6 5,409.0 3.7 12,041.0 4.1 9 Diabetes Mellitus 840.0 0.6 1,028.0 0.7 1,868.0 0.6 23 Nutritional and Endocrine Causes 9,183.0 6.3 9,082.0 6.2 18,265.0 6.2 7 Neuropsychiatric 9,426.0 6.5 8,411.0 5.7 17,837.0 6.1 8 Sense Organ (mainly eye) 1,238.0 0.9 1,146.0 0.8 2,384.0 0.8 20 Cardiovascular 14,732.0 10.1 13,860.0 9.4 28,592.0 9.8 2 Respiratory 3,900.0 2.7 4,006.0 2.7 7,906.0 2.7 13 Digestive 5,607.0 3.9 5,634.0 3.8 11,240.0 3.8 10 Genitourinary 1,884.0 1.3 2,048.0 1.4 3,932.0 1.3 16 Musculoskeletal 405.0 0.3 849.0 0.6 1,253.0 0.4 25 Congenital Abnormalities 4,843.0 3.3 4,590.0 1 3.1 9,434.0 3.2 12 Oral Health 934.0 0.6 879.0 0.6 1,813.0 0.6 24 Injuries 14,775.0 | 10.2 11,952.0 8.1 26,727.0 9.1 |Unintentional | 12,640.0 8.7 10,494.0 7.1 23,134.0 7.9 5 [Intentional 2,136.0 1.5 1,457.0 1.0 3,593.0 1.2 18 Sources: World Development Report, 1993. Tables Bl, B2, B3. Global Comparative Assessments in the Health Sector, WHO Publication, 1994 edited by C. I. L. Murray et al., Annex Table 6.  8 2.13 Disease Burden. Assessments of the relative importance of different diseases have traditionally been based on how many deaths they cause, reflecting the availability of mortality data. However, many diseases are not fatal but are responsible for considerable loss of healthy life. Estimates of the full loss of healthy life due to different causes have been presented in the World Development Report (WDR 1993) in terms of Disability-Adjusted Life Years (DALYs) lost, based on a methodology developed by the World Bank and WHO.2 According to these estimates, India accounted for 292 million DALYs lost in the year 1990, which is over 21 % of the global burden of disease, even higher than its share of overall mortality. 2.14 The estimated national burden of disease for India is summarized in Figure 2.1 and Table 2.1. The largest loss of DALYs is from the group of communicable disease and maternal and perinatal causes. This falls disproportionately on young children, especially those under five. Non-communicable diseases account for nearly as large a burden. Their incidence tends to cluster in the older age groups. 2.15 Table 2.1 presents the total DALY loss estimated for 1990 for the major causes. There is little difference in the total figures for males and females, although the composition of the burden differs somewhat between the sexes. Females have somewhat higher figures for major causes affecting children, such as respiratory infections and diarrheas, as well as the full burden of maternal mortality/morbidity. 2.16 Table 2.1 also ranks the major causes of DALY loss by their relative size. Of the top ten causes of DALY loss, 50% were in the communicable disease category and 50% were in the non-commnunicable disease category, indicating a mix of causes for the total burden of disease in India. 2.17 Burden of disease information alone is insufficient for evaluating public sector priorities -- the feasibility and cost of interventions must also be considered, along with the extent of private provision of services, and constraints of organizing multi-functional health facilities and programs at the primary level. At this time, only crude estimates exist for analyzing the allocative efficiency of India's health sector based on disease burden and cost- effectiveness. It is likely that substantial gains in health status as defined by the DALY index could be achieved by shifting allocative priorities towards more cost-effective interventions, but the specific feasible and effective strategies for achieving this need to be determined. A study to develop current estimates of disease burden and cost-effectiveness for the state of Andhra Pradesh is near completion. 2 The WDR (1993) defines Disability-Adjusted Life Years (DALYs) gained as a unit used for measuring both the global burden of disease and the effectiveness of health interventions, as indicated by reductions in the disease burden. It is calculated as the present value of the future years of disability-free life that are lost as the result of the premature death or cases of disability occurring in a particular year.  9 Figure 2.1: India: Burden of Disease by Age and Cause 140 120 7 100 'E 80 60 40- 20T 0. Age 0-4 Age 5-14 Age 15-44 Age 45-59 Age 65+ * Injuries C Non-communicable * Communicable, Maternal, Perinatal Causes  10 2.18 Challenges for the Future. New health challenges are likely to emerge in India over the next few decades, involving an increase in non-communicable diseases arising from the ongoing demographic and epidemiological transition. As fertility declines further, the age structure of the Indian population will shift. The proportion of people above the age of 65 will increase, and as a result, the burden of non-communicable diseases will rise. At the same time, the challenge of communicable diseases of the young and middle-aged will persist. 2.19 This situation will be especially visible among the poor. It is likely that India will go through an "epidemiological polarization" in which one part of the population will successfully complete a demographic and epidemiological transition while another part remains in the pretransition regime dominated by the diseases of poverty. Indeed, this situation is already present in India and accounts for much of the dilemma of its publicly provided health care. The demands of the rural and urban middle and upper classes for accessible, technologically advanced, and free clinical services compete with the still pressing need for coverage with basic disease control interventions. This conflict over public resources is likely to be exacerbated by epidemiological and demographic trends and poses a major future challenge for primary health care policy. B. National Health Policy 2.20 Since the major responsibility for government health expenditures is jointly shared between central and state governments, goals and strategies for the public health sector are established in a consultative process involving these different participants through the Central Council of Health and Family Welfare. This has been the main formal vehicle for agreeing on the structure of the public sector health care delivery system and, more recently, the National Health Policy issued in 1983. 2.21 Improvement in health status has been a stated objective in development policy pronouncements in India. The government has chosen a single approach to achieve this goal: designing and creating a publicly financed and publicly managed system of health services throughout the country, from primary health centers to hospitals, to provide free curative and preventive health services to a large section of the population. Based on the principle that equitable allocation means equal access to health facilities on a per capita basis, nationwide population-based norms were set for the establishment of such facilities. The National Health Policy (1983) expanded this "supply-oriented" approach to policy setting by specifying quantitative targets for health and fertility gains and a timetable to the year 2000 for meeting them. These targets are summarized in Table 2.2. They strongly emphasize the reduction of preventable mortality and morbidity affecting mothers and young children and were closely identified with the primary health care approach. Significantly, the national health policy also recognized the need for government to "cooperate" with the private sector, although actual efforts in that direction have been limited.  11 Table 2.2: Goals for Health and Family Welfare Programs to the Year 2000 Goals hndic tor- Re.oned level 1. infant mortality rate Rural 136 (1978) 122 Urban 70 (1978) e0 To!a 125 (1978) 106 67 b30 perinatal mortality 67 (1976) 2035 2. Crude death rate Around 14 12 10.4 9.0 3. Pro-school child (1.5 yrn.) mortlity 24 (1976.77) 20.24 15.2C 10 4. matemal mortality rate 4-5 (1976) 3-4 2-3 below 2 5. Ufe expectancy at birth (yrs.) Male 2.6 (1976.1) 55.1 57.6 64 Female 51.6 (197681) 54.3 57.1 64 6. Babies with birth weight below 2500 gms. (%) 30 25 la 10 7. Crude birth rate Around 35 31 27 21 . Eftectiv couple protection (N) 23.6 (March. 1962) 37 42 6o 9. Net Reproduction Rats (NM) 1.48 (1981) 1.34 1.17 1.0 10. Growth rate (annual) 2.24 (197141) 1.90 1.66 1.20 11. Family size 4.4 (1975) 3.8 2.3 12. Pregnant mothers receiving ante-natal care () 40.50 3060 60-75 100 13. Deliveries by trained birth attendants (%) 30.35 50 80 100 14. Immunisations status (% coverage) TT (for pregnant women) 20 60 100 100 TT (for school children) 10 years 40 100 100 16 years 20 60 100 100 DPT (children below 3 yrs.) 25 70 a5 as Polio (infants) 5 50 70 65 8CG (infanls) 56 T 60 a DT (now school entrants 56 years) 20 so 55 65 Typhoid (new school entrants 5- years) 2 70 a5 a5 15. Leprosy. percentage of disea arrested cases 20 40 60 sO outod those detected 16. TP. porcontage of arrested cases out of those 50 60 75 90 detmeted 17. Mindness - Incidence of () 14 1 07 0.3 Source: Statement of National Health Policy. GOI. Ministry of Health and Family Welfare, 1982  12 2.22 Although the states do not formally propound their own health policies, they retain a certain degree of autonomy in pursuing their own goals and objectives. Some states spend much more than others on health-related programs, included those of primary health care. Several states have initiated major actions to provide feeding and nutrition services on their own account. State governments also may promote prestige projects, such as new medical colleges and tertiary hospitals as additional expenditures. Since the capacity- of states to support the agreed-upon national policies may be affected by such actions, the reality of health policy at the state level must also be considered. C. Administrative, Budgeting and Financing Structure 2.23 Administrative Structure. The complex structure of government financing in the health sector is shown in Fig. 2.2. Under the federal structure of the Indian Union, public provision of social services including health and education are primarily the responsibility of state governments. The Constitution of the Republic of India (1950) includes health as part of the State List, while medical education is in the Concurrent List of public responsibilities. The center, however, exercises its discretion to initiate and fully or partially finance centrally sponsored schemes through the mechanism of specific purpose grants to the states. These include the National Family Welfare Program (FW) (which includes family planning and maternal and child health services), the National Malaria Eradication Program (NMEP), the National Tuberculosis Control Program (NTCP) and other "national" disease control programs.' The state governments have little independent say in the formulation and design of such national schemes, although they can refuse them. The states retain responsibility for implementing such schemes, which appear as schemes in the state plans. The administrative structure and budgeting process limit the ability of state governments to overcome existing differentials in the resource base. 2.24 There are two wings in the administrative structure of the Ministry of Health and Family Welfare: the bureaucratic or administrative wing and the technical wing. They consist of parallel hierarchies of officers. At the center, the secretariat (administrative wing) of the Ministry of Health and Family Welfare (MOHFW) and the Directorate General of Health Services (DGHS -- the technical wing) are staffed by civil servants and by medical doctors respectively. Both wings report to the Health Minister, and the managers of the two wings enjoy the same level of seniority. The Health Secretary is at the same level as the Director General of Health Services and the Joint Secretary is at the same level as the Deputy Director General. 3 National in this context implies significant central funding and program authority as well as a delivery structure clearly defined to the peripheral level.  