Prime Minister Narendra Modi's plan to provide health insurance for about half the country would require an estimated 110 billion rupees ($1.7 billion) in central and state funding each year, sources familiar with the matter said.

The National Health Protection Scheme, which the government dubs "Modicare", was announced in Thursday's budget for 2018/19 and would provide 100 million families, or about 500 million poor people, with health cover of 500,000 rupees per year for free treatment of serious illnesses.

Several states now offer health insurance but these schemes are generally small and poorly implemented. Modi faces a national election next year and the new health programme is seen as a signature initiative to woo voters in the countryside, many of whom struggle with high healthcare costs.

The government estimates the cost of insuring each family under the new scheme at about 1,100 rupees ($17.15), said a government official who had direct knowledge of the matter and did not want to be identified.

Officials at NITI Aayog, India's federal think tank, on Friday said the government's estimated premium for insuring each family would be 1,000-1,200 rupees, confirming the funding would be shared between federal and state governments.

"This is a turning point for the health sector," Vinod K Paul, a member of NITI Aayog, told reporters.

Indian officials have said "the world's largest government funded health care programme" would have a central allocation of 20 billion rupees in 2018-19, but added that more funds would be made available as the programme is rolled out over the year.

Some critics have raised doubts whether 20 billion rupees in federal funding is enough to support the programme for 2018-19.

However, the government official said of the 110 billion rupees in premiums required to fund the programme, the federal government would contribute about 70 billion rupees with the 29 states providing the rest.

The 50 billion rupees in federal funding on top of the budget allocation of 20 billion rupees would be made available as the scheme details are worked out over the coming months, the official said.

"Government health insurance companies have readily agreed to fund the programme (at this cost)," the official said.

A second source familiar with the planning said the government could also partly use the funds raised from a newly imposed 1 percent health cess on taxable incomes, and the health scheme would also benefit from the planned merger of three state-run insurance firms announced in Thursday's budget.

"It's a big pool (of people). When you have a mammoth insurance company, the task becomes easier," said the source, adding that the government's premium payments for the scheme were expected to be low and manageable.

Modi's government on Thursday also raised the federal health budget by 11.5 percent to $8.3 billion for 2018-19.

The measures are Modi's latest attempt to reform a public health system that faces a shortage of hospitals and doctors. The government has also in recent years capped prices of critical drugs and medical devices and increased health funding.

Still, India spends only about 1 percent of its GDP on public health, among the world's lowest, and the health ministry estimates such funding leads to "catastrophic" expenses that push 7 percent of the population into poverty each year.

A top official at a state-run insurance company said the government would take 4 to 6 months to finalize the contours of the health plan since it would take time to get hospitals on board.

Nevertheless, a government-sponsored health programme will come as a major boost for the private hospital sector in India. Overburdened public hospitals mean nearly 70 percent of healthcare delivery is in the hands of private players.

The scheme "will be a game changer", said Prathap Reddy, chairman of Apollo Hospitals Enterprise Ltd.