Essential to incorporate International Perspective in India’s GST Design, Administration and Impact Evaluation




The landmark GST (Goods and Services Tax) which subsumed over a dozen taxes on domestic goods and services under a single tax within India’s federal structure (Union government, 29 States and 7 Union Territories), was implemented from 1st July 2017. Given the enormous complexity of the landmark GST reform in India, some of the unanticipated or underestimated challenges during the initial period of implementation are to be expected. The policymakers have commendably responded periodically to the implementation challenges in defining the base for some of the commodities and transactions, in fine-tuning IT support infrastructure and GST regulations.

As an example, the GST Council in the 23rd meeting at Guwahati on November 10, 2017, reduced GST rates on around 200 items to better reflect the desired tax burdens on household expenditure patterns, reduce compliance costs for businesses, relaxed penalties and ease other regulations to reduce compliance costs, particularly for small businesses.

It does appear that the GST as a project has been approached as a ‘Tax on goods and Tax on Services’ rather than as an ‘Integrated Tax on Goods and Services’. This is illustrated by the provision that businesses dealing only in goods (except for restaurant sector taxpayers) can opt for the composition scheme applying to those with annual turnover below INR 1.5 crore. The GST rate for manufacturers and traders under it is 1 percent, while for restaurants it is 5 percent. The businesses are not required to maintain detailed account but also cannot benefit from input tax credit. The businesses need to file GST return on a quarterly basis. This scheme thus reduces compliance costs of small businesses significantly. Similar businesses providing services also should be included if GST is considered as an integrated tax on goods and services.

Before the GST was implemented, goods and services were taxed under different tax laws and implementing regulations and administrative structure by different jurisdictions. So, a learning-period in approaching GST in an integrated manner, with minimum need for separate classification as a ‘Good’ or as a ‘Service’ has become essential. The extent of learning period will depend on how different relevant tax administration organizations of the Union and the Union Territories are restructured and motivated reflect integration of domestic taxes on Goods and Services as a unified tax. Hence, a short learning period involving all the stakeholders is imperative for the success of GST.


International Perspective

The focus of the policymakers and other stakeholders has understandably been on domestic aspects of the GST, with the objective of its becoming an accepted routine component of India’s modern tax system as rapidly as possible. There is however a strong case for initiating a process of incorporating international perspective in the design, administration and compliance features. Such a perspective is also needed in evaluating its impact on various dimensions of India’s international competitiveness at macroeconomic and at sectoral and sub-sectoral levels.

Several reasons may be advanced for incorporating an international perspective in GST.

First, the Indian economy has become increasingly integrated with the global economy. Thus, according to the World Trade Organization ( India’s total international trade in goods and services in 2016 was USD 917 billion, equivalent to 41 percent of GDP at current prices. In principle, the GST is applicable to all of India’s international trade transactions, underscoring the importance of incorporating international perspective in GST.

The extent to which inputs in exports are refundable (and the time and compliance costs to obtain refunds) in comparison with India’s competitors should be monitored. For imports, which are also subject to GST initially, one of key international aspects concern the relationship between effective GST tax rate on imports as compared to domestic production, whether of intermediate inputs or of final goods and services.

The medium term prospects between global economic growth and growth in world trade volume are subdued. According to the IMF World Economic Outlook October 2016, the world output increased by 3.2 percent, but the world trade volume grew by only 2.4 percent, and given that India’s share in global merchandise trade was at less than 2 percent and in services trade at little over 3 percent needs to be significantly improved, it is essential that India’s treatment of exports (and imports) of both goods and services under GST does not adversely impact on India’s competitiveness, particularly its major competitors in a given sector such as manufacturing, tourism, transport and ITES sectors.

India has consistently been among the largest recipient of remittances flows. In 2016, India accounted for 14.6% of the global official remittances totaling USD 429 billion ( This suggests that there are large number of Indian origin persons living abroad (estimated to be around 35 million people). They are an important segment of India’s inward tourism flows. How the GST is applied to the tourism sector, is therefore of significance.