13 Figure 2.2: The Stmcture of Government Health Financng |Union | Center"e urnbed tans parVr,han Hospitals ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~Sae4cl wk M ' ( Stat ~~~~Govwnment I,~~, Union MrOdHai FaW saare Oh rcrrn 7 \ ~~Ob'er central Ste MOHI ; MOHFW / Cenra functions/\ Hosptals / | Non-Plan | | ~~~~~~~~Locall Pdrimay Care OMer Fa - ifes w H d Faciliges and and Prgwra FW Progrm  14 Box 1: India's Main Public Health Proorams Endemic diseases account for over two-thirds of the total morbidity and mortality in India. As a resul, direct expenditure on public health programs is high, both by the central government and the states. In FY92. the combined budgeted expenditure on all India public health represented 15 % of total health expenditure, second only to hospitals (31.7 %). The central government contribution is about 23 % of total all India public health expenditure, and it ranks third (12.4%), after family welfare (53.3 %), and education and research (13.3%). The states share of public health expenditure is over 77%, and, in the state healthbudget, it ranks second (16%) after hospitals and other health facilities and dispensaries (61.2%). Health and health-related programs in India includes national programs aimed at controlling endemic diseases as well as health components in the family welfare, nutrition and urban-based programs. The central government funds ten programs aimed at prevention and control of the following endemic diseases: (i) leprosy; (ii) malaria; (iii) tuberculosis; (iv) guinea-worm; (v) blindness; (vi) goiter, (vii) STDs, (viii) aids, (vix) mental hith, and (x) diabetes. Leprosy, blindness, goiter and aids are 100 percent centrally funded while others are funded on a 50-50 share arrangement with the states. Endemic diseases pose serious challenges to national development efforts. Beyond their toll on individual illness and death, they have insidious effects on the society and impede national and individual development. However, the programs on leprosy, malaria and tuberculosis remain among the top priorities for action in India although there are other problems to deal with, most notably AIDS and certain newly resurgent infectious diseases (see text). At present, India has 2.0 million cases of leprosy with 0.3 million new cases are detected annually. About 25 % of untreated leprosy patients suffer from deformities due to nerve damage. Suffering due to social stigma is signiticant and leprosy patients face social discrimination and the risk of loss of employment and rejection from their families and communities. Malaria is resurging as one of the leading causes of illness in India, About 2 million cases are recorded every year. Its impact is severe on infants, young children and pregnant mothers with fetal death and premature delivery. It is a serious impediment to development and its socio-economic impact affects various sectors including agriculture. The direct costs of incapacitating malaria include lost wages, cost of treatment, and the expense of travelling to seek care. It reduces productivity, augments pressure on health services, increases school absenteeism and results in lost investments in child health. The burden of tuberculosis is also staggering in India. About 1.5 % of the total population is estimated to be suffering from radiologically active tuberculosis, about 1.5 million cases are identified and more than 300,00 deaths occur every year. Because tuberculosis deaths occur in the economically productive segment of the population, further consequences of adult deaths on children and other dependents are significant. The preceding three programs remain inadequate in terms of effectiveness. The major issues fciing leprosy control include inadequacies in coverage, disability and ulcer care, detection of female patients, public awareness and social stigma. Constraints facing malaria control include inadequacies in logistical support for residual insecticide spraying, transport and accessibility in difficult terrain, non-acceptability of te spraying operation by populations at risk, vector susceptibility to insecticides, plasmodium falciparum resistance to chloroquine, organizational deficiencies including weak technical leadership, and vacancies and frequent changes at key posts. Overriding constraints facing the tuberculosis control program include weak management, inadequate utilization of health workers and sectoral resources, reliance on and abuse of radiology for diagnosis which is not cost.ffective, and the use of conventional and lengthy chemotherapy regimens which contribute to low treatment completion and cure rates. The Government of India recognized these problems and has responded by selecting the districts with high levels of endemicity for priority implementation of the revised and enhanced disease control programs, espeially for malaria, leprosy and tuberculosis. Also, for HIV/AIDS control, the government is promulgating new standards for condom quality and has initiated, with IDA assistance, a control program with a balanced multi-pronged strategy focusing on key actions for promoting public awareness, blood safety, surveillance, clinical skills and sexually- transmitted disease control.  15 2.25 The MOHFW secretariat is further divided into two parts, the Department of Health and the Department of Family Welfare, each with its own secretary. The Secretary for Family Welfare is the senior most officer in the Department of Family Welfare and is responsible for family planning as well as maternal and child health. The Health Secretary is the senior-most officer in the Department of Health and is responsible for all other health programs under MOHFW. Both the Departments of Health and Family Welfare have their own hierarchy of additional, joint, deputy and under secretaries who look after various programs and schemes. This same administrative structure is more or less repeated at the level of each state government, with a Health Minister, a Health Secretary and a Director of Health. As mentioned above, there is also a Central Council of Health and Family Welfare (CCHFW), which includes the health ministers and secretaries from all the states. The CCHFW is the primary advisory and policy making body for health care in the country. The central government's Planning Commission also has a health cell that supports this advisory and policy making function, besides preparing the plan-financed schemes for the sector. 2.26 At the level of each district within every state, there is a Chief Medical Officer (CMO) in charge of rural non-hospital facilities, a District Medical Superintendent (DMS) in charge of the district hospital, and a District Collector (DC) who is the overall head of civil services in that region. 2.27 Budgeting in the Public Sector. Plan and Non-Plan Budgets. Budgeting and accounting of government expenditures at the central and state levels in India has been influenced by the planning process, which takes place within the framework of central and state five-year plans. The plan budget refers to all expenditures, both capital and recurrent, incurred on programs and schemes that have been initiated in the current five-year plan. Once the five-year period of any particular plan is over, the recurrent expenditure associated with the continuation of that activity is generally transferred to the non-plan budget, except for the FW program. 2.28 In the case of centrally sponsored programs (other than the FW program), central financing ratios refer only to the plan component of expenditure. For example, the centrally sponsored National Tuberculosis Control Program is implemented as a 50% centrally funded program; this means that central grants finance half of plan expenditures under this program, while state governments have to bear the full amount of non-plan expenditures. In effect, central grants account for much less than 50% of total government spending on tuberculosis control. The average share of central financing of communicable disease control programs is less than 25 %. Thus, central leverage is limited in its power to assure adequate state funding of these non-plan inputs-- for example, rural field staff for disease control programs. 2.29 Plan expenditure in the health sector accounts for about one-third of total government health spending. If the FW program, which is financed almost entirely out of the central plan budget is excluded, then the ratio of plan to total health spending is less than 20%. In other words, more than 80% of government health spending, excluding FW, is made up of committed expenditure on maintaining existing level of services, financed out of the non-plan budget. In fact, the degree of flexibility that central and state governments have over their health budgets is even more limited than this 20% ratio would indicate, since a part of plan spending is also of a committed nature. Between the center and the states, the former enjoys relatively greater degree of flexibility; about 65% of central health spending and 99% of FW spending is in the plan budget, while 86% of state health spending is in the non-plan budget.  16 2.30 Public sector health budgets at the state level, which include all non-hospital primary health care as well as state and district hospitals, are thus financed out of three distinct budget sources: (a) the state's non-plan budget that finances the recurrent cost of maintaining the infrastructure and level of services established through previous plans; (b) the state plan budget that finances schemes initiated by the state during the current five-year plan, as well as the state's component of financing centrally sponsored programs; (c) and the central plan grants that finance the central component of vertical programs. Total spending on health and FW at the state level is financed out of these three different budget sources roughly in the ratio of 68:14:18 (1990/91). The corresponding ratio in the case of drinking water supply is estimated as 28:56:16. 2.31 The composition of the health budget of state governments by these different sources of funds is significant from the standpoint of protecting public health spending in the context of general fiscal contraction. The degree of financial constraint can be very different on these three different budget sources. Typically, the non-plan budget of each state is constrained by the overall revenue position of that state, supplemented by the statutory central transfers recommended by the Finance Commission; the state plan budget is constrained by the non-plan gap of the state and the untied central assistance to state plans, whose level is determined by the Planning Commission; and finally, the constraints on tied central plan grants are determined by the budget of the concerned central ministry. In the former two cases, inter-state differences in the degree of financial constraint can be considerable, whereas the constraint is uniform in the case of the last component. 