This paper examines the economic theory behind State’s intervention in the provision and financing of health care. The paper is a meta-analysisand a) reviews critically the approach to health policy by various countries and examines the link between public health spending and theallocation of health expenditure in different sectors, on the one hand,and health outcomes and equity, on the other; b) it examines the health status of India and notes that the health needs of the country require more public health measures than ever before and looks into the quality of private health care; c) it examines the causes for mortality transition of developed and developing countries and notes the role of inter-sectoral approach to the success of Sri Lanka, China, Taiwan and South Koreaand suggests that India should follow the same, because India ischaracterised with high malnutrition, high incidence of communicablediseases, and high infant mortality. In India, out of the total healthexpenditure, only 20 per cent is from the government and the rest isfrom private sector; it notes that the health outcomes and equity arebetter in countries where the share of public health expenditure is more.It also notes that out of this public expenditure in India, 65 per cent wasspent on medical sector–an inefficient way of spending resulting inpoor health outcomes. To achieve better outcomes and equity, the government must intervene in subsidising prevention and treatment of communicable diseases and subsidising rural health; d) it reviews different sources of health financing and their limitations and notes that the major source of health financing in India—out-of-pocket expenditure—is aninflationary and cost escalating method resulting in inequity in spatial distribution of health services in India; and e) finally, it examines the circumstances under which various countries adopted reforms in health care. It also examines the experiences of other countries with regard to one financial strategy, ie, user fee and its impact on cost recovery,utilisation, and equity and shows that user fee as a strategy did not give the expected results. It concludes that user fee in India may not besuitable because here 75 to 80 per cent of the users are from privatesector. Also, user fees as a tool to reduce the financial burden may not be applicable in the Indian context with its high poverty levels, malnutrition,inequity in health facilities and low literacy levels.