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The big squeeze

By Amit Sen Gupta

What does a liberalised economic policy have to do with public health? Everything. With the World Bank and IMF calling for market-based pricing of welfare services, including healthcare, the introduction of user fees and greater private sector participation, health expenditure in India has declined from an already low 1.3% of GDP in 1990 to 0.9% in 1999

 Public health policies are largely determined by the overall goals of economic and social development pursued by a country. Such goals are crucial in determining the kind of support that is provided by the government in enhancing public health outcomes. Over the last two decades, economic policies across the globe have been informed by the new liberal paradigm which advocates that governments should play a much smaller role in welfare sectors like health, education and food security. Such policies have, to a large extent, been influenced by institutions such as the World Bank and the IMF, which have argued that services, including welfare services, should move towards what they call "market-based pricing". Along with this, the World Bank, IMF and World Trade Organisation have facilitated what is now known as globalisation.

Globalisation has essentially meant providing increased access to local markets by global players like MNCs, and allowing for the free flow of goods and services across borders. Unfortunately globalisation as we see it today does not, at the same time, allow free flow of labour and knowledge, thereby tilting the terms at which globalisation is taking place in favour of developed countries.

There is, however, a clear contradiction between the principal tenets of public health and neo-liberal economic theory. The former posits that public health is a "public good", that is, its benefits cannot be individually appropriated or computed but have to be seen in the context of benefits that accrue to the public. Thus public health outcomes are shared, and their accumulation leads to better living conditions. Such goods never mechanically translate into visible economic determinants, namely, income levels or rates of economic growth. Kerala, for example, has one of the lowest per capita incomes in the country, but its public health parameters rival those in many developed countries. The infant mortality rate in Kerala is less than a third that of any other large state in the country. But neo-liberal economic policies are loath to even acknowledge such benefits. Kerala's development is linked to wide-ranging reforms in the agrarian sector in the '50s and land reforms that abolished absolute poverty in the state to a very large extent. This, in turn, has led to the state making large strides in the area of literacy and education. Kerala's example shows that a more egalitarian sharing of resources is the first prerequisite of better public health outcomes.

As discussed earlier, the World Bank has been a key player in formulating overall guidelines for economic and social development across the globe. In the health sector the issues were sharply focused upon for the first time in 1987 by a World Bank document titled 'Financing Health Services in Developing Countries' . The document recommended that developing countries should:

  • Increase amounts paid by patients for public health facilities.
  • Develop private health insurance mechanisms.
  • Expand the participation of the private sector.
  • Decentralise government healthcare services ( a euphemism for rolling back government responsibility and passing on the burden to local communities).

By the '80s the World Bank's intervention in various developmental issues was being lapped up by pliant country governments. As a result, its prescriptions on health too were made part of public policy in many developing countries, including India . These recommendations were further 'fine-tuned' and reiterated by the Bank's World Development Report, 1993 titled 'Investing in Health'.

The World Health Organisation (WHO), long a silent spectator to the process whereby the Bank had usurped its functions, attempted to make amends by setting up a Commission on Macroeconomics and Health. What we have before us is an unabashed attempt by the WHO to speak the language of the Bank. The report in its introduction says: " With globalisation on trial as never before, the world must succeed in achieving its solemn commitments to reduce poverty and improve health." In other words, poverty reduction and health improvement are goals that need to be achieved in order to rescue globalisation from the dock!

The report starts from the premise that health can be broken down to a few 'magic bullets' appropriately delivered at a target. It is a premise that is the exact opposite of the essential principles of public health.

Health sector reforms in India

India embarked on its present path of economic liberalisation, on instructions from the World Bank and the IMF, relatively late (liberalised economic policies had been initiated in Latin America and Africa a decade earlier), in 1991. The immediate fallout was a savage cut in budgetary support to the health sector. The cuts were severe in the first two years of the reform process, followed by some restoration in the following years.

