COSTS TO INDIAN ECONOMY

HIV and AIDS: Speed Breakers on the Economic Superhighway

The potential costs to the economy arising from the continued and unchecked march of the HIV and AIDS epidemic could be quite high, according to a report on The Macroeconomic and Sectoral Impacts of HIV and AIDS in India.

The study, based on a Computable General Equilibrium (CGE) analysis of the likely impact of the epidemic over a 14-year period between 2002 - 2003 and 2015 - 2016, shows that the country’s achievements in terms of economic growth in the next 10-15 years will be noticeably less than its potential.

“According to the model projections, GDP at 2002 - 2003 prices would decline in 2015 - 2016 by Rs. 11,097.93 billion. The GDP per capita (at 2002 - 2003 price), according to projections made using the CGE model, would decline in 2015 - 2016 by Rs. 7,610.61,” the report notes.

The increase in health spending by both households and the governments also causes a drop in their savings, which then crowds out investment and causes growth to slow down.

“It is time to see policy action against AIDS as a growth-enhancing policy endeavor, and, first and foremost, dedicate adequate resources for this purpose,” the report urges.

It says the impact of the epidemic on the economy comes through five routes:

1. Slower growth in population and supply of labour due to AIDS - related deaths. Labour supply is likely to fall by 0.31 percentage points over the 14-year period, with unskilled labour showing the largest decline of 0.35 percentage points and skilled labour the least by 0.22 percentage points.
2. Lower labour productivity of HIV affected workers.
3. Declines in sectoral total factor productivity growth.
4. 10 percent increase in household health expenditure.
5. 5 percent increase in government health spending.

The report states that impoverishment is inevitable as real wages drop by 0.10 percentage points, with unskilled labour taking the greatest hit. It notes that sectors using unskilled labour will be hit relatively harder. The tourism sector is expected to suffer the most, with an 18.31 percent loss in value added by 2015 - 2016. Manufacturing will be affected to the extent of 12.48 percent, services by 10.13 and agriculture by 9.08. Within industry, the sectors that have been identified as most vulnerable are construction, chemicals, mining and quarrying, capital goods and textiles.

In the event HIV/AIDS spreads unchecked over the next decade:

1. Economic growth could decline by 0.86 percentage points
2. GDP could decline by 0.55 percentage points
3. Government saving as percentage of GDP likely to fall by 0.671 percentage points due to increased health spending
4. Household savings likely to decline by 1.15 percentage points
5. Investment decline likely to be 1.16 percentage