Indian J Med Res 121, April 2003, pp 582-600
582
When acquired immune deficiency syndrome
(AIDS) was first recognized in early 1981, few would
have predicted that it would escalate into a modern-
day plague, with over 40 million individuals infected
worldwide.  Indeed, AIDS is an exceptional infectious
disease, posing challenges in terms of immediate needs
and long-term development. In 2003, almost five
million people were newly infected with HIV, the
highest annual incidence rate since the beginning of
the epidemic.  In the same year, almost three million
individuals died of AIDS and over 20 million have
died since the first cases of AIDS were identified in
the early 1980s1.
Whilst the international community’s focus has
been on the region most devastated by HIV/AIDS,
namely sub-Saharan Africa, India now appears on
the brink of a significant epidemic. HIV has been
detected in almost all of India’s states and union
territories. In seven Indian states, the prevalence of
HIV in women attending antenatal clinics exceeds
1 per cent, categorizing the epidemic as generalized.
With an estimated 5.1 million individuals living with
HIV in 2003, approximately 0.9 per cent of Indian
adults are HIV positive, and in terms of absolute
numbers, HIV prevalence in India corresponds to the
second highest population worldwide2.
In thinking about the implications of HIV/AIDS,
considerable attention has been drawn to its clinical
and therapeutic aspects: the nature of the HIV virus,
the mechanism through which it is transmitted across
individuals, the creation of vaccines to prevent
infection, and the development of drugs to manage
opportunistic infections and conditions associated with
HIV and AIDS. Yet, it is clear by now that the effects
of HIV/AIDS are not limited to the realm of medicine.
HIV has profoundly influenced legal, human rights
and ethical frameworks, and there are raging debates
regarding the twin strategies of prevention and
HIV/AIDS epidemic in India:  An economic perspective
Ajay Mahal & Bhargavi Rao
Department of Population & International Health, Harvard School of Public Health, Boston MA
Accepted March 9, 2005
Whilst the international community’s focus has been on the region most devastated by HIV/
AIDS, namely sub-Saharan Africa, India now appears on the brink of a significant AIDS
epidemic. In thinking about the implications of HIV/AIDS, considerable attention was initially
drawn to its clinical aspects. More recently, other dimensions of HIV, including economic, have
been explored. The primary objective of this review is to elaborate on the major elements of
the national and international economic research to data on HIV/AIDS, and to infer lessons
from it, for India.  It also examines the evidence on the aggregate and household-level economic
impacts of HIV, the economic roots that drive its transmission and the methods economists use
to assess the efficacy of alternative interventions to address HIV and AIDS. Available evidence
suggests that whereas aggregate impacts may be limited, the adverse household-level economic
implications of AIDS may be serious; public resources that are available for health are also
likely to be put under strain.  Paucity of economic research on HIV and AIDS relating to India
is highlighted.
583
treatment within these contexts. Considerations of
gender equality, family structure and demographic
implications have also attracted attention in studying
its consequences.
A large amount of attention has also been devoted
to analysing the aggregate economic impacts of the
worldwide HIV/AIDS epidemic. This is not surprising
since HIV/AIDS affects individuals in prime-working
age groups, is typically expensive to treat, and has
affected massive numbers of people worldwide.
However, the focus on the aggregate impacts of HIV/
AIDS is only one of several lenses through which
economists have viewed the impact of the epidemic.
Firstly, researchers have also examined the impact
of HIV at the micro-level, on specific sectors,
individuals and families, on economic inequality and
on poverty. Secondly, economists have highlighted
elements of the process of modern economic
development that are correlated with the spread of
HIV, for example, rural-urban and international
migration, urbanization, and increases in income.  This
focus on the “economic roots” of the epidemic, when
enriched by the ways in which economists study
individual behaviours at risk for HIV infection, has a
potentially vital role in promoting our understanding
of the spread of HIV, and in aiding policy makers to
design policies that most efficiently limit its impact.
Thirdly, economists have developed methods of
evaluation, which have been widely used in the
literature to assess the efficacy of alternative HIV/
AIDS interventions available to policymakers.
