Access to adequate health care services is an important component of empowering people with human capital. This, however, can be achieved only when the spending on health care is adequate and delivery systems efficient. Improving health indicators is an important component of the Millennium Development Goals (MDGs) set by the United Nations. There are also important targets on health status achievements set for the Tenth Plan. The Common Minimum Programme of the ruling UPA government also seeks to increase the public expenditure by the Centre and States on health and family welfare schemes from the present level of less than 1% to 2%-3% of the gross domestic product (GDP). The provision of health and family welfare services falls in the realm of concurrent responsibility of the Centre and the States, but the latter have a predominant role in the delivery of these services. However, fiscal pressures at the State level lead to compression of expenditures by the State Governments resulting in an increase in Central financing of these services, particularly for some prioritized programmes implemented through the Centre and Centrally sponsored schemes. Thus, over 85% of the public expenditure on medical and public health is incurred by the State Governments, though the proportion of financing the expenditure by the State Governments is lower. This paper identifies the resource gap between the desired and the actual health expenditure in 15 major States in India (14 large, non-special category States and Assam), and highlights the extent to which the gap can be reduced by augmenting resources at the State level. Further, it estimates the resource gap that cannot be met through States’ own resources and therefore, requires Central transfers. The design of Central transfers needed for meeting the required health expenditure of various States is also discussed.