2.32 Center-State Finances. The relationship between the center and state govermnents in the health sector occurs at two distinct levels. First, is the overall allocation of resources by the center's Planning and Finance Commissions to States, which constrains or provides opportunities for states' initiatives in new projects. Second, is the intra-sectoral allocations of grants-in-aid and other earmarked funds from center to state. Mechanisms used by the central government to fund health programs at the state level have the potential to reduce disparities in resources among states, and even within states. As currently organized, however, these mechanisms are not designed to overcome inter-state inequities. In the health sector, it is manifest in the following ways: (a) Some central schemes depend on matching funds from the states. A few of the centrally-funded communicable disease programs, including the largest one, the National Malaria Eradication Program, are funded on a 50-50 matching basis by state and central budgets. Some poorer states are unable to come up with sufficient matching funds to make optimum use of the program. It should be noted that even 50-50 matching schemes often require more than 50% contribution by states, since overhead and some other recurrent costs borne by the states are excluded from the estimate of total program cost. Poorer states are least able but most in need of supplementary central allocations to these programs; (b) The central government has gone into debt to the states. In recent years, the FW program and a few other centrally-sponsored schemes have fallen behind in their payments to the states. Therefore, the states have effectively been paying for schemes that were supposed to be centrally-funded. The Eighth Plan has allocated Rs. 5 billion to the FW program to pay for past debts to the states. However, in the  17 short term, it is the states that can least afford additional, often unanticipated, outlays that suffer the most; and (c) Plan schemes revert to non-plan schemes after five years. States are wary of participating in projects initiated by the central government under plan budgets, since participation implies that the state will bear the responsibility for recurrent costs in subsequent plan periods. For example, extensive construction of primary health centers (PHCs) under one plan period can become a severe liability during the following period, when all operating costs must be found within the non-plan allocation, and the center withdraws assistance. The integration of Indian Systems of Medicine doctors into PHCs, undertaken by the central government in many states in an earlier plan period, must now be supported by the states, which find themselves with additional personnel costs. Again, the better-off states are able to take advantage of plan projects to a much greater degree than are the poorer states, though they may require the effort less.  18 3. PUBLIC EXPENDITURES ON HEALTH AND PRIMARY HEALTH CARE SERVICES A. Introduction 3.1 Health spending in India, at 6% of GDP, is amongst the highest levels estimated for developing countries in terms of its percentage of contribution to national income.4 In per capita terms, it is higher than in China (US$1 1), Indonesia (US$12) and most African countries but lower than in Thailand (US$73) and Malaysia (US$67). Comparisons of national health expenditures developed for WDR (1993), using international purchasing power parity (PPP) dollars (1$), also confirm that India is a relatively high spender among developing countries. In 1990 international dollars, India's total health expenditure per capita was I$62, compared with the Philippines at I$46, and Indonesia at I$48. However, in this comparison China's health expenditure was I$73 and Pakistan's I$66 per capita (Murray and Govindaraj, 1993). 3.2 The estimated national health expenditure in India is about Rs. 320 per capita (US$13 at the 1990-91 exchange rate). The largest contributors are private households (75%), followed by state governments (15.2%), central government (5.2%) and third party insurance and employer payment (3.3 %). Municipal Governments and external donors together contribute about 1.3%. 3.3 A "Sources and Uses" matrix for national health expenditure highlighting the major contribution to financing health care in India is presented in Table 3.1. 3.4 Overall, primary health care services account for 58.7%, secondary/tertiary for 38.8% and non-service for 2.5% of the total national health spending. Of the total spending for primary health care, 85% is for curative care services, while 15% is for preventive and promotive care services. Household out-of-pocket expenditure accounts for 82% of total primary care spending and is particularly concentrated (92%) in the curative care component of primary care services. In contrast, about 73 % of preventive and promotive health services are financed by the center (44%), state governments (29%) and private households (27%). The large central government share is due to its almost exclusive financing of the Family Welfare (FW) program. 4 Health expenditure in India is defined in this report to include both public and private health spending. Public sector spending are those elements of spending whose primary purpose is to prevent or treat disease or control fertility. This includes: central, state and local government expenditures under the budgetary heads of medical, public health and FW; public expenditures on services or insurance for government and parastatal employees and formal sector workers. Public spending on nutrition programs and drinking water supply provision are excluded. Private health spending includes those spent by households and firms on preventative and curative care and for family planning.  19 Figure 3.1: National Health Spending (Rs. per capita in 1990-91) PRNvate Households Municipal Govt (0.5%) Central Govt (5.2%) StatGovt (15.2%) A J Exl Donors (0.8%) Third Party (3.3%) Rs. per Percent of Capita Total 1990-91Tta Central Goverunent 16.5 5.2% State Government 48.6 15.2% Municipal Government 1.5 0.5% External Donors 2.5 0.8% Third Party Insurance and 10.5 3.3% Employer Payment Private Households 240.0 75.0% TOTAL 319.6 100%  20 Table 3.1: National Health Spending; An Estimated "Sources and Uses" Matrix (in percent of total expenditure)* Sources State & Central Local Corporate/ Govemnnt Government 3rd Party Households Total Primary Care 4.3 5.6 0.8 48 58.7 (7.3) (9.5) (1.3) (81.7) (100) Curative .35 3.0 .8 45.6 49.7 (.7) (6.0) (1.6) (91.7) (100) Preventive and 3.95 2.65 2.4 9 Promotive Health (43.9) (29.4) (26.7) (100) Secondary/Tertiary .9 8.4 2.5 27 38.8 Inpatient Care (2.3) (21.7) (6.4) (69.6) (100) Non-service provision .9 1.6 n.a n.a 2.5 Total 6.1 15.6 3.3 75 100 Note: Row percentages are in parenthesis  21 3.5 Private household expenditure is also dominant for secondary/tertiary inpatient care, although it is somewhat less so than for primary care services. For secondary/tertiary inpatient care, the largest contribution comes from private household funds (70%); state governments contribute 22% and the central government about 2%, and third party insurance and employer payment add another 6.4%. 3.6 While expenditure levels alone are not sufficient to understand the role of the private and public sectors for delivering health care, especially primary health care services, the overwhelming dominance of private household spending is certainly a good reason for the government to take a close and careful look at both its scope and impact. This chapter, therefore, addresses public expenditures on health with special emphasis on primary health care services. B. Public Expenditures on Health 3.7 Schemes and Programs. The estimated composition of total government health spending by different end uses is shown in Figure 3.2. 3.8 About 47 % of the total health sector budget of center and states is spent on curative care and health facility operations. This might seem excessive, but in fact, this figure is often well over 60% in a country at India's level of per capita income. Preventive and promotive services comes next with 30%, of which about equal shares are for prevention and control of communicable diseases and family planning and immunization. This compares well with mnany other low-income countries, where the figure is well below 10% for preventive and promotive services. The problem is less the distribution of spending by major head than the inefficiencies that result from the low level of current expenditures relative to the massive infrastructure that has been built up. Finally, 7% of the budget is allocated to insurance for central government employees (ESIS) and organized industrial workers (CGHS);5 and 9% to research, education and training of doctors and paramedical staff. The low share of capital investment at 6.4% of the Government's health budget is due to the fact that much of the physical infrastructure has already been achieved over the past one and a half decades. I The largest insurance scheme in operation in India is the Employees State Insurance Scheme (ESIS), a government subsidized insurance plan, established in 1948, to provide benefits to the organized working class in case of sickness or employment injury. This scheme provides services through an estimated 111 hospitals and 1,384 dispensaries in 1991. Access to the ESIS is limited to a rather narrow group of workers and their dependents: employees receiving not more than Rs.2,500 per month and employed in covered factories and establishments. Including beds assigned to plan in other facilities, nearly 23,000 beds are currently available to approximately 27 million beneficiaries. The Central Government Health Scheme (CGHS), initiated in 1954, was designed to provide comprehensive medical care facilities to central government employees and their dependents. In 1990, CGHS provided care to an estimated 3.8 million beneficiaries through a network of about 300 dispensaries, 3 yoga centers and 13 poly-clinics. While the dispensaries provide the basic health care and emergency services, hospitalization is provided through central, state or municipal hospitals.  22 3.9 Services at the Primarv Level. Public expenditures at the primary level are reported under three major heads: medical, disease control and FW. Districts which are better endowed spend a larger share of total expenditure on medical than moderate and poor districts. This is due to the fact that these districts allocated a higher proportion of their recurring expenditure to hospital based services rather than to non-hospital based services. The average share of expenditure on medical for such districts is about 65%. Municipalities generally have a much higher proportion of expenditure on medical, about 79.5%. The per capita expenditure on medical is much higher than that on disease control and FW and this gap is quite conspicuous in the better-off districts and municipalities. The distribution of expenditure on disease control among various programs varies across states and districts. A common feature of most districts, however, is that malaria (NMEP) gets the highest allocation followed by Leprosy (NLEP). The allocation to individual programs under public health depends on the priority established by the state based on its epidemiological profile. 3.10 Inputs. Salaries and wages account for about 62% of government health spending, non-salary maintenance for about 20%, capital investments in building and machinery accounts for 7 %, and transfers to local bodies make up the remaining 11 % (average of 14 major states in 1985-90, NIPFP, 1993). Since the health specific transfers to local bodies have a high share of salary support, the overall share of staff costs in the total health budgets is in fact higher than the 62% quoted above. Data from 12 sample districts and 8 municipalities surveyed recently indicate salary shares in the range of 70-80% (NCAER, 1993). 3.11 The growth of salary expenditures has been faster than the growth of all other components of health spending over the past one and a half decades. Salaries have grown at an average annual rate of about 10% in real terms, while non-salary maintenance and capital expenditures have each grown at about 5 % or less. As a result, the proportion of salaries in total government health spending, excluding the salary component of transfers to local bodies, has increased at the expense of non-salary maintenance expenditure (Figure 3.3).  