Between April 2000 and June 2017, the official data suggests that total FDI inflows into India amounted to USD 500 billion ( As these do not reflect the equity component of the domestic partners, and the debt component of the projects, the impact on capital formation, economic activity and employment is much larger than the above figure suggests. According to the World Bank’s DataBank ( ), the FDI inflow into India in 2016 was USD 44.5 billion, while India’s outward FDI was USD 5.0 billion. The prospects for both inward and outward FDI flows are encouraging. Thus, how the GST impacts the operations of the foreign companies operating in India, and Indian companies operating globally acquires significance. These impacts will have to be analyzed carefully and incorporated into the GST structure.

Second, with the implementation of GST, India is progressing towards a modern tax system relying on two broad-based taxes, tax on consumption and income taxes. As India sustains high growth over the next decade, its 2016 GDP of USD 2.3 trillion is expected to grow significantly. India’s increasing integration with the global economy is also expected to continue.

The above strongly suggests that India should be monitoring the GST (and excise tax) administrative practices, methodologies used internationally to estimate compliance costs, tax burden on households and firms, impact on cost of living and price levels, and other relevant areas globally.

There is an international forum on consumption taxes organized by the OECD (Organization for Economic Cooperation and Development) which meets regularly to discuss and share these aspects among the OECD and the select emerging countries, of which India is a member.

The OECD biennial publication on Consumption Taxes provides cross-country comparative data relative to consumption taxes, including the VAT (value-added tax), GST and the excise taxes, and also incorporates new developments and policy issues regarding these taxes. The OECD’s 2016 publication ( provides information on VAT rates, the exemption thresholds, and special provisions for selected goods and services in the OECD countries. It is worth noting that the practices among OECD countries regarding these aspects of VAT range quite widely according to the country-context and country policy objectives and the trade-offs between revenue, fairness, administrative and compliance ease, and competitiveness perceived by each country.

In particular, the above OECD publication reports that the unweighted average of the standard rate of VAT was 19.2 percent in 2016. Moreover, including zero-rated exports, in most OECD countries the number of different VAT (GST) rates was between 3 and 5, with some countries such as France and Canada having specific regional rates in addition to the national rate. The global practices, therefore, strongly suggest that to characterize India’s GST as ‘One Nation-One Tax’ does not require having a single rate for GST. Indeed, once the standard rate of VAT (GST) exceeds 10 percent, there will be grounds both economic and political for introducing more than one rate.

The GST policymakers should regularly and actively participate in the OECD’s forum on Consumption taxes. Excise authorities of select States may also find the OECD forum useful. The participation in the OECD forum should be used strategically to address tax administration and compliance issues, to learn methodologies to evaluate the impact, including on India’s international competitiveness, and to help modernize India’s excise tax systems.

It is strongly suggested that a GST Research Unit (GSTRU) located in the GST Council, or in the Central Board of Indirect Taxes and Customs (CBIC), be given the responsibility of monitoring the above international aspects of GST as well. A proposal for setting up a GST Research unit can be found at


How Indian States Can Implement The GST Effectively

Rupak DeChowdhuri / Reuters


By: Mukul G Asher – Professorial Fellow, Lee Kuan Yew School of Public Policy, National University of Singapore

India, a federal country with 29 states and seven union territories and a population of about 1.3 billion, has embarked on an ambitious reform of its domestic taxes on goods and services. This reform is appropriately called the GST (Goods and Services Tax).

It is dual sales tax, levied by the Union Government (CGST), the states and union territories (SGST), and on inter- state sales (IGST). There will be a single GST rate for all states (instead of each state currently defining its own sales tax rate and base). For inter-state transactions, IGST will be levied at the combined union and state GST rates, with revenue shared among the different parties. The current origin-based sales tax (i.e. where production takes place) is therefore set to be replaced by a more-common internationally adopted destination basis. This requires levying of GST on all international transactions in merchandise and services, with appropriate input credit mechanisms

Implementation of GST is likely to be used as an excuse to initially raise prices of basic commodities. State governments should undertake complementary steps and use their persuasive powers with traders…

India’s Customs and Excise Tax Department has been entrusted with the responsibility of administering the GST. Internationally, income tax agencies more commonly administer the GST (or the Value-Added Tax, VAT). Both the Income Tax and the Customs and Excise Tax Departments will need to liaise closely, including in the synchronization of their IT and hardware, for effective GST implementation.

