Health Boost: Budget 2025-26 expected to focus on primary healthcare, digital health

Singh’s struggles are emblematic of issues faced by millions across the country: the gap between available healthcare services and the affordability of treatments. India’s healthcare system is expanding, but it remains deeply uneven, leaving too many like Singh without timely access to essential services.

Singh and many like him are pinning hopes on the government addressing some of these concerns. In fact, it isn’t just patients and carers who are looking for some aid in the upcoming Union Budget 2025-26; stakeholders within the healthcare sector-from hospitals to pharmaceutical companies to medical technology (med-tech) firms-are also hoping for some beneficial measures. They are calling for critical policy interventions to accelerate growth, enhance infrastructure, and ensure affordable access to healthcare.

Allocation Boost

Industry insiders feel that there could be just a modest increase in the outlay for healthcare, building on the previous year’s allocation of Rs 90,659 crore, which marked a 12.6% rise from FY24.

Over the past decade, under the Union governments led by Prime Minister Narendra Modi, the health budget has grown by approximately 128%, with an absolute increase of Rs 50,971 crore since FY15. Despite this, public health expenditure remains at just 2.1% of gross domestic product (GDP) as of 2024, falling short of the National Health Policy 2017’s target of 2.5% by 2025. It is also well below the 5% recommended by the World Health Organization (WHO) for achieving universal health coverage.

The Covid-19 pandemic prompted a significant rise in healthcare spending, with the allocation reaching Rs 71,269 crore in FY21 to support pandemic-related health measures and vaccine procurement. The allocation continued to increase in FY22, reaching Rs 73,931 crore, focussing on recovery, vaccination, and expanding health infrastructure.

In Budget 2025-26, healthcare sector stakeholders expect the government to focus on key priorities such as strengthening primary healthcare, advancing digital health initiatives, and addressing gaps in medical education and workforce capacity. Healthcare experts recommend a substantial increase in the healthcare budget, proposing that it surpass 2.5% of GDP.

“I hope the Union Budget will increase allocations to the National Health Mission and the Digital Health Mission while also enhancing support for primary healthcare, district hospitals, and disease surveillance systems,” says K. Srinath Reddy, public health expert and professor at the Public Health Foundation of India.

There are pressing problems that need immediate attention. India continues to face an infrastructure deficit with a shortage of hospital beds and medical equipment. The National Health Profile 2024 reveals that there are only 1.4 hospital beds per 1,000 people, far below the WHO’s recommended 3 per 1,000. NITI Aayog’s 2023 health infrastructure report warns that an additional 1 million beds will be required just in urban areas by 2030.

Similarly, the doctor-patient ratio remains at 1:1,700, still below the WHO norm of 1:1,000. However, between 2014 and 2024, the country added 50,000 MBBS seats, bringing the total to 107,000.

“India’s healthcare sector stands at a defining crossroads, presenting both complex challenges and transformative opportunities. The upcoming Union Budget offers a unique opportunity to address systemic gaps, such as the acute shortage of medical specialists, rising cancer care costs, and inadequate hospital infrastructure to meet the demands of a growing population,” says Abhay Soi, Chairman & Managing Director of Max Healthcare Institute Ltd and President of NATHEALTH, a forum for healthcare stakeholders.

Another worry is the rise in non-communicable diseases like cardiac ailments, obesity, and diabetes. Of particular concern is the increase in cancer cases: India recorded 1.5 million new cases in 2024, according to the Indian Council of Medical Research. Thus, the government must ensure that treatments such as radiotherapy are more affordable.

Some steps have been taken in this direction, like the reduction of customs duty on select anti-cancer drugs that was announced in last year’s Budget.

The high cost of cancer care, experts say, is exacerbated by GST rates of 12-18% on essential equipment such as LINAC machines. NATHEALTH recommends that the government reduce GST on essential medical devices like LINAC machines to 5%.

STATE OF WELL-BEING

• Health Budget Allocation: The Modi government allocated Rs 90,659 crore for healthcare in 2024-25, marking a 12.59% increase from the previous year  
• Public Health Spending: Public health expenditure as a share of GDP has risen to around 2%, but remains well below the WHO’s recommendation of 5%  
• Infrastructure Focus: Government expected to prioritise public health infrastructure and digital health under the Ayushman Bharat Digital Mission  
• Pharma Support: The Budget is anticipated to focus on pharmaceutical research, innovation, and boosting domestic manufacturing and exports

Hole in the Pocket

Despite many measures over the years, out-of-pocket expenditure (OOPE) on healthcare remains high in India, with individuals covering around 40% of costs, according to National Health Accounts (NHA) data for 2021-22. And it’s increasing. In 2024, too, inflation in medical costs outpaced the overall rate of price rise. According to the ACKO India Health Insurance Index 2024, healthcare costs in India rose at an annual rate of 14%, while the overall retail inflation rate was 6.21% as of October 2024.