23 Figure 3.2: Estimated Composition of Government Health Budget (1991-92) Capital Investment 6.4% Aministradon & other MediBal Educafon & - | Hosp itals 31.8% Research 8.8% Insurance (CGHS, ESIS) 7.2% Family Welfare 14.6% Pubrlc Heaflth (Disease ~~~~~~~ ~~Control) 15.1 % Pnmary Care Faciities 13.6% Govt Health Percent of Budget Total (Rs. Billion) Hospitals 18.5 31.8% Public Health (Disease Control) 8.8 15.1% Primary Care Facilities 7.9 13.6% Family Welfare 8.5 14.6% Insurance (CGHS, ESIS) 4.2 7.2% Medical Education & Research 5.1 8.8% Aministration & other 1.5 2.6% Capital Investment 3.7 6.4% TOTAL 58.2 100%  24 Figure 3.3: Shift in Input Composition 100.0 90.0 80.0 70.0 *CapiaOuuay Transems 60.0 Operaton & Maintenance 0 SWaraes ~50.0 40.0- 30.0- 20.0- 10.0 197478 1978-81 198145 1985-8 1974.78 1978-81 198145 1985-88 Salaies 55.2 54.9 57.0 59.5 Operation & Maintenance 29.3 26.0 25.9 22.7 Transers 6.5 10.5 8.7 10.0 I Capital Outlay 9.0 8.9 8.4 7.8  25 3.12 At the state level, salaries appear to have increased much faster than operations and maintenance (O&M) expenditure, except for Punjab. The problem, seems more acute in the case of Orissa, Rajasthan, Kerala, West Bengal and Andhra Pradesh were O&M expenses have grown by less than 3% annually in real terms while salaries have grown by 10% or more (Table 3.2) 3.13 At PHC and subcenter (SUBC) levels, the extent of underfunding of recurrent costs is difficult to estimate, since there are multiple budgetary sources of financing these facilities, and the budget data are not classified according to the type of facility. However, some broad indicators are discemible. For instance, the number of SUBCs per capita doubled between 1981 and 1988, while the number of PHCs per capita more than doubled during this period. However, the per capita expenditure towards rural health facilities did not rise that rapidly; comparing average levels for the period 1978-82 and 1986-90, per capita expenditure was 56% higher in the case of the rural component of states' medical budgets, 24% higher in the case of disease control programs and more than double only in the case of rural family planning services. In other words, while the central FW program probably ensures more or less adequate funding at the lowest level facilities (SUBCs), constrained funding of other components of central and state health budgets seem to have resulted in spreading of resources too thinly on too many facilities at the higher levels such as PHC and Community Health Centers (CHC). A more accurate and detailed discussion of the size, location, and effects of these resource gaps based on the latest survey of sample districts is discussed in Chapter 4. 3.14 Griffin (1992, Table A. 14) based on 1983 data, reported government spending on non-salary items at 42% of total spending, whereas, average non-salary spending for Asian countries in Griffin's comparative study was 38%. However, current data indicates that overall, salary expenditures account for 70-80% of total spending at district/municipal level. Drugs and supplies generally comprise less than 15% of the total. This ranges around Rs. 5 per capita for the rural districts, but around Rs. 13 for the municipalities; this is still a very low amount, since town-based hospitals also serve the rural population. The fact that less than 20% is allocated for non-salary maintenance including drugs, is a serious cause for concern. Lack of availability of medicines and other supplies at publicly managed facilities, especially in rural non-hospital facilities, is widely perceived as one of the major factors for the low quality of care provided at such facilities and the resulting consumer preference for private practitioners.  26 Table 3.2: Growth of Health Sector Expenditure Classified by Inputs (Real Annual % Growth, 1974-88) Salary Operation & Capital Spending Maintenance Qty Andhra Pradesh 11.3 2.8 1.2 Bihar 12.1 6.3 4.8 Gujarat 9.6 4.7* 11.2 Haryana 11.8 4.5 -5.8 Kamataka 7.0 5.4 -1.9* Kerala 11.4 2.4 12.5 Madhya Pradesh 9.5 5.0 1.1* Maharashtra 10.3 8.8 13.8 Orissa 10.4 1.2* 16.5 Punjab 8.6 11.2 3.2 Rajasthau 9.0 2.3 10.5 Tamilnadu 9.3 4.2 4.3 Uttar Pradesh 9.4 8.9 19.4 West Bengal 8.9 2.8 -5.9 All Major States 9.9 5.4 4.6 * Estimated rate not significantly different from zero. Source: Tulasidhar, 1992  27 C. Government Financina for Health 3.15 Central and State Governments. Central and state Governments together account for about 20 % of national health spending. Of this, state governments account for about 73 % of total government health financing, while the central government accounts for about 25 %, while a small amount is financed by urban municipal bodies. There has been some confusion in accounting for state and central roles, since central contributions to jointly-funded schemes appear in the budget as state expenditures as part of the state plan. The accounting used in this report is based on the actual source of funds. 3.16 Central and state Governments finance very different components of the total expenditure. Figure 3.4 breaks down the uses of funds in the 1991-92 budget by center and state shares. States heavily finance primary health care facilities, hospitals, disease control programs and insurance. The center, on the other hand, emphasizes FW and to a somewhat lesser extent, education and research. Capital investment is shared equally by the center and the states. The central Department of Health allocates over 45% of its budget to the central teaching hospitals and research institutions, about 15 % towards the Central Government Health Scheme (CGHS), a medical benefit scheme for its own employees, and about 35% towards the disease control programs. The Department of FW allocates about 85 % of its budget towards family planning and 15% towards maternal and child health and universal immunization. 3.17 The family planning and immunization programs are fully centrally financed while the disease control programs are partially financed by the center, with the state Governments required to allocate matching funds from their budgets and bear the staff costs. In either case, the concerned department of the central ministry is responsible for program design and monitoring, while the corresponding state level department is responsible for implementation. The entire expenditure on these national programs is recorded in the state budgets, while the centrally financed component is also recorded in the central budget as a grant to the states. 3.18 State Governments finance the bulk (97%) of curative hospital care, as well as a significant share of expenditure involved in operating the primary health care infrastructure in rural areas. Central grants partially finance the disease control programs and the centrally- financed "rural health" scheme under the public health head which provides some funds for operating primary care facilities. The state governments bear all other costs of non-hospital rural services.  28 Figure 3.4: Center and State Shares in Different Components of Government Health Budget (1991-92) 100 80 70 :;ts . >4s: 0;, . O States' Share % 70 Ccnte's Sarc Sates CneShare % L.60 U) 50 I- ~ ~ ~ ~ EU0 40 30 20 C 10 6 I~~~~~ Primary Care Facilities 99.7 0.3 Famnily Welfare 22.6 77.4 1 j Insurance (CGHS, ESIS) 18.2 81.8 | Medical Education & resarch 41.7 58.3 Administration & other I11 89| Capital Investment 49.7 50.3  29 3.19 Central intervention in the health sector is both through the design and operation of centrally-sponsored programs as well as support for infrastructure development. A major vehicle for the latter is the National Minimum Needs Program (NMNP), a mechanism that allows the center to influence and encourage states to spend on building up infrastructure for rural health, water supply and nutrition. The NMNP is part of each state government's own plan, but for each rupee that the state spends towards these minimum needs, it receives a matching rupee from the center as a grant. In other words, disbursements under one of the central vertical programs is tied to the states' own efforts to fulfill minimum requirements of rural health infrastructure. 3.20 Local Governments. Local bodies have no significant financial authority in India except in large cities. In some states, however, local bodies have a significant responsibility for managing services and implementing national or state government programs. The degree and pattern of decentralization in state-local relations exhibits wide inter-state variation. Transfers to local bodies, as a share of total state government budgets, for example, vary from over 40% (Gujarat and Maharashtra) to 15% or less (Haryana and Madhya Pradesh). For the 14 major states, the average share of transfers to local bodies was 30% of total expenditure in the second half of the eighties; the share of such transfers accounts for about 11 % of state health spending. 3.21 While the federal structure of government in India is based on a significant devolution of taxing powers to the states, supplemented by a statutory right to their share in major central taxes, local bodies have very limited taxing powers or statutory rights. Decentralization has taken the form of delegation of implementing responsibility with minimal or no devolution of financial powers. Thus, even in the case of Gujarat or Maharashtra, where 40% of state government expenditure is transferred as grants to local bodies, the local bodies have little or no access to any financial resources on their own; their spending is totally dependent and determined by what is transferred from the state budget. The only exceptions to this general rule are municipal corporations of cities and towns, who raise their own resources through urban land and property taxes, and spend about 20-40% of such resources on health and related services. 3.22 Of the total amount transferred as grants by the states to local bodies, over 95% consist of specific purpose grants to support social service facilities run by the local bodies, such as grants to support salaries of panchayat school teachers, grants to support salaries of paramedical staff in rural health centers, etc. Less than 5% consists of general purpose grants over which the local authority has flexibility of use. Such grants have remained more or less constant in nominal terms in all states, over the past four and half decades.  30 D. Trends in the Level and Composition of Government Spending 3.23 Health and FW spending has grown at an average annual rate of a little over 4% in real per capita terms since the mid-1970s.6 3.24 Health and FW have absorbed about 3-4% of total government spending throughout the past four decades, declining slowly since the early seventies from about 3.8% to about 3.3 % at the end of the eighties. This occurred despite the increase in health spending in real per capita terms because overall government expenditures rose even faster than health expenditures, growth of most of the centrally-sponsored programs decelerated and financial constraints faced by the state governments became more acute. Within the health and FW budget, the share of FW has risen at the expense of health. Figure 3.5 shows the size and composition of health-related public spending in four different time periods. 3.25 Although the center finances only 25% of total government health spending, the centrally sponsored programs have nevertheless acted as the major catalysts in shaping new directions in the pattern of health spending. The rapid growth of the FW program since the late seventies initiated the broad shift towards preventive and promotive health spending by the government. The growth in the Accelerated Rural Water Supply Program in the early eighties, and in the ICDS program more recently, have added to this trend, apparently in line with the emphasis on rural primary health care contained in the National Health Policy adopted in 1983. However, expenditure on disease control programs has grown less rapidly throughout this period, declining as a share of total spending on the broadly defined health sector. Thus, there is a general correspondence between the rates of expenditure growth on the major components and the stated priorities of health policy, i.e., there has been an increase in spending on those elements expected to benefit poor women and children and reduce mortality and morbidity from the health burdens they principally face. However, the specific strategy and the intended linkages amongst the major components -- medical care, public health, family welfare, nutrition, and water supply -- is unclear. 6 If nutrition and drinking water supply are included, then the growth rate is higher at 6%. In other words, spending on these health-related components of the budget has grown faster than spending on health proper. The most rapid growth has been in the case of nutrition, driven by the centrally- sponsored Integrated Child Development Services (ICDS) program.  