The GST process

The 122nd amendment to India’s Constitution has been unanimously passed by both Houses of the Parliament, a rare occurrence for such a far reaching landmark tax reform. This amendment permits, for the first time since Independence in 1947, both the union government and the states to levy a sales tax on both goods and services, substantially widening the tax base, particularly those of the states. The amendment received President’s assent on 8 September, 2016.

The GST Council is to be formed shortly, and will comprise finance ministers of the union government and all the states. It will co-operatively decide on the GST rate structure and base, and on the transitioning provisions. It will also decide which of the current union and state taxes (such as excise and service tax of the Union government, and sales tax, entry tax and others of the state governments) will be subsumed under the GST. To pass a proposal, 75% of the votes will be needed. The union government has one-third of the vote, while the state governments combined have two-thirds of the votes. It will be a continuing body responsible for monitoring and refining the GST as the need arises.

In the winter session of Parliament beginning in November 2016, the GST Bill (extensive consultations are under way nationally to refine the existing draft) will be introduced. The nationwide implementation of GST is planned from 1 April, 2017, an ambitious but achievable target.

Each state should actively participate in the GST council to shape its recommendations, and remain updated (and contribute) on the broader national thinking on GST.

The union government has pledged that during the first five years of implementation, any shortfall in sales tax revenue will be compensated. This permits states to plan adjustment to GST, but complicates rate structure setting and generation of fiscal space for the union government.

Suggestion to states

The following five areas merit urgent consideration of policymakers for effective implementation of GST in the states.

  1. Establish a GST taskforce: The members of the GST taskforce should have representation from those with relevant expertise (such as chartered accountants, an information technology specialist, industry bodies, including Micro, Small and Medium Enterprises (MSME) representatives and a fiscal economist. The taskforce should focus on:

    • Overseeing the compilation of a registry of all GST taxpayers, with a view to ensuring that as many as possible these taxpayers are filing their tax returns. This should be undertaken on the basis of empirically quantifiable numbers. The target proportion of potential GST taxpayers who actually file returns should be benchmarked; and so should the GST revenue collected as a proportion of the potential GST revenue base.
    • Monitoring compliance costs of GST, particularly for the MSMEs. As these costs vary inversely with turnover, preserving MSME profitability and competitiveness requires specific attention to their GST compliance costs.
    • Ensuring that the GST input tax credit and refund processes function as intended.
    • A systematic process of dialogue with the stakeholders for smoothening GST implementation.
  2. Prepare regional language GST literature: Prepare accurate and practically useful translations of laws, regulations, GST Council decisions, etc. in regional languages. This is essential as GST is to be uniform across all states, but language proficiencies in English and Hindi (most commonly used languages in the GST literature) vary greatly across states. Therefore, a strategy for effective communication with all stakeholders concerning the GST is essential for uniformity in sales tax, and for realization of common internal markets.
  3. Complementary measures: Implementation of GST is likely to be used as an excuse to initially raise prices of basic commodities. State governments should undertake complementary steps (such as ensuring sufficient supply of basic goods and services, particularly food items and medicines), and use their persuasive powers with traders to cooperate for a smooth GST implementation.
  4. Participate in GST council: Each state should actively participate in the GST council to shape its recommendations, and remain updated (and contribute) on the broader national thinking on GST.
  5. Use GSTN infrastructure and expertise: The GSTN (The Goods and Services Network), set up in March 2013, is a joint-venture between union and state governments, and public and private sector financial institutions. It functions as a common pass-through portal for GST taxpayers. It can potentially provide policy relevant avenues for data mining and analytics. States could consider obtaining additional services from the GSTN to facilitate the realization of GST revenue potential.

The GST reform is an ambitious and complex initiative. India’s past record of such, e.g. insurance and pension sector reforms, suggests that optimism about its likelihood of success is justified.

Couple Celebrates First Anniversary With Indian-Style Wedding In Front Of Taj Mahal

The Proposal of Refining India’s Budget Process is a Welcome Step


An important avenue for advancing public policy reforms is to locate or to discern relatively small measures which could potentially have disproportionately large leverage, i.e. positive impact on desired outcomes, and then implement them effectively, using a system perspective.