To address this, experts suggest that the government focus on expanding health insurance coverage, particularly through the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (PMJAY), and to increase the reimbursement rates to align them with inflation.

While vaccination drives and awareness campaigns are ongoing, there is a pressing need for dedicated funding for screening of chronic diseases and health education, says Reddy. He suggests that “increased taxes on tobacco and alcohol” could provide additional health funding while simultaneously reducing consumption of harmful products.

“India’s healthcare infrastructure and professional services face challenges in improving household well-being. While positive trends have emerged over the past decade, more needs to be done for a country of India’s size. Low-income households, in particular, require targeted attention and cost-effective treatment solutions,” says Arup Mitra, Professor of Economics at South Asian University in New Delhi.

This requires a complete overhaul of infrastructure and professional services, Mitra adds. “Reducing OOPE for low-income households must become a top priority,” he says.

Driving Innovation and R&D

India’s pharmaceuticals and medical technology sectors have shown resilience and growth, yet there is significant potential for further innovation. In 2024, the med-tech sector continued to expand rapidly, but investment in research and development (R&D) has remained significantly below global benchmarks.

According to the Association of Indian Medical Device Industry (AiMeD), India’s med-tech sector spends less than 1% of its revenue on R&D, a stark contrast to the global average of 5-6%. Despite this, exports grew by 15% in 2024, according to the Ministry of Commerce.

Experts say the upcoming Budget should provide incentives for increasing R&D expenditure, particularly for emerging technologies like artificial intelligence (AI)-driven diagnostics and telemedicine. They say dedicated funds for med-tech innovation and clinical trials could position India as a global hub for medical devices and pharmaceuticals.

According to a report by consultancy firm EY India, the med-tech sector in India is projected to reach a market size of $50 billion by 2030, from an estimated $12 billion in 2024. However, despite this rapid growth, investment in R&D within the sector remains significantly below global standards. For example, in 2017, global med-tech leader Roche allocated 11.2% of its revenue to R&D. No Indian med-tech company is spending as much on R&D.

Policy Prescriptions

A pressing challenge for the healthcare and med-tech sectors is the high GST on some medical devices and diagnostic equipment. Essential automated analysers and sanitisers attract GST rates of 18%, making them prohibitively expensive for many healthcare providers and patients, particularly in rural areas.

Industry bodies like AiMeD are calling for a uniform GST rate of 12% to support the government’s Make in India initiative for medical devices. They have requested that in-vitro diagnostic analysers and sanitisers not be classified as luxury goods, urging the government to reduce the GST rate on such items to 12% from the current 18%.

Rajiv Nath, Forum Coordinator of AiMeD, says manufacturers are unable to fully utilise the accumulated GST on their procured inputs, such as raw materials, components, and machinery. “Consequently, they would need to increase ex-factory prices, making domestically produced devices more expensive compared to imports,” he explains.

Himanshu Baid, Managing Director of medical devices maker Poly Medicure Ltd, advocates standardising the GST rate to 12% across all medical devices and simplifying the tax structure.

Baid also suggests increasing export incentives under the Remission of Duties and Taxes on Exported Products scheme to 2-2.5%, up from the current 0.6-0.9%. This, Baid says, will boost the global competitiveness of Indian medical devices manufacturers and help them expand globally.

Equally important is the implementation of policies to limit the reuse of single-use medical devices, ensuring patient safety, reducing healthcare-associated risks, and maintaining high industry standards. Extending the PLI scheme by two to three years would also benefit local manufacturers, says Baid.

The pharmaceuticals sector, a crucial part of India’s healthcare ecosystem, is likely to be a focus in the upcoming Budget. With exports reaching $25.4 billion in FY23 and a strong domestic market, the government may look to expand the PLI scheme to further promote the manufacturing of active pharmaceutical ingredients and essential drugs.

Anil Matai, Director General of the Organisation of Pharmaceutical Producers of India, highlights the need for policy changes, such as greater exemptions on import duties for life-saving drugs and oncology medicines. These measures could help reduce treatment costs and make healthcare more accessible.

Matai also proposes simplifying procedures for Advance Pricing Agreements (APA). An APA is an agreement between a business and tax authorities, typically used by multinational companies to determine how their cross-border transactions will be taxed.

Furthermore, Matai suggests extending the scope of Section 115BAB of the Income Tax Act, to include pharma R&D companies. This section currently offers tax incentives to newly set up manufacturing companies by allowing them to pay a reduced tax rate of 15%.

Moreover, Matai calls for mandatory timelines for resolving appeals by the Income Tax Appellate authorities and the removal of turnover criteria for safe harbour provisions related to R&D. Safe harbour provisions are tax guidelines that protect businesses from penalties if they comply with certain rules. Removing turnover criteria would make it easier for smaller pharmaceutical companies to benefit from these provisions.

Clearly, there are many pressing needs in the sector. Over to the Finance Minister to address some of them in the Budget.

@neetu_csharma