The primary objective of this paper is to elaborate
on the major elements of the national and international
economic research to date on HIV/AIDS, and to infer
lessons from it, for India. Where available and
possible, we shall rely on Indian data and analyses
that have been undertaken for India. However, the
relative paucity of Indian economic literature on HIV/
AIDS means that some of our analysis will have an
international flavour.
Economic impacts of HIV/AIDS
Household-level impacts :  There is a large, albeit
relatively recent, theoretical and micro-econometric
literature that highlights the adverse impacts of ill
health and poor nutrition on individual labour force
participation, on earnings and on asset holdings, and
the like3. In its emphasis, this recent literature on the
economic implications of ill health at the micro-level
is a departure from the traditional treatment of health
as an outcome of economic circumstances. The
extension of this work to HIV/AIDS is natural given
that HIV is almost invariably fatal, affects the
economically most productive adults, and is expensive
to treat.
Existing research indicates several ways in which
households are likely to be economically affected by
AIDS (Table I).
The most visible impact is on the financial expenses
associated with medical treatment of individuals that
are borne by the household(s) to whom the individuals
belong. Annual treatment costs of AIDS were
estimated to be more than two times the per-capita
income in the mid-1990s in a study of nine Asian
countries income that included India4. These early
estimates did not include the costs of antiretroviral
drugs (ARV), which can be expected to substantially
escalate the economic burden on families and
households. A recent study of patients visiting a non
government provider in south India estimated the
median annual costs of treatment for AIDS patients
to be of the order of rupees six thousand over a six
month reference period, with the treatment expenses
for patients on antiretroviral  drugs averaging rupees
18,150 over that same period 5. Another study from
Delhi6, although with a less scientifically designed
sample, suggests similar estimates for expenditures
on antiretroviral treatment–about rupees
30 thousand (About US $650) for antiretroviral
treatment over a one year period, plus another rupees
10 thousand annually for monitoring tests.
One can imagine that the domestic manufacture
of many of the combinatorial ARV drugs in India has,
for time being, reduced the economic burden of ARV
treatment by keeping drug prices in check.  However,
this will only be a short-term reprieve once patent
protections for new HIV/AIDS drugs come into effect
within a few more years, and the virus develops
widespread resistance to the current line of drugs.
Indeed, one recent study7 of the impact of extending
MAHAL & RAO : ECONOMIC PERSPECTIVE OF HIV/AIDS
584 INDIAN J MED RES, APRIL 2005
intellectual property rights protections to
pharmaceuticals in India suggests that there will be
substantial welfare losses to Indian consumers on
account of pharmaceutical price increases.
A second immediate impact is on earnings and
incomes of households with members with HIV/
AIDS, since HIV/AIDS affects individuals in their
most productive years when they are likely to be
members of the labour force, or are in a position to
provide support. The impacts can take the form of
lost earnings when individuals get sick, or die
prematurely due to AIDS. The study by Duraisamy
et al5 estimated that, on an average, 43 workdays
were lost in a 6-month reference period per HIV-
positive client of the NGO, translating into roughly
rupees three thousand in lost income during that time.
Another study of households affected by HIV in four
Indian states8 clearly points to growing economic
hardships, while average monthly expenditure on food
and treatment increased substantially in households
affected by HIV/AIDS, incomes declined by as much
as one-third. Further evidence on income losses can
be gleaned from studies of the economic impact of
tuberculosis infection, often an opportunistic infection
associated with HIV infection in India. One study of
304 tuberculosis patients9 found that the average cost
of treatment over the six-month period amounted to
nearly rupees 2,000 and an additional rupees 4,000 of
lost wages during that same period.
In fact, the actual earnings losses are typically
much larger than the above studies suggest, given
that they accumulate over several years when an
individual dies, even under fairly conservative
assumptions about working life spans10. In Sri Lanka
and in India, lost lifetime earnings due to an AIDS
death were estimated to be more than ten times the
annual treatment costs of AIDS4. Moreover, incomes
and earnings losses can also occur due to the loss of
a job from stigma associated with HIV infection, even
if the HIV-positive individual is not sick with
opportunistic infections associated with HIV/AIDS.
