Spending as Planned: Efficiency of Drug Procurement in Tamil Nadu

by Pavithra Manivannan, Aakriti Narang, and Susan Thomas.

Introduction

A robust public financial management (PFM) system ensures that resources allocated in the budget are deployed as planned. One way to test this is the spending gap: the difference between what a state budgets for an item and what it actually spends. This gap offers a useful measure of a state’s fiscal marksmanship. When looked further, a large spending gap may indicate that the state has either misestimated demand or struggled to manage suppliers, including ensuring timely delivery and payment. Both are critical to effective public procurement. The spending gap, therefore, offers one measure of a state’s capability to procure well.

We apply this test to drug procurement. Tamil Nadu is widely regarded as the gold standard for drug procurement in India, and many researchers attribute this to the institutional design of its procurement agency, the Tamil Nadu Medical Services Corporation (TNMSC). Following TN’s lead, many states have since set up similar bodies. In this article, we compare Tamil Nadu’s spending gap in drug procurement with Karnataka, a state of comparable budget size, and population, that set up its own corporation in 2019. We ask – has Tamil Nadu’s institutional development of its public healthcare system translated into capability in budgeting efficiency, for drug procurement?

Data and Methodology

We use the Detailed Demand for Grants (DDG) released by each state, to get the annual budgeted and actual expenditure numbers. “Drugs” include medicines, medical supplies and medical equipment¹. Hence, to identify expenditure on drugs we extract each of these specific line-items from the Department of Health and Family Welfare’s budget of both the states.

This is not a straightforward exercise. State budgets are published only as PDFs running into hundreds of pages, and the data in them is, therefore, not research ready. Without structured data, there is no practical way to trace a budget line item across years and states. We overcome this with the India Public Finance Lab Portal, developed by XKDR Forum, which uses LLM pipelines to convert these budget PDFs into granular, research-ready data. Every line item sits in neatly labelled columns, so the data can be sliced, filtered and manipulated as needed. This lets us isolate and aggregate the different heads for both states and follow them year by year.

The portal covers data of ten years for Tamil Nadu and nine for Karnataka. To keep the comparison robust, we start in 2018-19, the first year with data for both states. Additionally, the actual expenditure for a year appears in the budget documents with a two-year lag, so actuals for 2025-26 and 2026-27 are not yet available. Therefore, we stop our analysis at 2024-25.

For each state and year, we calculate the spending gap from 2018-19 to 2024-25 (Study Period) as:

Spending gap_year = 100 × (Actual Expenditure_year − Budgeted Expenditure_year) / Budgeted Expenditure_year

A positive gap means the state’s actual spending is more than its Budgeted Estimates (BE), and a negative gap means it spent less. We then compute the average and the standard deviation of the annual gap for each state. This helps us test our hypothesis; if Tamil Nadu has greater state capability for drug procurement, its average spending gap and variability of spending gap must be lower than Karnataka’s.

Finding 1: Tamil Nadu has a higher budget for drugs

In absolute figures, we find that Tamil Nadu budgets a higher amount for drugs than Karnataka in every year of the Study Period, and by more than twice as much in most years. In Figure 1, we report the per capita drug expenditure of both the states. We find that, over the Study Period, Tamil Nadu’s per capita drug expenditure averaged to Rs. 114 per person, about 2.2 times that of Karnataka’s average of Rs. 53.4 per person.