As a result of this rolling back of government support to healthcare the first major casualty in infrastructure development has been the rural health sector. We are now seeing this as a major contributory factor to the disruption of the rural primary healthcare system. As a percentage of GDP, health expenditure in India (already one of the lowest in the world) has declined from 1.3% in 1990 to 0.9% in 1999. While central budgetary allocation has remained stagnant at 1.3% of total outlay, the budgetary allocation to health in state budgets (which account for over 70% of the total healthcare expenditure of the country) has dropped in this period from 7.0% to 5.5%. This is a direct consequence of the squeeze imposed on the finances of the states by economic liberalisation policies.

This is not to suggest that optimal use was made of public health expenditure in the country before the reforms process. Much of the blame for what is today being called the "resurgence of communicable diseases" lies in strategies adopted well before the reforms programme in the country. These strategies relied on various centrally-administered programmes (vertical programmes) for disease control and prevention. With no integration at the level of delivery, the programmes were insensitive to local conditions, unresponsive to local needs, highly bureaucratised and inefficient. Local populations were indifferent and, in some cases, hostile to such programmes, resulting in fair measure to the very poor utilisation of government health facilities in many areas.

Oblivious to these trends the government has geared itself towards showcasing the "market orientation" of healthcare policies. Investment in the private hospital sector was very low in the 1970s, but since then it has grown at an exponential rate. This was fuelled by a slowing down of investment by the state and simultaneous incentives given to the private sector in the form of soft loans, subsidies and tax exemptions. In recent years new medical technologies have further added to the impetus, with increasing participation from the corporate sector. This, coupled with the impending entry of insurance multinationals, has cleared the way for the Indian healthcare sector being taken over by forces that control the global 'market' for healthcare. In the process, the health needs of an overwhelming majority of Indians are being increasingly ignored.

National Health Policy 2002

The National Health Policy announced by the government in 2002 is a continuation of the trends indicated earlier. A perusal of the new policy throws up many fundamental concerns. The policy admits that public health investment has been "comparatively low" and recommends a welcome increase in public health expenditure from the present 0.9% of GDP to 2.0% in 2010. However, the quantum suggested is too little and comes very late. It falls far short of the 5% of GDP that has been a long-standing demand of the health movement and recommended by the WHO decades ago. Moreover, the draft projects that public expenditure in 2010 will be 33% of total health expenditure -- up from the present 17%. But even 33% is lower than the average of any region in the world today -- India would continue to be one of the most privatised health systems in the world even in 2010!

Numerous formulations in the policy, in various forms, clear the way for even greater privatisation of the healthcare system. The policy says: "The NHP will...suggest policy instruments for implementation of public health programmes through individuals and institutions of civil society." This constitutes a veiled attempt to clear the way for sub-contracting public health to NGOs. The policy proposes to employ user fees in public hospitals, with the usual sugar coating of user fees being introduced for those who can pay. The global experience of user fees at any level shows that they serve only one purpose -- to drive out the poor and the indigent.

New directions in policy

Since the National Health Policy 2002 was announced there has been a change of government in the country. Hopes of a change in direction were stoked by some positive declarations of intent in the Common Minimum Programme (CMP) of the newly-installed UPA government. It stated, for example: "The UPA government will raise public spending on health to at least 2-3% of GDP over the next five years with focus on primary healthcare." The CMP also underlined its commitment to focus on primary healthcare. It also said: "The UPA government will take all steps to ensure availability of life-saving drugs at reasonable prices." However, the hopes raised by such positive statements have been belied in the ensuing months.

The first budget by the UPA government provided no additional budgetary support for healthcare, thereby rendering meaningless its commitment to increasing public spending on health. There have been no concrete moves to impose price controls in order to bring down spiralling drug prices.

