The primary healthcare system in India is funded by both the union and state governments. Initially, the part of central funding was largely programmatic. Recently, there has been a shift of focus to link allocations with the achievements on the demographic front and usage rate of some basic healthcare facilities. The prime question is that whether the central funding should be based on economic efficiency of the healthcare system or demographic performance of the states. This paper proposes a strategy based on stochastic frontier analysis, which appears to be free from any biasness and random disturbances.