In these cases, the value of lost earnings is even
greater, since the period over which the household
does not have access to an individual’s earnings is
Table I. Economic impacts of HIV on the household
The most direct impacts of HIV on the household take the form of :
Expenditures for medical treatment
Income losses to household owing to morbidity and premature death of adult members
These impacts are exacerbated by :
Stigma and discrimination associated with HIV/AIDS that leads to economic loss, inadequate community and
extended family support and inadequate access to care
Discrimination may also lead to disproportionate economic impacts on young women
Regulations that make access to essential drugs more expensive
Seriously affected households cope with these impacts by :
Drawing down on savings, selling assets, or by borrowing
Reducing consumption of essential items, including food
Withdrawing children from schools
Reducing consumption of other essential health care
Increasing the number of members joining the labour force to supplement declining incomes
These coping mechanisms have long run impacts on the economic well-being of households, by impacting upon human
capital accumulation and financial asset positions.
Civil society and enhanced government support in the form of free antiretroviral treatment act to ameliorate these
impacts. Access to health and life insurance, or publicly financed health facilities also help.
585
potentially longer. The ILO study8  above confirms
that stigma and discrimination at the workplace
complicate matters, with many people living with HIV/
AIDS (PLWHA) not disclosing their status to
employers for fear of losing their jobs.
Earnings losses and increased expenditures due
to HIV among adult members of the household are
reflected in a number of short - and long-term
consequences for households. These include declines
in household savings and asset holdings. Duraisamy
et al5 found that medical treatment expenditures
constituted a significant economic burden on a sample
of affected households in south India, with roughly
40-70 per cent of AIDS-related expenditures being
financed by borrowing. A similar reliance on
borrowing and declining assets among was observed
in a sample of households affected by HIV/AIDS in
the Sangli district of Maharashtra11. The finding that
households with an adult AIDS death were more
severely affected compared to households with an
adult non-AIDS death is similar to results from studies
in Thailand and sub-Saharan African countries12-14.
Few studies on the effectiveness of coping
mechanisms exist in India, but one study15 on adult
deaths in India found that richer households were
better able to cope with the adverse economic
consequences of losing breadwinners, in terms of their
asset position. In addition to consequences manifested
in the form of declining household asset holdings,
members of households affected by HIV/AIDS are
likely to have lower long-run accumulations of human
capital, whether measured in terms of achievements
in education, or health. The ILO study for India 8
found that households have to compromise on their
children’s education, with nearly 38 per cent of
respondents reporting being forced to withdraw
children from school and sending them to work.
Similarly Verma et al11 found in Sangli that children
among households that experienced an AIDS death
were less likely to receive health care, and more likely
to be withdrawn from school compared to households
with a non-AIDS death or no death at all.
Corroborating evidence is available from analyses of
families experiencing tuberculosis, or deaths among
adults in India. In 34 per cent of a sample of
households with parental tuberculosis, parents could
not afford to buy books, or adequate food for their
children; and in 20 per cent of the cases children had
to be pulled out of school to take up income earning
jobs16. Leclercq17 using survey data for rural India
from the National Council for Applied Economic
Research found that the death of one or both parents,
adversely affects the schooling of their children, and
increases the likelihood of their working. These
findings are similar to those for sub-Saharan Africa
suggesting that AIDS deaths within households are
likely to be associated with declines in nutrition and
the loss of educational continuity among children, with
the effects likely to be especially concentrated among
rural households and the urban poor13,18,19.
To conclude, three other observations, starting with
the observation on a lack of access to formal health
and life insurance.  In general, such insurance is not
accessible to Indians with HIV/AIDS, due to the low
coverage of private health insurance, and presumably,
excludability clauses10. Thus, safety nets offered by
the public sector (such as public insurance, or free
care in public health facilities) are the sole formal
mechanisms available to households, and the latter is
hampered by the poor fiscal situation of government
and by the predominance of informal sector
employment. One of the few ways in which
households can reduce the impact of AIDS is by using
public sector health facilities that are often available
at subsidized rates to the poor. Unfortunately in
developing countries with limited resources, such as
India, this option is not always available. It is well
known that India’s public health facilities are poorly
funded and undermanned. There is also some
evidence that public facilities may be
disproportionately benefiting the rich21. In this setting,
with health insurance coverage (social and private)
accounting for no more than 15 per cent of the total
population in India, and life insurance even more
limited, most of the health and other household
consumption expenditures are likely to come out of
severely diminished household resources, with obvious
implications for the current and future levels of
nutritional and educational achievements.
