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| AIDS affects economy | | Can pull down GDP growth by one percent over a decade | |
THE adverse economic impact of HIV and AIDS occurs at three levels: the individual/household level, sector level, and national or macro-levels. In the early phase of the epidemic, the impacts at the sector and macro-levels are rather mild and, hence, not easily measurable or quantifiable. So far in India, given the low overall prevalence, the focus has been on the effects at the level of the individual and the household.
As the HIV epidemic unfolds, its impacts are bound to be deeply compounded. These impacts cannot be assessed in their totality by a mere extrapolation of the household level impact. Furthermore, in 2005, the number of HIV-infected persons exceeds 5 million, and this number is expected to quintuple to between 20 million and 25 million by 2010. With that kind of a jump in the number of HIV cases in the next 5-10 years, there is bound to be a visible impact on the national economy.
At present, little or nothing is known about the potential macro-economic impact of HIV and AIDS on the Indian economy. A quantitative assessment of the macro-economic impact of AIDS on the Indian economy, therefore, needs to be undertaken urgently to assist the policy makers. An economic model is used to generate a ‘no-AIDS’ reference scenario and a ‘with-AIDS’ scenario for the 14-year period, 2002-03 to 2015-16.
The growth rates of supplies of labour of all the three skill types (skilled, semi-skilled and unskilled) decline in the ‘with-AIDS’ scenario. The decline is maximum for the unskilled labour, followed by that of semi-skilled and skilled labour. The increase in health expenditure of the households and the government results in a fall in their savings, which then crowds out investment. This fall in investment causes growth to slow down, and, hence, labour demand to shrink. The fall in labour demand outstrips the AIDS-induced fall in labour supply in case of all the three skill types of labour, and all the wage rates, therefore, decline, though unequally.
The slowdown in economic growth is manifested in a decline in the growth of real aggregate GDP as well as in the growth of per capita GDP. The former decreased, on an average, by 0.86 percentage points, while the latter declined, on an average, by 0.55 percentage points in the ‘with-AIDS’ scenario compared to the ‘no-AIDS’ scenario. Hence, the survivors of the epidemic are not “indifferent” or “better-off ”. They are in fact “worse-off”, as the lower per capita incomes show.
Household income growth rates for all the groups decline, though unequally. The decline in the household income growth rate is steepest for rural nonagricultural self employed, followed by that of rural agricultural labour, rural non-agricultural labour rural agricultural self employed and urban casual labour. These household groups are the ones which derive their incomes mainly from unskilled labour, which, among the three labour types, is affected most adversely by the HIV epidemic.
In sectoral terms, the HIV epidemic hits harder the sectors that use unskilled labour intensively. For example, ‘tourism’, which is the second-most unskilled labour-intensive sector, suffers the maximum loss of 18 percent in value-added terms in the ‘with-AIDS’ scenario in the final year 2015-16. It is followed by the ‘manufacturing’ or ‘industry’ sector, occupying the third position in the unskilled labour intensity ranking, and having a value-added which is 12 percent smaller in the ‘with-AIDS’ scenario as compared to the ‘no-AIDS’ scenario.
On the other end of the scale, is the healthcare sector, which is least unskilled labour-intensive, and, hence, experiences a minor 2 percent loss in its value-added. The other reason for this obviously, is that the demand for health care by workers with HIV increases relatively. Overall, the sectoral pattern of production changes in favour of ‘healthcare’ and ‘services’ – i.e. sectors having relatively lower unskilled labour intensity - at the cost of ‘tourism’ and ‘manufacturing’ – i.e., sectors with relatively higher unskilled labour intensity.
Within industry, it is possible able to identify the sectors which are major contributors to the overall loss in industrial GDP as a result of AIDS. These sectors are: Construction, Chemicals, Mining and Quarrying, Capital Goods and Textiles.
The humanitarian case for taking action to prevent the spread of HIV and AIDS is in itself a compelling one. However, it does not suffice for the economic policy-maker. The present study shows that the adverse macro-economic and sectoral impacts which the HIV epidemic is likely to impinge on the Indian economy in the coming decade, is by no means insignificant. Rather, it is very much real and sizable, and reinforces the already compelling humanitarian reason for urgent and effective policy action to control HIV and AIDS.
In the absence of remedial policy action, the HIV epidemic in India is likely to bring down the average annual GDP growth rate during 2002-03 to 2015-16 by about 1 percent. Conversely speaking – i.e., assuming that the ‘with-AIDS’ scenario is the business-as-usual scenario, and the ‘no-AIDS’ scenario is the counterfactual policy scenario – it is possible to argue that in the next decade the annual GDP growth rate can be increased by upto 1 percent, if AIDS is effectively countered.
It is time, therefore, to begin to see policy action against AIDS as a growth-enhancing policy endeavour, and, first and foremost, dedicate adequate resources for this purpose. New ideas, innovative institutions, and bold implementation must follow suit.
The above is excerpted from the report “ The Macro-Economic and Sectoral Impacts of HIV and AIDS in India: A CGE Analysis”, NACO, NCAER, and UNDP, 2006.
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