Recent proposals to refine some of the elements of India’s traditional budget process present a good illustration of the above avenue, as explained below

They may be grouped as follows:

Date of Budget Presentation:

The first proposal is to advance the date of the Union government’s Budget by One month, i.e. from end February to end January, starting from the 2017-18 Budget. The budget session of the Parliament is proposed to be convened on January 24, 2017.

This will require Budget preparations to begin earlier by at least four weeks; preferably immediately after the Independence Day, and completing all budget formalities can thus by expected to be completed before the commencement of the financial or fiscal year on April 1.

Until the 2016-17 Budget, the presentation of the Budget has been scheduled around end-February. This has led to final Parliamentary approval not coming till mid-May, or about six weeks after the start of the fiscal year. This creates uncertainty about fund flows, expenditure allocations, priorities and disbursements which occur much later in the fiscal year, and also provides less time to effectively plan procurement of goods, services, and assets.This, thus, constrains smoother conduct of expenditure flows and has hampered effective expenditure management throughout the fiscal year.

Better expenditure management in India has the potential to achieve desired public policy outputs and outcomes from a given level of expenditure. It could also help reduce wastage in delivery of government program benefits, an area of increasing priority of the current government.

This priority is being driven by fiscal stringency, rising national ambitions, and growing expectations of improved quality of public services and amenities. In 2014-15, combined expenditure of Union and State government were equivalent 27 % of GDP (, but there is justifiable widespread perception that commensurate value is not being generated by the public sector.

Advancing the budget Presentation date by one month thus can assist in improving Union Government’s public financial management.

It is strongly suggested that the States also similarly advance their respective budget presentation data, and regard it as a small but significant step involving integrated set of measures designed to improve their public financial management.

Merging Railway Budget with the General Budget:

Indian Railways (IR) plays a vital role in India’s overall transport network for freights and for the passengers, connecting all parts of India. In 2015-16, it carried 8.1 billion passengers and transported 1.1 billion tons of freight, 1/3 generated revenue of INR 1.7 trillion (equivalent to 1.3 percent of GDP); and employed about 1.4 million persons directly (equivalent to 0.26 percent of India’s labor force of 540 million. (

This proposal has been strongly advocated by the current Minister for Railways. Under his leadership, IR is increasingly becoming a professional organization, with much greater focus on delivering citizen-centric services, and more effectively utilizing resources entrusted to IR

After nearly a century of existing essentially as a political organization, the time has come to transform IR as a professional organization, and to integrate IR into India’s overall transport system. However, this requires more than simply merging the IR budget with the General Budget

The Railway Board will need to be recognized for better organizational planning and leadership. Measures to recruit professional staff which can help take advantage of new technologies, more sophisticated pricing and product mix and possibilities of complex varied partnerships category and organizational governance structures, particularly to leverage IR’s vast assets (including human assets and land, air-space, and below-ground property rights)

These steps are essential if India is to create transport infrastructure necessary to meet the demand generated by its growing, increasingly mobile, and globally integrated economy and society.

The aim should be to turn IR into professional transparent organization delivering value for money to stakeholders, with high degree of accountability.

Discontinuing Plan-Non-Plan Expenditure Classification:

Starting with the 2017-18 Union Budget, classifying government expenditure into planned and non-planned expenditures will be discontinued

This is a logical step as NITI (National Institution for Transforming India) Aayog was established in place of unlamented Planning Commission on January 2015.

This step can be expected to assist in better expenditure management as over the years, a tendency had developed to regard expenditure under ‘Plan’ category as being superior in generating development than ‘non-plan’ expenditure. Such thinking (not always conscious) gave support to the national tendency to give insufficient weight to maintaining and renovating the existing assets. The ‘operations and maintenance’ category, essential for obtaining quality services over the entire life of the assets has generally not received sufficient emphasis

The state governments are likely to follow the lead of the Union government in this regard.

With the above step only the ‘Revenue (or Current)’ and ‘Capital Expenditure’ classification which will be used

The need to not regard ‘Capital’ expenditure as being more conducive to development than ‘Current’ expenditure will, however, remain. Restraint and continued monitoring will be needed to ensure that these categories are used according to globally accepted practices.