The second point relates to an intra-household
economic impact that underpins the adverse
implications of HIV/AIDS for young women. Young
MAHAL & RAO : ECONOMIC PERSPECTIVE OF HIV/AIDS
586 INDIAN J MED RES, APRIL 2005
married women in India, who are at high risk of being
infected by their husbands, are unfortunately also at
high economic risk upon the identification of HIV
status of their husbands, or upon the death of the latter.
There is evidence of young married women being
blamed for their husband’s infection and ostracised
as a result22,23.  Moreover, when families in India do
economically support members with HIV, such support
tends to be discriminatory and in favour of male HIV-
positive members23,24. The economic implications of
HIV are also likely to be negative for another group
of young women vulnerable to HIV infection, i.e.
commercial sex workers. Sex workers infected with
HIV, or those with symptoms of AIDS, are highly
likely to lose even their sole source of economic
sustenance as brothel owners abandon them and there
is little hope of returning to their families, or counting
on social safety nets.
Third, counterbalancing these serious economic
threats to households and their female members, at
least partially, is a vibrant civil society composed of
an activist media and a large number of non
governmental organizations involved in activities
ranging from treatment, prevention, legal support,
advocacy and the like.  NGOs working in the field of
HIV and AIDS registered with the National AIDS
Control Organization (NACO) of India are several
hundred in number 2, and the voluntary nature of the
registration process means that this list comprises only
a subset of the full set of NGOs currently working on
HIV and AIDS in India.  By protecting the rights of
people with HIV infection, by preventing new
infections, and by advocating for treatment, their
efforts can be expected to ameliorate the household
level impacts of the epidemic in India, although no
systematic assessment of their effectiveness currently
exists.
Sector-level impacts: It is not obvious that a society
or an economic sector in the aggregate will be affected
by a severe health crisis in the same manner as
individual households. Economic assets may get
transferred from one household to another and
previously unemployed members of the labour force
may take over from members of society unable to
work owing to sickness, or premature mortality. In
societies with scarcity of food and educational
resources, one family’s loss may yield a benefit to
another, who may now be able to access them.
Moreover, communities and industries may have
mechanisms in place that can mitigate sustained
household level impacts  such as orphanages, public
health systems, civil society institutions and extended
family support. In the case of HIV/AIDS, given its
magnitude, it is possible that community and
government resources may be overwhelmed. In this
circumstance aggregate sector - regional - and
national-level impacts might emerge. This section
presents a discussion of some of the international
findings regarding the impacts of HIV among
production units (e.g., factories, farms and service
providers such as hospitals) and at the sector level,
and explores their implications for India.
One might naturally suspect the impacts of AIDS
to be high in sectors where labour inputs constitute
an important component of the production process,
such as agriculture, labour-intensive industrial sectors,
and the services sector (Table II). An early study for
Rwanda estimated that the loss of a female adult
member of an agricultural household could lead to a
nearly 50 per cent decline in its farm labour inputs,
and similar assessments have been made elsewhere
in sub-Saharan Africa19,25. One observed
consequence of the AIDS epidemic is a shift to less
labour-intensive cash crops, a decline in the area
cultivated, and less animal husbandry26. In Zimbabwe,
household survey results suggest that AIDS-affected
households experienced significant declines in
production on average of 61 per cent in maize
production, 47 per cent decline in cotton production,
and 37 per cent decline in groundnut production27.
Presumably HIV/AIDS can also enhance costs of
replacing labour, increase insurance premiums, and
funeral expenses for firms working in the agricultural
sector, thereby affecting their profitability, and
chances for economic survival. There is also some
evidence of adverse effects on costs and productivity
in agro-based industries at the level of individual firms,
in sugar, tea and coffee estates19,28,29.
A key question is whether the findings for
household production units and firms translate into
sector level effects. The effects of HIV/AIDS on
national or regional agricultural production levels,
587
however, have not been well documented. A major
reason could simply be the substitution of any lost
production by increased agricultural production among
households not affected by AIDS, a process
facilitated by land transfers/sales from AIDS-affected
families to such households, and excess labour force19.