The government's commitment to primary healthcare is now being sought to be implemented through the proposed Rural Health Mission. However, a reading of initial drafts of the proposed mission raise a number of disturbing concerns. The scheme proposes to hand over large parts of the public health system to private providers and NGOs. It lays emphasis on the need to levy user fees in order to maintain the infrastructure. It is not committed to strengthening the public health infrastructure, but, instead, proposes to fill the gaps in the infrastructure through private sector participation. An impression is being created that the non-functioning of the public health system is a legitimate reason for resorting to privatisation of the structure (

No medicines for the poor

The Trade Related Intellectual Property Rights (TRIPS) agreement designed to introduce uniform laws providing patent protection, signed in 1995 as part of the WTO agreement, was the most bitterly fought during GATT negotiations. Laws that provide strong patent protection limit the ability of developing countries to enhance their S&T capabilities and retard dissemination of knowledge. Before the TRIPS agreement, many countries like India had domestic laws that did not favour strong patent protection -- Indian domestic laws since 1970 didn't allow medicines to be patented.

These arguments were, however, systematically subverted during the GATT negotiations, leading to the signing of the TRIPS agreement. The TRIPS agreement required countries like India to change over to a strong patent protection regime by 2005. A regime that would no longer allow countries to continue with domestic laws that enabled domestic companies to manufacture new drugs invented elsewhere, at prices that were anything between 1/20th and 1/100th of global prices.

In order to comply with the TRIPS agreement, the Indian Patent Act has been amended thrice -- in 1999 and 2002, and recently through the promulgation of an ordinance. Unfortunately, the previous amendment and the recent Patents Ordinance have failed to even use the flexibility available in the TRIPS agreement. The TRIPS agreement was bad for developing countries to start with, but the Indian government is making it worse by not even using the possibilities available in the agreement and the clarification issued in the Doha Declaration of 2001. Two significant areas where Indian law goes beyond what is required even under TRIPS relate to compulsory licensing and pre-grant opposition.

The former (compulsory licensing) is an instrument under TRIPS by which governments can allow domestic manufacturers to manufacture patented products within three years of their introduction. In the Indian law this provision is still weak and cumbersome. Pre-grant opposition is an instrument by which patent applications can be challenged -- and a strong provision would help limit the number of patents granted. The new Patents Ordinance seeks to drastically dilute this provision. What is disturbing is that these provisions in the Indian law are unnecessary, for us to comply with the obligations laid down by the TRIPS agreement. In other words, when asked to bend the government is willing to kneel!

As a consequence, over a period of time Indian companies will lose the opportunity to develop processes for patent-protected drugs in the country and India will become dependent on MNCs for technology to produce new drugs. Votaries of the new Patents Act argue that old drugs will not be affected by this act. While this is true, it must be understood that the rate of obsolescence of old drugs is extremely fast today. Further, technological dependence on MNCs is the proverbial thin end of the wedge that will be used by MNCs to establish their dominance over the Indian drug market once again (a position they lost after the mid-'70s). Today Indian companies are the largest suppliers of low-cost drugs to developing countries -- an estimated 60% of drugs to treat HIV/AIDS come from India . The new ordinance will make this impossible, thereby threatening the lives of hundreds of thousands -- not only in India but also across the globe.

Rescuing public healthcare

If public healthcare is to be rescued and is to chart a course based on the actual health needs of the people, it is crucial that policy making on health is de-linked from neo-liberal economic policies. Specifically, we would require greatly enhanced spending on healthcare and acceptance that the government has a duty to provide comprehensive healthcare services. We need to go back to the notion that public health is a public good, its benefits shared by everybody. We as a nation need to understand that investment in health is money well spent -- this has been the experience of all developed countries.

(Amit Sen Gupta is with the Delhi Science Forum and Jan Swasthya Abhiyan. Contact:: This email address is being protected from spambots. You need JavaScript enabled to view it.)


  1. 'Globalisation and the impact on health, a third world view -- the role of the World Bank', Evelyne Hong, August 2000,
  2. 'World Health Organisation, Macroeconomics and Health: Investing in Health for Economic Development', December 2001 (available at,cmh&language=english )
  3.  ' Economic Reforms, Health and Pharmaceuticals' , Amit Sen Gupta, Economic & Political Weekly , November 30, 1996
  4. National Health Policy, MOHFW, Government of India, 2002 (available at )
  5. Available at

InfoChange News & Features, June 2005