In India, per capita real health spending by government has been affected in most states during reform phase. Health system performance measured in terms of technical efficiency of health sector inputs on health outcomes ? Infant Mortality Rate and Life Expectancy at Birth reveals that current level of resources available with states is not sufficient to attain satisfactory outcomes. The resources available for health are not utilized to optimum levels. Efficiency of health system has declined during reforms. Item wise distribution of government health expenditure for health care services reveals a considerable misallocation of resources and expenditure allocation is not in accordance with actual health care needs of the people. Morbidity and mortality rates on account of infectious and parasitic diseases that are preventable have increased over the years. Government has shifted its resource allocation from high priority areas to medium and low priority ones. The findings reveal that even when major economic policy changes take place, state has a crucial role to play in provision of various health care services keeping in view the health problems that concern the society at large.