Policy Papers

Fiscal Devolution and Health Financing Reform: Lessons for India from Brazil, China, and Mexico

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In 2015, India's system of fiscal devolution underwent a radical transformation, including greater flexibility at the state level for planning and implementing federally funded health programs. The objective of this paper is to understand the impact of fiscal devolution reform on how federal and subnational governments use or adjust their financing mechanisms to seek better health system outcomes. The three cases in our review illustrate how Brazil, China and Mexico used fiscal reform to better organize financing and intergovernmental transfers for health. The pre-reform system in all the countries were characterized by a lack of clarity in the objectives, modalities and financing of healthcare delivery, leading to insufficient and inefficient public expenditure and high healthcare costs especially for the poor. Post-reform, all of these countries made significant progress in increasing allocation by both federal and subnational governments on priority health interventions, expanding access to primary healthcare services and targeting public resources to improve health equity, and extending financial protection through both public and private insurance mechanisms, thereby reducing out-of-pocket expenditure and improving outcomes. The experience of Brazil, China, and Mexico therefore holds important lessons on how India can use the opportunity of fiscal devolution to create a more efficient and equitable system of health financing through better policy coordination between federal and local governments. My recommendations are as follows: India should 1) rethink the role of the central ministry of health as an information and program evaluation hub, 2) reform the National Health Mission to integrate primary care and social insurance especially targeted at those below poverty line in an overall framework of health system financing and delivery, 3) make formal, standardized ‘pacts’ with states, districts and local bodies under the National Health Mission, and 4) seek to increase allocation by designing incentives for better prioritization of health at the subnational level.