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Background: This paper examines two state-led public–private demand-side financial support programs aiming to raise hospital delivery rates in two neighbouring Indian states—Gujarat and Madhya Pradesh. The national Janani Suraksha Yojana (JSY) was complemented with a public–private partnership program Janani Sahayogi Yojana (JSaY) in Madhya Pradesh in which private obstetricians were paid to deliver poor women. A higher amount was paid for caesarean sections (CS) than for vaginal deliveries (VD). In Gujarat state, the state program Chiranjeevi Yojana (CY) paid private obstetricians a fixed amount for a block 100 deliveries irrespective of delivery mode. The two systems thus offered an opportunity to observe the influence of supplier-induced demand (SID) from opposite incentives related to delivery mode. Methods: The data from the two programs was sourced from the Departments of Health and Family Welfare, Governments of Gujarat and Madhya Pradesh, India. Results: In JSaY program the CS rate increased from 26.6 % (2007–2008) to 40.7 % (2010–2011), against the background rate for CS in Madhya Pradesh, of only 4.9 % (2004–2006). Meanwhile in CY program in Gujarat, the CS rate decreased to 4.3 % (2010–2011) against a background CS rate of 8.1 % (2004–2006). Conclusions: The findings from India are unique in that they not only point to a significant impact from the introduction of the financial incentives but also how disincentives have an inverse impact on the choice of delivery method.