31 Figure 3.5: Changing Composition of Health Spending (Rs. per capita at 1988-89 Prices) 80.00 * Nutrifa Water Supply 70.00 OFamily Wuaem 13 Pubikc Hea_t EMedical_ 60.00 X 40.00 _I. 1974-78 197882 1982196 1986S8 Medical 19.01 22.84 25.57 27.86 Public Health 5.08 7.05 8.93 9.52 Family Welfare 4.19 3.94 7.45 8.29 Water Supply 9.48 15.29 21.90 24.03 Nutrition 1.41 2.05 5.31 8.78  32 3.26 One of the effects of state level financial constraints has been the slowdown in achievements under the National Minimum Needs Program (NMNP), the major source of financing the expansion of rural PHCs in the state budgets. Whereas in the sixth plan period (1980-85), it is estimated that 83% of planned outlay on rural health under the NMNP was actually spent by the states, in the seventh plan period (1985-90) this ratio declined to 73% (Tulasidhar, 1992.) While the state governments faced more stringent budgetary constraints in the late eighties, the center also did not use its leverage very effectively to protect funding for primary health care in this period. The only financial leverage exercised by the center on the NMNP was the centrally sponsored Accelerated Rural Water Supply Program (ARWSP), under which the center matched its grant allocation with the states' spending on NMNP. 3.27 The impact of the deceleration in expenditure growth since the mid-1980s is twofold: (a) slowing down in the creation of new rural non-hospital health facilities and (b) decline in the level of recurrent expenditure per facility. Considering that by 1986, the target for rural facilities had already been achieved up to 75% in the case of PHCs and over 85% in the case of SUBCs, some slowdown in facility creation may be considered natural and not a cause for concern. The decline in recurrent expenditure per facility poses a more serious problem, since inadequate recurrent cost support for the facilities already created would undermine the capacity of such facilities to deliver services to the people. 3.28 Trends in Government SRending on the Medical. Public Health, and Family Welfare s. The share of medical education and research which falls within the budgetary category of "medical services" has increased appreciably, from less than 10% in the mid seventies (1974- 78) to about 14% by the late eighties (1986-90). This increase has come at the expense of general curative care services under the budgetary category of "medical relief" and the Employees' State Insurance Scheme (Tulasidhar, 1992). General curative care services for rural areas has increased and in line with the stated policy objective of strengthening outreach facilities. However, the rising proportion of spending on medical education, given the relative excess of physicians to paramedical staff, is less appropriate. 3.29 Within the category of FW, the share of maternal and child health (MCH) has risen only marginally, from about 2.5% in the seventies to about 4.5% in the late eighties. This is in spite of the heavy emphasis laid on MCH in policy documents and priority statements of the central government and a major new initiative in the 1980s to increase immunization coverage. Monetary incentives for permanent methods of contraception (sterilization), referred to as "compensation" in the budget, continues to absorb 15-20% of spending under the FW program. 3.30 Trends in Plan and Non-Plan SRending. Medical and disease control programs, and FW have together consumed a fairly steady 3-3.5% share of plan budgets over the past four decades, with the share of FW growing and health declining. However, health still accounts for more than 80% of the total of combined center and state plans. Non-plan spending by the center and states together has been rising more rapidly than plan spending, especially in the recent period of deceleration of government health spending. Table 3.3 shows the growth of government expenditures at the state level in the period 1986-90, by the different sources of finance.  33 3.31 The faster growth of non-plan expenditures compared to plan, both in the case of the health sector as well as overall, indicates reduced flexibility to finance additional expenditures for program initiation or expansion. State plan for health including FW allocations have grown somewhat faster than central plan grants for the sector, indicating some substitution of state for central plan funds in the health sector. 3.32 That state Governments have been able to partially ameliorate the impact of decelerating or declining central plan allocations in the late eighties could be interpreted as a sign of state level commitment to protect funding for the health sector. However, the capacity of state Governments to do this depends to a large extent on their overall financial position, determined by their own resources and the untied transfers made available to them by the center. In the period 1986-90, as shown in Table 3.3, the states were able to expand their overall plan size by over 6% annually in real terms, and their non-plan budgets by nearly 8%, as a result of untied central plan and non-plan transfers rising by over 8 % and 11 % respectively. 3.33 Inter-State Variation in Expenditure Trends. There is wide variation among the different states both in terms of the level and the composition of government health spending. The level of spending is lowest in the poorest states which are also those with the lowest health status. Poor states which have low health status cannot afford to spend much on improving this status (NIPFP). The per-capita spending on health and FW in Punjab, the richest state, is three times as high as in Bihar, one of the poorest states. Table 3.4 shows the variation among the 14 major Indian states in terms of their per capita Government health spending in the late seventies and in the late eighties. 3.34 The ratio of the highest to the lowest level between the two periods increased from 3.0 to 3.5, showing a slight increase in the degree of inequality of per capita health spending between states. On the other hand, the lowest level of spending (Bihar) improved from 45% to 54% of the national average. There is thus no evidence of any appreciable change in the degree of variation among the states during the two periods. Bihar and Uttar Pradesh, however, continued to remain at the bottom of the ladder in both periods.  34 Table 3.3: Growth of Expenditures by Sources: Total and Health (Rs. Billion) Annual Growth Rate 1986/87 1990/91 Nominal Real Total Central Grants 73.53 132.02 15.8% 5.9% Tied Grants 39.10 61.92 12.2% 2.6% Untied Plan Grants 23.13 45.54 18.5% 8.4%/e Untied Non-Plan Grants 11.30 24.56 21.4% 11.1% Total State Plan Budget 53.93 98.18 16.2% 6.2% Total State Non-Plan Budget 288.30 571.81 18.7% 7.9% Health and Family Welfare 25.54 45.23 15.4% 5.5% Central Grants 5.44 8.59 12.1% 2.6% State Plan 2.79 4.57 13.1% 3.5% State Non-Plan 17.31 32.07 16.7% 6.7%  35 Table 3.4: Per Capita Health Expenditures, 1970's to 1980's (Rs. at 1988/89 Prices) Annual Growth 1974-78 Rank 1986-89 Rank Andhra Pradesh 25.23 (10) 41.41 (9) 4.6 Bihar 12.87 (14) 24.70 (14) 6.1 Gujarat 33.17 (6) 48.72 (4) 3.6 Haryana 33.40 (5) 46.90 (6) 3.1 Karnataka 29.89 (8) 39.22 (10) 2.5 Kerala 38.64 (2) 57.04 (2) 3.6 Madhya Pradesh 22.37 (12) 38.15 (11) 5.0 Maharashtra 30.15 (7) 53.02 (3) 5.3 Orissa 23.08 (11) 36.14 (12) 4.2 Punjab 33.74 (3) 85.62 (1) 8.8 Rajasthan 27.91 (9) 41.97 (8) 3.8 Tamnilnadu 33.64 (4) 47.23 (5) 3.1 Uttar Pradesh 17.94 (13) 34.93 (13) 6.2 West Bengal 39.11 (1) 46.85 (7) 1.7 Average 28.28 45.67 4.5 (14 major states) * refers to the budget heads of medical, public health & family welfare Note: Figures in parentheses show ranking of states Source: Derived from Tulasidhar, 1992  36 3.35 The states which significantly improved their relative position with regard to per capita health expenditures were Punjab and Maharashtra, and Gujarat to a lesser extent, all of which are among the richer states in the country. This confirms the thesis that state Government health spending is mainly resource constrained, rather than driven by need. 3.36 Among different components of the health budget, the inter-state variation in spending levels in the late eighties has been found to be higher in the case of disease control programs, than in the case of medical services and FW. The ratio of per-capita spending between the highest and the lowest among the 14 major states was 7:1 in the case of disease control programs while it was around 2:1 in the case of medical services and FW. 3.37 The general pattern of inter-state variations indicate that the central government has not utilized the mechanism of specific purpose grants very effectively to redress inter-state inequalities in health status, especially in the case of communicable disease control where there are significant externalities. E. Impact of Government Spending on Health Status 3.38 Several analysts in India have interpreted the positive correlation between per capita public spending on health and the health status of the population as evidence of the positive impact. However, the positive correlation (Figure 3.6) is not necessarily evidence of such a causal relationship. It is possible that socio-economic development is the causal factor that determines health status as well as the level of spending, but more in-depth analysis is needed to confirm this hypothesis. Establishing the impact of public spending on health status requires more rigorous analysis of data, separating the effect of socio-economic variables from the effect of public spending. Available analytical efforts pertaining to the past two decades in India, and their key findings are examined below. 3.39 An analysis of pooled cross-section and time-series data, covering 13 major states and 12 years (1971-83) in a random effects framework, has shown that the level of per capita public spending had a significant effect on postnatal infant mortality rate during this period (Tulasidhar and Sarma, in Berman & Khan, 1993). This analytical work also showed the growth of rural health facilities in that period to have had a significant effect on the demand for reproductive health care, as revealed by the proportion of cases availing of medical attention at birth. One of the conclusions of this study was that while public spending related variables explained a relatively larger variation in post-neonatal mortality, socioeconomic variables seem to play a major role in the case of neonatal mortality. Neonatal mortality refers to infant mortality during the first month after birth, while post-neonatal mortality refers to infant mortality between the first and the twelfth month after birth.  37 Figure 3.6: Infant Mortality and Per Capita Health Spending in Indian States 0 - 20 a 40 60 60 100 -U 1201 96 140 0 20 40 60 80 100 Rs. per capita spending on health RL per Capits IMR per 1000 Births in 1986489 in 1989 (.4 as-a P.1 Andhra 41 81 Bihar 25 91 Gujarat 49 86 Haryana 47 82 Karnataka 39 80 Kerala 57 22 Madhya Pradesh 38 117 Maharashtra 53 59 Orissa 36 122 Punjab 86 67 Rajasthan 42 96 Tarnil Nadu 47 68 Uttar Pradesh 35 118 West Bengal 47 77  38 3.40 Another analysis pertains to the performance of the family planning program in 17 states in the period 1969-82 (Jolly, 1986). This analysis found that a much larger part of the variation in program performance was explained by socio-economic variables than by program input variables: literacy rate alone explained over 50% of variation in program performance. Nevertheless, this study affirmed that the average expenditure per couple had a statistically significant impact on couple protection. One of the more important findings of this analysis was the considerable degree of variation among districts within each state, both in terms of socioeconomic standards and in terms of family planning program performance. It pointed out that the application of uniform national norms were inappropriate, and recommended devolution of responsibilities from center to states and from states to local bodies. 3.41 Analysis of more recent data pertain to 15 states and two years, 1985/86 and 1990/91 (Seeta Prabhu & Chatterjee, May 1993). Regression of health attainment (constructed on the basis of infant mortality rate and the crude death rate in each state) on health infrastructure and the level of per capita recurrent expenditure on health showed that: (a) the coefficient of health infrastructure development was statistically significant; and (b) the coefficient of per capita recurrent government expenditure was not significant. 