By all accounts, health indicators in India do not present an encouraging picture. Not only is India seen in a poor light in regard to health status in comparison with countries with comparable levels of development, there are wide differences in the health indicators among different states.

While in general the southern states led by Kerala show performances comparable to more advanced states in terms of some indicators, states like Bihar and Uttar Pradesh present a grim picture. This has been eloquently brought out by Shankar Acharya in his piece Governance and health.

Acharya states that improvements in health indicators will require sustained increases in income-earning opportunities in laggard states and substantial improvements in the provision of health services in them. Indeed, as argued by Sen, "�. [P]overty must be seen as the deprivation of basic capabilities rather than merely as lowness of incomes" (Development as Freedom, Oxford  University Press, 1999; p. 86). Capabilities provide freedom from hunger and poverty.

Poor health conditions can be a major source of capability deprivation and hence a cause for unemployment and poverty. Therefore, providing basic healthcare facilities has overwhelming importance in enhancing capabilities and hence, freedoms. 

What has been the government's resource commitment to the provision of health services? Analysis shows that public spending on health services even when complementary expenditures on water supply and sanitation are included is just about 1.3 per cent of GDP. Given the low level of per capita GDP in the country, public health expenditure in per capita terms is abysmal.

Not surprisingly, households are forced to spend almost 4.8 per cent of GDP. The low level of public spending has particularly resulted in poor infrastructure for preventive healthcare. Not surprisingly the health outcomes in India are poor. The poor in the laggard states cannot afford to spend on health from their family budgets and, therefore, are condemned to suffer.

The problem of resources is not merely confined to their inadequacies; it has to do with their distribution as well. First, much of the allocation of health expenditures is on curative health, leaving very little resources to preventive healthcare. Even more important are the inter-state differences in per capita health expenditures. Generally, in the states with low per capita incomes and a high concentration of poverty, per capita public expenditure on health and family welfare is very low.

Low per capita expenditure in states with a larger concentration of poverty results in high out-of-pocket expenditure. Out-of-pocket expenditure is highly regressive in nature and this leads to low access to healthcare services to the poor. In some of these states, in rural areas, formal private health services are non-existent or scarce and this factor forces the poor to seek consultancy from local "experts" or quacks.

Not surprisingly, the poor not only suffer a loss of income when they are sick, they have to bear higher insecurity from illness and a higher cost of healthcare services. 

The analysis shows that there are significant inter-state differences in per capita spending on health services and these have shown a steady increase over the years. Thus, in 2004-05 per capita health expenditures varied from Rs 100 in Bihar and Rs 156 in Uttar Pradesh, to Rs 448 in Tamil Nadu and Rs 354 in Kerala. We find there is a difference of four and a half times between the lowest and the highest expenditures.

Not only are the differences large, they have been increasing steadily over time. The coefficient of variation in per capita expenditures increased steadily from 0.31 in 1995-96 to 0.38 in 2004-05, which indicates a steady increase in inter-state inequalities.

Although the attempts to equalise expenditures through the transfer system have helped to reduce inter-state inequalities in the expenditure-GSDP ratio, the equalisation was not enough to equalise per capita expenditures and the inequalities have continued to increase.

Differences in per capita expenditures, by themselves, are not a matter for concern if they are because of individual states exercising preferences. However, they can be due to their fiscal disabilities arising from differences in the capacities in raising revenue or due to differences in the cost of providing health services. The analysis shows that per capita health expenditure across states has a significant positive correlation with per capita GSDP.

Thus, per capita expenditures are higher in states with higher per capita GSDP. The analysis presented in table 2 shows not only significant and high positive correlation between per capita health expenditures and per capita GSDP but also that the correlation has shown a steady increase from 0.75 in 1995-96 to 0.88 in 2003-04 before declining marginally to 0.86 in the next year.

Over the years, inequality in per capita health expenditures across states has exhibited an increasing trend and this is clearly a pointer to the failure of the system to equalise public expenditures on healthcare services.