Encouraging Participation by States in PFMS:

The Controller General of Accounts Department (CGA), to Expenditure, Ministry of Finance has been entrusted with the responsibility for managing the PRMS (Public Financial Management System) as a single platform for payment, accounting and reconciliation of government transactions for central government schemes by integrating existing stand-alone systems. The completion date for complying with the PFMS is set at March 31, 2017. It is however not mandatory for the States to join, but it is in their interest to do so

The PFMS is to be integrated with State treasuries, and State implementing agencies are to use PFMS. The effectiveness of PFMS thus is tied to the functioning of ‘Cooperative Federalism’.

A degree of economic literacy and political maturity by all stakeholders at the Union and State government levels are essential if the PFMS initiative in to lead to improved outcomes from the Central government’s schemes.

The above do not exhaust the possibilities for using seemingly small measures to obtain disproportionately positive outcome, even in budgetary processes. Fuller utilization of this avenue in public financial management, and in other sector sectors by public organizations has the potential to improve overall performance of the government sector.


Startup India” will surely start up the “Millennial India”.
– Raj Nehru

If Abraham Maslow comes back to life for a day to review his theories, he will be shocked to see that millennials of today are proving his theories wrong. Goldman Sach in their millennial report has found some interesting data which says that “must have’s” of previous generation are no more important to the new generation. They are either putting off major purchases or avoiding them entirely. Take the case of buying a house or a car. More than 60 % of millennials do not find a need or a necessity to buy a house or a car. Instead they are exploring new set of services that provide them access without the burden of ownership giving rise to what they call a Sharing Economy. More and more millennials are getting attracted to technology that is being leveraged by them for instant access for information on product, price, and features and also peer reviews. This new attraction is actually shaping the new market and is transitioning the conventional economy to millennial economy.

In fact I recall some months back when my daughter familiarized me with Play store, I found some wonderful apps that helped me to get rid of driving through the erratic traffic that would drain my energies during high traffic hours, almost every day. Precisely, I would not had even bothered to explore technologically enabled solutions to various existing problems but when I decided to explore alternatives, I also found Ola and Uber apps and many other. Since last few months I have travelled 90% of my daily transportation requirements, using these innovative tools. The Ola share has in fact further helped me to save on my petrol bills. I also asked couple of drivers about their experience and believe me in some cases I have found well educated youths driving these cabs who claimed to earn between 60k – 90 k per month, depending how far and how long their wheels keep moving. Millennials have sharp appetite for simplifying things and will suggest very different ways to handle our daily problems. Skilling them in the right manner and harnessing their capabilities will shine our nation.

Millennials of today are very different in their perceptiveness, thought process, judgement and action. Their expectations and challenges are also different than the conventional ones. They are looking for more in life than just a job and are driven by the desire to do something worthwhile. Money is no more a top driver. There is a very unique diffusion of social and economic factors that is driving most of the millennials to experiment, innovate, take risks and embrace challenges. As rightly said, “GenY of today is turning into a Generation “Y not…start this in my parents Basement”. Personal Learning & Development is a big driver and is linked to faster growth and progression. Millennials of today are no more motivated by stability and security and will prefer to change the business and organization faster. They are no more attracted to one role for longer time anymore. They are committed to their experimenting thought process than to any company. Opportunities that provide flexibility and opportunity to grow and progress are their biggest attraction. Millennials prefer to work in a decentralized environment.

They operate with a no blame mentality and have tenacity to take personal responsibility and accountability for their success or failure and hence prefer to work in a more empowered and decentralized environment. I work in a BPM organization where we have more than 80% of millennial staff. In all my interactions with them, I have noticed that majority of these youngsters bring variety of skills and are also passionate to pursue them and therefore do not want to limit themselves to one box of interest or skills. Most of these millennials that I meet are looking for opportunities that enable them to make a difference. They would prefer to work in an environment that is open and values individual differences.

Today’s India predominantly comprises of this young population thus making it world’s youngest economy and allowing itself with a natural potential of transforming that has not been done for decades. The opportunity of being a young millennial economy is an assurance to progress and growth given that millennials thrive on challenging “status quo” and would want to create and recreate, find new and efficient ways to work. Given their high appetite for taking risks, they can help in nation building by letting their inner ideas and thoughts taking shape in the form of new ventures, startups. The opportunity for the nation is to meet their expectations and also transform it into a progressive feature that contributes not only to the nation but to the world as well.