3.42 These studies confirm the significant positive impact of public health spending on health status. However, due to inefficiencies in the structure of financing as well as measurement problems, it is difficult to draw conclusions about the benefits of increasing public spending on health at the margin. On the relationship between infrastructure constructed and health status, these analyses suggest that once the basic health infrastructure had been created, further improvements in health status have depended not only on adequate levels of recurrent cost financing but also on the appropriate packaging of staff and non-staff inputs. As the health budgets of central and state governments came under pressure in the mid eighties, and as salaries tended to crowd out other components such as drugs and supplies, the marginal productivity of government health spending seems to have declined, while the level of impact remained low. Given the continuing burden of preventable disease and mortality in India, government health spending can have a positive impact provided it is targeted towards addressing the binding resource constraints such as improving the packaging of inputs, and targeting appropriate health problems and vulnerable populations. F. The Effect of Adjustment on Government Health Spending 3.43 Mechanisms of Adjustment Effects. The present round of structural adjustment in India began with the new package of policy changes announced in July 1991. It involved a one- step devaluation of the Rupee by 23 %, a major contraction of the fiscal deficit of the central government by more than 2 percentage points of GDP during the year 1991/92, reduction of average import tariff levels in the subsequent year, 1992/93, etc. Conceptually, the process of adjustment can affect the output of government health spending by affecting: (a) the quantum of financial resources available with health ministries and departments; and (b) the unit costs of providing health care. Fiscal contraction by the central government is translated into tightening of budget constraints at the state level through different mechanisms, corresponding to the three different sources of financing health expenditures at the state level, namely the non-plan budget of the state, the state's own plan budget and the budget of centrally sponsored programs. Figure  39 3.7 shows the different channels through which the impact of adjustment is conveyed to the state level. 3.44 There are two kinds of pressure on the financial resources of state governments, namely: exogenous macroeconomic factors and contraction of central transfers to states. A deceleration or decline in domestic industrial output, for example, may lead to a reduction in tax revenues collected by both the center through excise duties and personal income taxes, and states through sales tax. Since a statutorily fixed proportion of central excise duties and personal income taxes are shared with the states, reductions in either of these types of tax revenue will squeeze the revenue of both the center and state Governments. 3.45 In addition to revenue effects, the center can: (a) reduce the quantum of untied plan grants to states and/or (b) reduce the quantum of tied plan grants transferred under one or more centrally-sponsored programs. Reductions in allocations to centrally- sponsored health sector programs are the most obvious form of squeezing the health sector and have received attention in Bank-GOI dialogue. However, the other channels of pressure, though less visible, are likely to be more significant as the funds involved are much larger in magnitude, since they affect state- level spending. 3.46 Central transfers to the non-plan budget of states, consisting of tax sharing and gap filling grants, are statutorily determined by a quasi-judicial body called the Finance Commission; such transfers are therefore not at the discretion of the central Government and hence not vulnerable to contractionary pressures by the center. On the other hand, central plan transfers to states, both tied and untied, are largely at the discretion of the center and hence more vulnerable to central policy.  40 Figure 3.7: Channels Through Which Strctural A4justnent Affects Health Spending Exogenous reductions in center's revenue i CENTER'S EXPENDIUE- ll rPlanning Firnance |MOHFW |</ Commisslon C-| I Comnon| Cuts in centrai pbn gwJ schemes | STATE EXPENDITURE unfd / \ ad]=W f at sXe lev Exogenous rductions ________________________ _ estate revenue PLAN NON-PLAN Macroeconomic effects State Health Budget on input prices |HEALTH SERVICE PROGRAMS|  41 3.47 Untied transfers from center to states, called "central assistance to state plans", consist of 30% grants and 70% loans in the case of the 14 major states, and of 90% grants and 10% loans in the case of the special category states, which are mainly the hilly and predominantly tribal states plus the state of Jammu & Kashmir. The center is free to decide the quantum of assistance to each of the special category states, whereas the assistance to the 14 major states is distributed among them on the basis of an objective formula called the modified Gadgil formula. However, even in the case of the latter, only the inter-state distribution is formula driven; the total quantum of such assistance is at the discretion of the central Ministry of Finance. 3.48 States also have some discretion in how they use untied funds. For example, a reduction in central assistance to state plans may result in different levels of reduction to health spending in different states. Similarly, states exercise some discretion in their non-plan spending, and so can favor or disfavor the recurrent cost needs of the health sector. 3.49 In addition to the factors outlined above, there are also other macroeconomic pressures that operate, such as (i) reduction in small savings by households and (ii) the devaluation of the Rupee. A fixed proportion of collections from national savings schemes, operated by post offices and linked with tax incentives, are on-lent by the center to the states as a loan under the non-plan account; any decline in such collections would thus reduce the quantity of central loans available to the states. A major devaluation of the currency, by affecting the cost of imported inputs, especially drugs and pharmaceuticals, could affect the unit cost of health care financed by the government; even if financial allocations are maintained, the real value of such allocations could decline due to an abnormal rise in unit costs. 3.50 Fiscal Contraction by the Center in 1991-93. The patterns of fiscal adjustment in recent years are described in Figure 3.8. In 1991/92, the first year of fiscal contraction, the center reduced its deficit by 2.4 percentage points of GDP, from 8.4% to 6.0%. Reduction in central subsidies (export and fertilizer subsidies) and other components of the center's own expenditure accounted for nearly 70% of this major effort; revenue expansion, including the sale of public assets, accounted for more than 20%, while less than 10% was accounted for by squeezing transfers to the states. 3.51 The aggregate picture of central transfers to states in 1991/92 hides a significant variation between the behavior of transfers to the major states and to the special category states. While plan assistance to the special category states were stepped up significantly, central plan assistance to the 14 major states were sharply reduced. The general purpose transfers governed by the Gadgil formula is estimated to have more than doubled in the case of the special category states, led by Assam and Jammu & Kashmir; on the other hand, these transfers declined by 8% in nominal terms (over 20% in real terms) in the case of the 14 non-special states.  42 Figure 3.8: Composition of Center's Fiscal Adjustment Measures (change over previous year) 2.5% O Revenue Increases /bl O Squeeze on States /a El Expenditure Cuts 1.5% 0~ 10% 1.0 __ _ _ _ 0.5% 0.0% 91/92 91/92 92193 92193 939 Budget Acual Budget Actual Budget 91/92 91/92 92/93 92/93 93M4 Budget Actual Budget Actual Budget Expenditure Cuts 1.4% 1.6% 0.5% 0.3% - Squeeze on States i, 0.6% 0.2% 0.5% 0.1% 0.5% Revenue Increases /b 0.2% 0.6% - 0.1% 0.3% /a Tax Share, grants and net loan disbursements /b Before tax devolution to states  43 3.52 In 1992/93, the second year of adjustment, the central government budgeted a further reduction of 1 percentage point in its deficit, from 6% to 5 % of GDP. About 60% of this budgeted adjustment was to come from reduced flow of resources to the states; only 40% was to be achieved through reductions in the center's own expenditure, while revenues were budgeted to maintain their share of GDP. The actual outcome during this year turned out to be vastly different from the budget targets. Overall deficit reduction was less than 0.5 percentage point, and almost all of this came from reducing the center's own expenditure; the targeted squeeze on states did not materialize. 3.53 In addition to the reduction in untied plan transfers in the case of the 14 major states, the central budget for 1992/93 also witnessed a sharp reduction in allocations for the centrally sponsored disease control programs, led by a cut of nearly 40% in the National Malaria Eradication Program. However, these cuts in the central programs were restored during the course of the year as part of the effort to provide a social safety net. 3.54 In 1993/94, the third year of adjustment, the central budget envisaged a further reduction of 0.8 percentage point in the fiscal deficit, from 5.5% to 4.7% of GDP. What is especially worrying is the hefty cut in net transfers to the states envisaged in the 1993/94 budget. Again, the central fiscal deficit turned out to be 7.3%, much higher than planned. There is, however, some fear that the actual squeeze on untied transfers to the states may turn out to be harsher than the budgeted amounts in the coming years. 3.55 Sharp reductions in the untied plan assistance to states reduces the ability of state governments to maintain spending on their own plan programs. Whereas in the late eighties, state governments were able to partially make up for shortfalls in central plan allocations by stepping up their own plan allocations, such a response would be ruled out in the 1990s because of fiscal pressures. Further, the impact of reduced central assistance to state plans would also affect poorer states more acutely than the better off ones, because it is precisely the poorer states that are more dependent on central assistance to maintain their plan size. 3.56 Thus, despite the restoration of budget cuts in centrally sponsored health programs in 1992/93, and increased allocations for these programs in 1993/94 and 1994/95, an effective social safety net has not been provided to the poor who have continued to rely on private providers. If increased central allocations to vertical programs are accompanied by a sharp reduction in general purpose transfers to states, this would disproportionately affect the poorer states, reducing their ability to take advantage of many of these schemes which require matching allocations from state budgets. This would also reduce the effectiveness of central expenditures through the lack of complementary inputs financed by the states. 3.57 Macroeconomic Effects. In addition to the actions by the central Government to reduce its deficit, certain macroeconomic factors have also added to the problem of protecting state government health budgets in these years of adjustment. Among the most significant of these factors are: (a) a decline in small savings collections since 1991/92; and (b) a deceleration and stagnation of domestic industrial output since 1992/93, although there has been some improvement more recently.  44 3.58 Net collections under national small savings fell in 1991/92; as a result, the amount on-lent to the states also declined by almost 0.5 % of GDP. The financially more dependent states such as Orissa and West Bengal were the most acutely affected by this development. Small savings collections have remained low in the following year, and are likely to decline further as more diversified portfolio choices become available to households. 3.59 This fiscal contraction has led to demand recession. The growth of domestic industry has decelerated since 1991, although there has been change lately. Declining tax revenues as a share of GDP, as well as further decline in small savings collections, would put pressure on the non-plan budgets of state governments. 