Currently, reproductive and child health services in India are tax financed and provided through supply side financing mechanisms. Some of the limitations of supply side financing are the inability to target the poor, lack of user choice, and the absence of linkages between provider payments and performance. Hence, there is a need to develop innovative financing mechanisms, which are able to target scarce resources at those who cannot afford to pay. One option is demand side financing. Demand side subsidies are not only better at targeting subsidies to the poor, but by linking subsidies with output, also provide the right incentives for efficiency. This paper discusses the concept of demand side financing and recommends piloting of a competitive voucher scheme as a mechanism for RCH services in India.