Startup India, Stand up India launched by our Prime minister, is a great thought in this direction. It is a clarion call for the young population of India, that bubbling with energy, ready to work on new and innovative ideas that can help set new businesses and produce the young entrepreneurs of the millennium who will help the nation to outperform all other nations in the years to come with a phenomenal positive impact on our economy. The objective of Startup India is to boost their potential of entrepreneurial capability, harness their ideating capacity, and leverage their energy and sense of urgency. This is being ensured through various steps that this program has ensured in the form of single window system, easing bureaucratic hurdles, providing incubation centers and facilitating through financial assistance through financing options consequently leading to economic progress and employment generation. Start Ups are the perfect tool to address and channelize the ideas, creativity, freshness, aspiration, flexibility and innovative mid set of millennials in India. Startup India will help our youngsters to find answer to most of their challenges that they encounter in traditional work environment and conventional work set ups. Read More


Decoding the Health Budget of India

Author: Dr. Malini Nagulapalli,
(Coordinator, Public Health)

Health care system acts as a measure of efficiency and success of the governments across the globe. Therefore, it does not come as a surprise that healthcare plan is the predominant topic of discussion in the ongoing presidential campaigns in the USA. In the current fragile situation, where countries are facing potential threat of fatal epidemics, India should focus on providing accessible, affordable and equitable healthcare services. Faced with the twin burden of communicable and non-communicable diseases, the government of India should enhance efforts towards strengthening Primary Healthcare Centers (PHCs) with a robust referral system to the tertiary care. In addition, consistent processes and policies should be churned out to reduce out of pocket (OOP) expenditure that potentially pushes middle-income families into poverty. To this end, the government of India should plan the health budget to meet all planned and unplanned health care requirements. In this article, we attempted to elucidate the allocations and expenditures in the Health sector. We hope that this effort will initiate dialogue to enhance fiscal discipline and formulate coherent policies.

General Outlay of Health Budget for FY 2015-16

  • Health budget in 2015-16 was chalked out for the Department of Health and Family Welfare (DoHFW), Department of Health Research (DoHR) and Department of AIDS Control (DoAC) (Fig. 1a). In contrast, allocations to DoAC are included within the grants to DoHFW in the budget for FY 2016-17 (Fig. 1b)
  • Fig. 1a: Schematic of the Health budget outlay for the FY 2015-16.
  • digram-1


  • In comparison to the previous year, the allocation to DoHR was increased by 11.2% and 13.1% in 2015-16 and 2016-17 respectively (Fig 2). On the other hand, the allocation to DoAC increased from 1400 crores in 2015-16 to 1700 crores in 2016-17.

Fig 2: Allocations to DoHR (in crores)

  • The DoHFW governs a number of schemes within Health and National Health Mission (NHM). In general, Health sector schemes comprise of
    1. Central Sector Schemes (CSS),
    2. Central Sector-Family Welfare-Schemes of NHM and
    3. CSS for HR, Medical Education and Training.
    4. National AIDS and STD Control Programs have been added recently to the umbrella of Health in 2016-17. The operational costs of all central government institutions for health, medical colleges, hospitals, dispensaries, social marketing, IEC/BCC viz., fall in this category. Health sector funds provide for both Revenue and Capital expenditures of all the CSS programs.

  • National Health Mission on the other hand, comprises of health schemes aimed at system strengthening in rural (NRHM) and urban (NUHM) areas. NHM schemes were initiated with a view to achieve the Millennium Development Goals (MDGs) by improving health indicators like MMR, IMR, U5MR and TFR. Some of the vital schemes in NHM are Mission Indradhanush for immunization of children with a goal of 80% coverage, Janani Suraksha Yojana (JSY), Janani-Shishu Suraksha Karyakram (JSSK), Rashtriya bal Swasthya Karyakram (RBSK), Rashtriya Kishor Swasthya Karyakram (RKSK) for Reproductive Mother Child Neonatal Healthcare with recent addition of Adolescent healthcare (RMNCH+A) to the umbrella. In addition, communicable diseases, non-communicable diseases, mental health programs, care for the elderly and various other secondary and tertiary care facilities have been initiated under the overarching umbrella of NHM.