3.60 One macroeconomic factor that has generally had a major impact on health budgets in other countries undergoing adjustment, namely currency devaluation and rising import prices, has not so far played a significant role in India. Although the Rupee was devalued by over 20% in July 1991, and has declined in value even further since then, the average rise in drug prices has remained below the overall inflation rate. Two reasons have been cited for the remarkable stability of drug prices in India: (a) India's external sector is still small in relation to the size of its economy and health inputs are largely manufactured within the country; and (b) the government controls the prices of many essential drugs, allowing only marginal profits on their manufacture (Tulasidhar, 1993). The ongoing structural adjustment and liberalization policy may alter some of these conditions; if price controls are removed or relaxed, there could be a sudden spurt in drug prices. There is already some evidence of substantial increase in the case of some essential drugs (Rane, 1993). Drug prices in 1995 are showing substantial increases. 3.61 Evidence of Impact on Health Budgets. Compiled data on actual health spending by central and state governments combined are available for the first year of adjustment (1991/92), while estimates for the second year are only available in individual state budget documents. The compiled data for the first year shows that total government health spending fell only slightly, by about 2% in real terms; however, this was a combination of a sharper decline of 4% in the case of medical and disease control programs and an increase of 7% in the case of the FW program. The real decline was over 5 % in the case of spending on the disease control programs (Tulasidhar, 1993). 3.62 What is even more striking from the evidence available for 1991/92 is the fact that the health budgets of poorer states have been squeezed to a greater degree than richer states (Figure 3.9). Spending on the prevention and control of communicable diseases fell by 7 % in real terms in the case of the 5 poorest states (Bihar, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh), compared to 5% in the case of middle income states and 4% in the case of the richest states. This corroborates the hypothesis that in a climate of declining untied transfers from the center, the poorest states are the ones least likely to take advantage of centrally-sponsored programs that require matching allocations from state budgets. 3.63 Evidence from a recent survey of 3 sample rural districts from each of 4 selected states (Figure 3.10) shows that the real decline in the level of recurrent health spending in 1991/92 was 16 % in the case of West Bengal, 7 % in Uttar Pradesh and 3 % in Tamil Nadu; there  45 was a real increase of 5 % in the case of Gujarat (Table 3.1, NCAER Report 1993). This survey also shows that in the states which experienced the sharpest decline in recurrent spending, non- salary expenditures fell even more steeply than salaries, although there is considerable variation between different districts in this regard. The average real decline in non-salary rural health expenditures in West Bengal was more than 17%. 3.64 In Orissa, one of the poorest and financially most dependent states, the government responded to the fiscal contraction by consciously substituting central plan funds for state plan funds in the social sectors. In the case of medical and disease control programs, while central plan grants more than doubled in 1991/92, the state plan budget was cut by more than 30%, maintaining the level of overall spending from all sources at the same level of the previous year in nominal terms (Ravishankar, 1993). 3.65 Evidence of impact on actual health spending by states in the second year of adjustment (1992/93) is available in some selected cases, including West Bengal and Tamil Nadu (Ravishankar, 1993). In the case of West Bengal, while funding from all sources declined in the first year, there was a partial recovery in non-plan and central plan allocations in the second year, while the state plan allocation continued to decline. Overall health expenditure from all sources recovered by only 3% in real terms, after having declined substantially in real terms in the previous year. In the case of Tamil Nadu, a relatively better off and independent state, spending on social sectors was protected in the first year in spite of stagnant central plan allocations. However, in the second year of adjustment, while central allocations continued to stagnate in real terms, the state was able to increase only its non-plan budget, while its own plan budget declined by 8% in real terms. 3.66 Thus, to date there is some evidence of negative effects on health spending. It suggests that the "indirect" effects of central adjustment policies, especially those affecting state plan and non-plan spending levels and the propensity of states to spend on health, are more significant than the "direct" effects of central co-funding directly of state plan schemes. It is likely that the "indirect" as well as "direct" pressures will increase in the next phases of adjustment. Special attention is needed to assure that states, especially poor states, maintain adequate funding for basic health inputs.  46 Figure 3.9: Differential Impact on Health Budgets for States Grouped by Income Levels /a (Index of Real Exp. with 1989/90 = 100) 120 1-- X = _~~~~~~~~~~~~~1 OPift Shiles l990 0 MM& mlnm ih 100 13 PooresstSlae 80 60 40 20 0 1990191 1991/92 1990-91 1991-92 Richest States (Punjab, Haryana, Gujarat & 107 107 Maharashtra) Middle Income States (Andhra Pradesh, Karnataka, Kerala, 115 108 Tamil Nadu & West Bengal) Poorest States (Bihar, Madhya Pradesh, Orissa, 98 93 Rajasthan & Uttar Pradesh) /a Expenditure on medical and public health (Revenue Account)  47 Figure 3.10: Weighted Average of Percentage Changes in Real General Health Expenditures FY92 from FY91 (in 91 prices); Four Major States c2 -4 -7 - s2~1 'EE c -2 - -44 -5 -6 Urban Areas 9~~~  48 4. PUBLIC PRIMARY HEALTH CARE SERVICES: STRUCTURE, INPUTS, PERFORMANCE AND ESTIMATES OF FINANCING REQUIREMENTS A. The Development of Health Services 4.1 Background. The Bhore Committee Report (1946) was the first plan for an Indian National Health Service. It envisaged the construction of a massive publicly managed health infrastructure that would require the government's allocations to health as a percent of GDP to be increased three-fold over existing allocations. However, it did not foresee an important role for the private health sector. This plan conceptualized the basic health unit as a 75 bed hospital for every 10,000 to 20,000 population; 30 such units were to be supported by a 650 bed secondary unit with 140 doctors and 180 nurses; and each district was to have 5 such secondary units supported by one tertiary hospital with 2,500 bed capacity. Besides this structure, special programs for major diseases were recommended. The first and second Health Ministers' Conference held after independence accepted the recommnendations of the Bhore Committee, but maintained that lack of financial resources prevented their implementation. The First Five-Year Plan (1951-56) continued to pursue the same line of argument. Although subsequent Five-Year Plans stopped referring to the Bhore Committee report, the concept of targeted populations norms such as for SUBCs, PHCs, CHCs and various secondary and tertiary hospitals remained ingrained in these Plan documents. 4.2 During the first three Five-Year Plans (1951-66), the vertical disease control programs were given high priority. An important emphasis of these plans was on eradicating malaria and small-pox. The former was almost successful although in recent years there has been significant resurgence of malaria, and the latter was completely successful, resulting in eradication of smallpox. Since the mid-sixties, there has been a shift in focus as the public programs began to concentrate on fertility reduction through permanent methods of family planning. These programs received significant support from external donors, especially in the earlier periods. 4.3 The vertical programs were carried out initially by "single purpose" workers, specially trained for control of individual diseases and for family planning. Recognizing the advantage of integrating different types of preventive and curative services, the Fifth Five-Year Plan (1974-79) stressed the reorientation of existing workers into "multi-purpose" workers. Basic health workers for malaria and tuberculosis, vaccinators and FW health assistants were designated as Health Workers (male), and formally given responsibility for implementing all of the vertical program activities simultaneously. The auxiliary nurse midwives (ANMs) working in the Family Planning program were renamed Health Workers (female) and given responsibilities for FW activities, including both family planning and maternal and child health. 4.4 In response to the Alma Ata Declaration, the central government also established the Village Health Guide (VHG) scheme in the late 1970s. One VHG was to be trained for every 1,000 rural population. These workers received a very small monthly honorarium. The scheme expanded rapidly and large numbers of VHGs were trained, although a few states rejected the offer of central matching funds to establish the scheme. Over the years, however, the effectiveness of VHGs has been questioned and inadequate attention has been paid to retraining,  49 supervision and support. Some state governments also faced legal challenges as VHGs sought to be regularized as government employees. While the scheme still exists on paper, in many states it has largely disappeared as a functioning part of the public provision system. 4.5 Primary Care Facilities and Schemes. Two concepts of the Bhore Committee Report that were pursued in the initial Five-Year plans were PHCs and special disease control programs. PHCs were initially to have 3 or 4 emergency beds, with one or two doctors; and one PHC was planned for every 100,000 to 200,000 population. Over the next two decades, this target was reduced to one PHC per 30,000 population; and each PHC was to support 6 SUBCs. Each SUBC was planned to serve a population size of 5,000 people. This structure of rural primary health care was to be supported by one hospital located in each district headquarters. 4.6 The current policy on public facility development calls for establishment of a CHC for every 100,000 population. These CHCs are mainly multi-functional outpatient facilities. However, they are planned to include 30 inpatient beds and a minimal cohort of specialist medical staff. These facilities bridge the capacities of the larger district and sub-district hospitals with the purely outpatient and extension/promotion functions of the PHCs and SUBCs. 4.7 During the Sixth Plan (1980-85), new norms were laid down for population coverage and staffing of SUBCs, PHCs, and CHCs. These were one CHC per 100,000, one PHC per 30,000 (20,000 in hilly, tribal and backward areas), one SUBC per 5,000 people (3,000 in tribal and backward areas). The achievement to-date is, on average, about one CHC per 450,000, one PHC per 40,000 and about one SUBC per 6,700 population. 4.8 There is also considerable inter-state variation in the primary health infrastructure. Among the 14 major states, the average population served by a PHC in 1991 varied from a low of 6,500 in Punjab (almost five times the national norm) to a high of 40,000 in Madhya Pradesh (33 % less than the national norm). The average population per SUBC varied from a low of 3,770 in Karnataka to 5,900 in West Bengal. 4.9 Public Sector Provision of Hospitals. Three levels of government -- central, state and municipal -- have made large investments in developing public hospitals. The total number of public hospitals increased from about 2,500 in 1951 to over 3,200 in 1974. In 1990 this increased to over 4,500. Bed capacity in the public sector grew by more than 60% during the same period, totaling 425,358 by 1990. 