This is Part 3 of a three-part series on India's healthcare system. Part 1 examined India's structural shortage of doctors. Part 2 looked at how that shortage has concentrated medical trust and revenue in individual star doctors rather than institutions.

The numbers look impressive

India's healthcare sector attracts capital. The numbers make that plain. Between 2014 and 2024, over 594 mergers, acquisitions, and private equity transactions worth more than $30 billion took place in Indian healthcare, with hospitals accounting for nearly 40% of that deal activity.¹ In 2024, India became the largest healthcare private equity market in the Asia-Pacific region, accounting for 26% of all deal volume.¹ The country's overall healthcare market is now valued at approximately $180 billion.²

The investment is real. The growth is real. The question is: who does it reach?

Not one market, but several

Because India does not have one healthcare market. It has several, stacked on top of each other, with very different economics and very different levels of attractiveness to capital.

At the top is the premium segment, high-income, often insured, urban patients who can afford to pay for quality care and who generate the revenue that justifies expensive infrastructure. This is where the large private hospital chains operate, where medical tourism revenue lands, and where diagnostic centres can charge rates that make the economics of modern imaging equipment viable. In 2023, around 634,000 foreign patients came to India specifically for medical treatment, part of a medical tourism market valued at $7.69 billion.²

Below that is the aspirationally middle-class segment, partially insured, price-sensitive but willing to pay for organised, reliable care. This segment is the current focus of expansion: hospital chains are racing to add beds in Tier 2 and Tier 3 cities, where healthcare demand is growing at 16–18% annually, somewhat faster than the 12–14% in metros.² Private equity has noticed. The logic is straightforward: land is cheaper, competition is thinner, and there is genuine unmet demand.

At the bottom is the largest segment by population; low-income, rural, often uninsured, with limited ability to pay even nominal user fees, and geographically distant from organised care. This is where the disease burden is heaviest. This is also where capital does not go.

Why the economics do not work

The reason is structural, not malicious.

A hospital requires large initial capital investment, has a long payback period, and depends heavily on the drawing power of specialist doctors who are themselves concentrated in cities. Regulation limits pricing power in many segments. The combination of high fixed costs, low recoverable revenues, and high operational complexity makes rural or semi-urban primary care unattractive as a financial proposition. Add to that the fact that prevention and wellness; which would reduce long-term burden most efficiently, are notoriously difficult to monetise. You cannot easily charge someone for a disease they did not get.

So capital flows to where returns are visible and near-term.

Diagnostics has been a particular magnet. The Indian diagnostics market has more than doubled since FY17, though the country still lags global peers significantly in tests per capita and radiology penetration.³ Organised chains are displacing standalone labs, bringing better quality control and wider access in urban areas. This is a genuine improvement. But it is an improvement concentrated in cities, serving patients who were already served, now just more efficiently.

Tertiary care, the high-complexity, high-cost interventions at the top of the care pyramid, continues to attract the most prestige and the most capital. Cardiac surgery, cancer treatment, joint replacements, organ transplants: these are the procedures that fill the flagship hospitals of Mumbai, Delhi, Chennai, and Bengaluru. They are also, not coincidentally, the procedures that command the highest revenue per episode.

Primary care, the routine, the preventive, the chronic disease management that keeps people out of tertiary care, attracts far less. It is not glamorous. It is not profitable at scale in the current model. And so the most cost-effective part of any functioning healthcare system remains the most underfunded.

The consequences accumulate quietly

India requires approximately three million additional hospital beds to meet a minimum standard of three beds per 1,000 people.² It will require 1.54 million more doctors and 2.4 million more nurses by 2030 just to keep pace with demand.² Public health expenditure, meanwhile, was projected to fall to 1.9% of GDP in FY26; down from 2.5% the year before.²

These are not abstract statistics. They are the shape of a system that is growing in revenue while shrinking in coverage per citizen.

Capital, ultimately, follows revenue. And in India's healthcare market, revenue follows the sick, the insured, and the urban. The well, the uninsured, and the rural are a different market entirely; one that private capital has not found a way to serve profitably, and that public investment has not been sufficient to serve adequately.

What would alignment look like?

India has all the ingredients to build a genuinely excellent healthcare system; a growing economy, a large and competent medical workforce, a history of pharmaceutical and biotech capability that has made it the world's pharmacy, and a government programme in Ayushman Bharat that is, at least in intent, one of the most ambitious public health commitments anywhere in the world. The constraint is not ambition. It is alignment.

The three forces examined across this series; capacity, cultural trust, and capital, reinforce each other in the wrong direction. Because capacity is low, doctors are overworked, which fuels throughput medicine. Because trust is personal, hospitals cannot be stronger than their star doctors, which limits institutional scalability. Because capital follows revenue, investment deepens the divide between those already served and those who are not.

Until these three things point in the same direction, toward primary care, toward prevention, toward rural populations, the system will keep producing the same paradox: world-class care for a few, and chronic inadequacy for the many. The gap between those two realities is not a market failure in the conventional sense. It is a design problem. And design problems, at least in principle, can be fixed.

References
1. Bain & Company, Global Healthcare Private Equity Report 2025. Summarised in Unlisted Intel, May 2025.
2. IBEF, Healthcare System in India, updated 2024–25.
3. Kotak Mutual Fund, India's Healthcare Sector: Rapid Growth and Transformation, 2024.

This is Part 3 of a three-part series on India's healthcare system.  |  Part 1: A Sick system treating a sicker population.  |  Part 2: In Doctors We Trust. Everything Else We Audit.