Major Heads and Allocations in Revenue and Capital Sections for DoHFW in 2015-16 and 2016-17

NHM was given the highest priority in 2015-16 with 77.4% (18,295 crores) of the total Revenue-Plan budget or 56.52% of total budget. Of this, 67.13% of NHM was allocated to states to carry out the underlying schemes (Table 1). Medical and Public Health on the other hand was allocated 32.52% (10525.42 crores) of the total budget (32,368.67 crores). The rest was divided between North-Eastern (NE) areas, family welfare, discretionary grants, secretariat viz., (Table 1).

The allocations to Health sector were increased by 14.42% in 2016-17 relative to the previous year. Funds to medical and Public Health sector and Family Welfare sector were increased by about 24% and 42% in FY 2016-17 compared to 2015-16. The capital outlay for family welfare and housing was reduced by 28% and 49%. The capital budget for Medical and Public Health, however, has been increased by 82% (Table 1).

Table 1: Allocations under major heads for FY 2015-16 and FY 2016-17


The Non-Plan part of the Revenue budget constituted about 24.16% of the total budget in 2015-16 and 23.1% in 2016-17. Interestingly, approximately 39% and 30% of non-plan component is allocated to salaries and supplies and materials respectively in 2015-16 (Fig. 2). About 12.6% is allocated to medical treatment and Central Government Health Scheme (CGHS) in 2015-16. In 2016-17, CGHS has been granted 11.6% of the non-plan component.

Fig. 2 : Break-up of the Non-Plan component of Revenue section of Health Budget(2015-16)


Savings or Unspent Funds in Previous Years

In India, the Public expenditure on healthcare as percent of GDP has increased from approximately 1.2% in 2015-16 to 1.3% in 2016-17, which is far below the OECD averge od 6.5%. Even with meager allocations, the healthcare system is not equipped to completely absorb the funds. For instance, huge amounts of funds to the tune of 3192.32 crores, 2715.67 crores and 3596.02 crores have been recovered at the end of 2013-14, 2014-15 and 2015-16 financial years, respectively (Table 3). In general, Medical and Public Health and Family Welfare sections of the Health department have been observed to perform poorly in fiscal terms. In addition, approximately 1000 crores in RCH flexible pool and 50 crores in Mission flexible pool were not spent in the financial year 2014-15.

Table 3: Savings or unspent funds in last two financial years


*BE- Budget Estimates

Concerns and Challenges in Health Care System Due to Poor Fiscal Discipline

A number of issues have to be addressed to improve the financial allocation efficiency and absorption capacity of the health care system in India.

  1. The most prominent concern is the lack of real time knowledge of the flow of funds.
  2. Delay in furnishing utilization certificates by the concerned departments needed to track the expenditures, leads to poor fiscal planning.
  3. A lag in transferring funds from the state treasury to health societies by 5-6 months deprives the societies of the much needed and allocated funds.
  4. Lack of trained work force at PHCs to implement high priority schemes like geriatric care, mental health programs, mass disease screening and diagnostics.
  5. Lack of cGMP compliant PSUs to manufacture sera/vaccines which are otherwise purchased from pr ivate sector.
  6. Unanticipated cost-escalation in flagship schemes.
  7. In view of the fatal epidemics and natural calamities occurring across the world, healthcare disaster management has to be strengthened through appropriate allocations.
  8. Essential activities like free drugs and diagnostics, strengthening district hospitals, and sub-centres, Tribal sub-plans should be insulated from budget cuts.
  9. Disease burden of communicable and non-communicable diseases has to be addressed in a timely fashion through drugs, therapies etc., Otherwise, the entailing costs may disrupt planned interventions.
  10. Surveillance programs and intelligentsia in relevant institutes have to be strengthened to avoid internal leakage and draining of funds.


A bulk of the budget is allocated to states to carry out crucial schemes under NHM. However, approximately 10% of the funds are unspent at the end of each financial year. Also, approximately 20% of funds allocated to Capital section have been surrendered previously (Table 3). It is evident that these funds could be channeled to more vital schemes to provide maximal health coverage and to strengthen trained work force at grass root level. Finally, there is an urgent need to improve the fiscal discipline of states through concurrent monitoring and evidence based policies.