4.10 The public investment program in hospitals, however, reflects some variation across the states in terms of population-bed ratios. Kerala and Maharashtra have the lowest population- bed ratios, a population of about 1,100-1,200 per bed. At the other extreme are Bihar and Haryana, with population-bed ratios of about 3,800 and about 3,400 respectively.  50 B. Inputs for Public Sector Health Programs at Primary Level' 4.11 This section of the report analyzes and assesses whether sufficient and/or timely inputs in the form of facilities, staff, and drugs and medicines were available to adequately perform the primary health care tasks assigned to the public sector. It also assesses the quality of inputs and whether they were used efficiently. Analysis was undertaken for a representative sample of districts and municipalities in four major states. In order to assess the adequacy of the available inputs and the extent to which they are in place, real numbers of facilities and staff were compared with Government of India (GOI) norms, where those existed. The gap between norms, sanctioned inputs, and inputs actually in place were compared. In the case of drug supplies, where no government norms have been established, interviews with facility managers were used to gauge their impressions on supply adequacy. 4.12 Norms for Public Provision. GOI norms exist for some, but not all, dimensions of public sector primary level services. For example, facility norms exist for the number of facilities required to serve rural populations;8 and staffing norms Results presented in this section are based on a study commissioned for this sector report. The study was undertaken by the National Council for Applied Economic Research (NCAER) entitled, "Survey of Primary Health Care" P. Vashishtha et. al. (1994). * Staffing Norms. Government of India norms for hospitals are available depending on the bed size of the hospital. These provide details on the number of general and specialist medical staff, required nursing staff, and equipment. Since this study did not examine hospital services in detail, these norms were not used and are not presented here. Staffing norms exist for CHCs, PHCs, and SUBCs. The total number of staff in a district depend on both the extent to which facility norms have been met and the adequacy of staffing of the existing facilities. These norms are: Type of Staff Norm (i) CHC Doctor 4 Paramedical 13 Administrative 8 (ii) PHC Doctor 2 Paramedical 7 Administrative 7 (iii) SUBCs Paramedical 2 (I male,l female MPW)  51 exist for the staffing pattern of hospitals, CHCs, PHCs, SUBCs.9 However, there are no quantity or expenditure norms for drugs and supplies. Although individual states may budget and spend on a "per facility" basis (e.g., allocating Rs. 5,000 per year per PHC for drugs), these levels are based on the amount of funds available, rather than on any analysis of supply requirements relative to health care demand or need. 4.13 Norms have also not been specified for the disease control programs. Despite their apparent "vertical" funding with central grants, these programs are in practice embedded in the overall primary health care delivery system. Staff working in these programs are included in the norms for multipurpose workers posted to SUBCs and the paramedical staff posted to PHCs and CHCs, in practice, are likely to have multiple responsibilities. Drugs and supplies may be provided separately in part, and in part integrated into general facility supplies, for which in any case no norms exist. The FW program also does not provide norms for its inputs, although as a 100% centrally-financed scheme it seems to be marginally better off in assuring staff and supply inputs. 4.14 The general conclusion is that while it is possible to partially assess the adequacy of various inputs relative to norms for the overall levels of facilities and staff, it is not possible to disaggregate input levels for specific public health programs in order to assess their adequacy or link to performance. It reflects the diffuse accountability in public programs where central allocations may be tied to specific vertical schemes, but the provision and monitoring of funds and inputs at field level is managed differently. This is a significant constraint to monitoring and assessing specific program activities and needs to be addressed. 4.15 Resource GaDs in Real Terms. Resource gaps at public facilities can be estimated by comparing the actual inputs available for primary health care services in districts and municipalities with the levels of provision already sanctioned and, where possible, official norms exist. The gap between actual and "sanctioned" resources represents those inputs for which budgets have been approved, but which remain unfilled. Using this definition of resource gap, three types of input measures were evaluated: facilities, staff, and drugs and supplies. 4.16 For facilities, those reported in place were compared with government norms. For staff, the actual staff in place for CHCs and PHCs with sanctioned staff positions and official norms were compared. Medical, paramedical, and non-medical staff were distinguished. Sub- center based male and female multipurpose workers were included in the calculation of staff adequacy for PHCs. For both of these measures, the gaps in both real and financial terms, using 1990-91 cost levels were calculated. Since no norms were available for drugs and supplies, results of interviews with facility managers on the adequacy of supplies are reported. Facility Norms. Govermnent of India norms are as follows: Hospitals/beds: No norms CHCs 1/100,000 population PHCs 1/30,000 (1/20,000 in hilly/tribal areas) SUBCs 1/5,000 (1/3,000 in hilly/tribal areas)  52 4.17 Facilities. Figure 4.1 presents the current level of facilities and beds in the sample districts as a percentage of the official population norms taking into consideration the higher level of provision for tribal districts. 4.18 Real gaps in facilities are greatest for the CHCs in all states and all districts, and least for SUBCs in most districts. On average across all districts for CHCs, 22% of those required were found in place. For PHCs, the figure was 94%, and for SUBCs, it was slightly more than the norm at 104%. The more complete SUBC system reflects the central Government financial assistance provided by the FW Program for SUBC development, while most PHC and CHC development is financed through the states, although with some co-financing from central funds through the Minimum Needs Program. There is also some evidence within the states that the more developed districts are better off in terms of health facilities. 4.19 The overall picture in terms of facilities confirms the successful efforts in the 1980s to establish the more peripheral elements of the delivery system. To get a sense of the overall facility gap, an average weighted by the population coverage of each unit was calculated. The weighted average over all districts is 99%. That is, the total number of facilities available is roughly equal to the number of facilities required by the norms, although there might be more of some and less of others in individual districts. Of course, this calculation is dominated by the very large number of SUBCs required. The overall average represents a range of 74 to 155%, with four of the twelve districts below 90%. 4.20 No norms exist for facility provision in urban areas. The government hospitals usually located in towns and cities also provide outpatient services which substitute for some of the similar functions of CHCs and PHCs Since hospitals are concentrated in urban areas, hospital bed provision is of course much higher than in the rural districts, and the numbers of government non-hospital facilities are quite low.  53 Figure 4.1: Completion of Facility Norms in Sample Districts CHCs 90% 80% 70% _ U) 4 0% 2 50% _ 20% - - - 10% E 0% -~ I ii i j Gujarat Tamil Nadu Uttar Pradnh j West Bengal PHCs 160% 140% _ 120% 100% 0 | Gujarat L Tamli Nadu j Utbar Pradesh j Went Benga I Sub-Centres 180% 1 60% -_ _ __ _ 140% - 120% - - - 20%_ 4- 4 - - - - j Gujud nt i Tamil Nadu |UtterPradnsh Wetngal  54 4.21 Staff. Government health personnel were divided into three groups: physicians, paramedical staff including medical and public health, and support staff including non-medical, administrative personnel. For the rural districts, most physicians and paramedical staff were mainly found posted outside of hospital service. In contrast, in the municipalities, non-hospital staffing in public facilities was a much smaller component of total staffing for both physicians and paramedics. However, there were far more of both physicians and paramedics per 1,000 population in municipal than in rural districts. In reviewing these data, it is important to keep in mind that states have considerable autonomy in staffing rural facilities, so that they may choose not to adhere to GOI norms in terms of facility design or staffing. 4.22 Because norms exist for staffing patterns at CHCs, PHCs, and SUBCs, it was possible to calculate the gap in personnel for different types of facilities as well as for different levels of staff. Figure 4.2 presents the main findings in terms of overall staffing gaps at different types of facilities. Gaps are defined here as the percentage of staff positions according to norms that are filled. Figures for sanctioned but unfilled posts as a percent of the norms are also given. All types of staff positions are treated equally in Figure 4.2. PHC figures include the staffing required at SUBCs although only for those SUBCs already established. 4.23 The main conclusion is that the pattern of staff provision is the inverse of that found for facilities. Results point to significant problems in staffing the more peripheral rural facilities. While the most peripheral facilities have been physically completed relative to norms, they have the lowest level of staffing relative to norms, followed by the more central PHCs and the CHCs. On average, additional PHCs have 59% of posts filled, main PHCs 93%, and CHCs 142% of the norm of posts filled. For additional PHCs, the addition of sanctioned but unfilled posts was sufficient to approximate norms in only one of the districts--for all others there is a considerable absolute gap of as much as 50% of the normative level of staffing. For main PHCs, the absolute gap is much lower, as more than half the districts meet or exceed norms by combining filled and sanctioned positions. In the CHCs, staff levels exceed norms in six out of ten districts which reported establishing CHCs. The contract between facility and staff provisions is shown clearly in Figure 4.3. 4.24 The bias against peripheral facilities in overall staffing persists in the distribution of the most qualified staff as well (Figure 4.3). For physicians, actual staffing levels exceed norms only for CHCs. Actual paramedic staff levels exceed norms only in the main PHCs. When actual and sanctioned posts are combined, CHCs exceed the norms for physicians by about 50%. Main PHCs are relatively adequately staffed in relation to norms, with an excess mainly for center-based paramedics. As in the overall staffing patterns, additional PHCs have the lowest levels of staffing adequacy, with actual staffing for physicians at 50% of the norm and field paramedical staff at 66% of the norm.  55 Figure 4.2: Gaps in total Staffing Relative to Norms in Existing Government Health Facilities - 12 Distrist, 4 States CHCs 600% 500% 400% * Sanctioned but Unfilled o OFilled Positions :z 300%_ 0 200% 100% - , s_ nouuu ~ ~~ _e 2 9_ 10o% V m ~ ~ ~ U I Gujarat Tamil Nadu Uttar Pradesh West Bengal ____ ~Main PHCs 160% _ Sanctioned but Unfi led 140% 0 Filled Positions-- -ldotn_ 120%F 6 100% Z80% 60% - - 40% 20% EE .2 p 9 i 2 < X R) < S 1i i E GuJart| Tamil Nadu ; UttariPradesh - West Bengal Additional PHCs 100% 90% _____ __ Sanctioned but Unfilled- 80% -_""""_____ - - OFilied Posiin 70% - ___ 60% Z 50% o) 40%- 30%- 20% 10%- 0%- -- - - - F Gujarat F Taml Nadu Utr Pradesh WeSt Bengal  56 Figure 4.3: Distribution of Qualified Staff at CHCs and PHCs Compared to Norms 140% 120% 100% 380% I ~~~~~~~~~~~~~~~~~~~CSanctioned but unfilled posktions c 0 U ~~~~~~~~~~~~~~~~~~~~~Filled positions -3 60% 40% 20% 0% * 0 w s c j (, E = ^~~~ ~~ E