The only available sector level estimates are based
on model-based simulations for South Africa30, which
report that value added in the agricultural sector in
that country would be 17 per cent lower in 2010 under
a projected AIDS scenario compared to a situation
of no AIDS.
In the non-agricultural sector the evidence of the
economic impact of HIV/AIDS is also somewhat
mixed. Using data from a survey of nearly one
Table II. Economic impacts of HIV on firms and sectors
A: At the Firm, or Production unit (e.g., hospitals, factories, farms) :
The most direct impacts of HIV on production units, whether in the agricultural sector, or the non-agricultural sector, take
the form of
Factors that primarily affect costs of production:
Expenditures for medical treatment of employees, or their dependents who have HIV; or increased insurance
premiums, if such premiums are risk-rated
Expenditures for funeral expenses of employees, or their dependents
Productivity losses from increased absenteeism among employees on account of HIV- related morbidity and
mortality
Extra expenditures incurred by firms to replace workers who are either sick, or have died due to HIV/AIDS (training
costs, search costs for new employees)
Increased wages to attract scarce skilled workers
Factors that primarily affect demand and revenues:
Reduced demand owing to fear of HIV infection ( e.g., tourist operators)
Reduced demand owing to deaths among young working-age adults
Reduced demand owing to increased uncertainty in firm’s ability to respond to orders
Increased demand owing to rising numbers of people with HIV and AIDS ( e.g., hospitals, pharmaceutical
manufacturers,  condom manufacturers)
Stricter screening of applicants leads to rising premiums (health and life insurance companies)
Factors that mitigate the impact on costs of firms/production units :
Existence of unemployed or underemployed workers who can readily replace workforce losses from AIDS-related
morbidity and mortality
Low HIV-prevalence among workers and prevention efforts
Financial risk-bearing capacity of production units (large firms versus small trucking companies; government
versus private sector)
B. At the Sector-Level:
Whether production unit-level effects translate into aggregate sector level effects depends on
The scale of the HIV-epidemic
The possibility of replacing workers at reasonable cost, whether by new workers, or new technology
The possibility of land-sales across agricultural families, so that distributional impacts mitigate aggregate output
impacts
Excess infrastructure and resource capacity to handle increases in demand ( e.g., health sector)
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588 INDIAN J MED RES, APRIL 2005
thousand firms in sub-Saharan Africa, Biggs and
Shah31 concluded that the impact of AIDS on staff
turnover was minimal. They did find, however, that
replacing professional staff was a major problem, with
firms taking 24 wk to replace a deceased professional,
compared to 2-3 wk for less skilled staff. Indeed,
there is an example of a multinational in South Africa
hiring three workers for each skilled position to ensure
that replacements are on hand when trained workers
die32. Studies in Zambian firms reported substantial
increases in funeral related absenteeism, increased
costs (and reduced profits), and increased expenses
on account of ex gratia payments. In Zimbabwe, at
one large firm with 11,500 employees with 30 per cent
HIV-positive, the costs of health expenses associated
with AIDS in 1996 amounted to roughly 20 per cent
of the company’s profits32. Another analysis, for the
United States, estimated costs to a firm of hiring an
HIV-infected person to range from US$2,300 to
US$31,800 under four different scenarios33.
One non-agricultural sector that has received some
attention in the context of the HIV/AIDS epidemic is
transportation. Giraud34 assessed that HIV/AIDS
related costs to the trucking industry in Thailand would
increase from an estimated US$40,000 in 1991 to
nearly US$14.5 million by the year 2000.  A study of
the Uganda Railways32 concluded that HIV/AIDS had
substantially increased its labour turnover rate and
that nearly 10 per cent of its employees had died of
AIDS in recent years; another study reported an
absenteeism rate of nearly 15 percent among
employees of the National Railways of Zimbabwe,
mainly on account of AIDS.32 Finally, Arndt and
Lewis30 estimated that the transport sector in South
Africa would have 20 per cent lower value added in
2001 under a projected scenario of the AIDS
epidemic, relative to a no-AIDS scenario. Although
few in number, these studies taken together suggest
that the transport sector could be a major casualty of
HIV/AIDS in the worst affected countries.
