By any measure, some minimal level of healthcare is important for sustainable economic development. About 50 million Indians live every year at risk of being pushed into poverty by healthcare expenses. We know a lot about the Indian healthcare system in a top-down sense and we have some vignettes of what it's like at the bottom. Most experts suggest that many of its problems are because of low government spending.

But if everyone agrees that higher government spending in health and education is the answer, why hasn't the government done it? The NDA government seems very committed - at least rhetorically - to high economic growth, and a broader middle class with more education and less mortality seems to be generally a good step in that direction. What's the disconnect here, and why hasn't policy shifted? Too much research talks about the fact that government spending is low and fails to ask why this is the case. More generally, the incentives within the institutional structures of government are undertheorized. This seems like an appropriate case for Progress Studies!

I wrote up a blog post on some challenges to this. It's available here on my Substack and is cross-posted below:

Source: Our World in Data (link)

I.

Governments usually spend more on healthcare as they become richer. Between 2000-2018, India’s GDP grew from $468 billion to $2.7 trillion. In the same period, Chinese Government Health Spending (GHS) grew from one percent to nearly three percent of GDP. In India, however, GHS stagnated at around one percent.

As a result, India has one of the lowest public health budgets in the world relative to the size of its economy. But why? Health and education, Amartya Sen keeps telling us, are central to sustained economic growth. This is, of course, a product of the slightly important fact that people end up living longer, healthier lives. Why wouldn’t India want a thriving, healthy middle class and profit from that demographic dividend everyone keeps talking about?

Let’s start by breaking down health spending.

Source: National Health Accounts Estimates for India, Published November 2018 (link)

Most healthcare costs are paid by patients out of pocket, and most of that goes to medicines, diagnostics, and ambulatory care (which is the healthcare you get without being admitted to a hospital). Formal insurance schemes make up le...