Aside from labour supply impacts, HIV/AIDS can
affect firms by adversely affecting the customer base,
since the group hardest hit by AIDS, young adults of
working age, is also the major source of demand for
goods and services. Given that caring for people with
AIDS is expensive, we should expect that while the
health sector might see increased demand, most other
sectors should experience spending redirected away
from them. Effects on the customer base are not
readily detected by individual firms because of the
dissipation of spending implications across local and
international economies.  These effects are more likely
to be transparent if there are dominant firms, or firms
organized into business associations.  Thus, the JD
Group (South Africa’s leading furniture retailer),
which performed its own research on the potential
impact of the epidemic on its markets and used a
forecast of HIV-prevalence among its customers,
found that changes in demography would reduce its
customer base by 18 per cent by the year 2015 32.
Another way in which the customer base could be
diminished is through the fear of being infected by
HIV, for example, in the tourist industry, although it is
not apparent how the average visitor will face an
increased risk of infection unless he or she undertakes
activities at high risk for HIV infection, such as
unprotected sex or needle-sharing. To the extent that
the proportion of such visitors in the overall flow of
tourism is unlikely to be very large, it is difficult to
imagine a large effect of HIV on tourist flows. The
little empirical evidence that exists on the subject
suggests that impacts of HIV on tourism inflows are
likely to be insignificant35.
There are few studies on the sector level impact
of HIV/AIDS in South Asia. However, it is difficult
to imagine large sector level effects in agriculture
and most labour-intensive industries in India in the
near future, given that HIV prevalence among
working-age adults are still quite low, at roughly 0.9
per cent of people in the age range 15-49 yr.  Even
these may not translate into output losses, given the
large numbers of underemployed in India.   It is also
not obvious that an expanded HIV/AIDS epidemic
will lead to substantial increases in distress sales of
land, or losses of high skilled personnel, especially if
the epidemic is more likely to be concentrated among
the poorest and least skilled groups. However, one
candidate sector for a negative effect of HIV/AIDS
is transportation by road. It is well known that
behaviour at high risk of HIV infection is common
among Indian truck drivers and studies suggest that
HIV prevalence in this group may range from 1.9 to
10.9 per cent36. Any impacts in terms of re-training
589
or other costs are likely to be magnified in their effect
owing to the small average size of the trucking firm,
or about 5 trucks per firm37. Balanced against this is
the fact that there are large numbers of unemployed,
who can potentially replace any driver/helper dying
of AIDS. We suspect that ultimately, truck drivers
and helpers, rather than trucking firms will bear the
bulk of the adverse economic impact of AIDS, owing
to the low degree of employment protection that
currently exists for employees.
Also likely to be affected is the health sector.
Available evidence on the subject is mostly from sub-
Saharan Africa and suggests that in countries with HIV
prevalence exceeding 5 per cent, there is a significant
burden of AIDS patients on medical facilities, ranging
from 20-70 per cent of bed occupancy in major
hospitals19. Studies from the sub-Saharan region also
suggest large obligations on public health spending
accountable to HIV, in some cases exceeding 10 per
cent of the total health budget19,38.  In Thailand, the
one country in Asia with a significant record of public
spending on HIV/AIDS, more than 5 per cent of all
public sector health spending in the mid-1990s was on
HIV/AIDS38. In the absence of insurance mechanisms,
or if public services are of poor quality, increased
spending on HIV/AIDS will take the form of out-of-
pocket expenses by households, as confirmed by studies
from Cote d’Ivoire, Rwanda and Tanzania38. The large
expected increases in health spending related to HIV/
AIDS suggest an expansion, rather than a contraction,
of the health sector. It is instructive to note in this
connection, the conclusions of Arndt and Lewis 30
whose simulation results suggest that the health sector
in South Africa would not suffer as much as the other
sectors on account of HIV/AIDS over the period
2001-2010.
Relative to the situation in sub-Saharan Africa,
public expenditures directed to HIV/AIDS in India
are much lower at the moment, at roughly 1.5 per
cent of public health spending, much of it financed by
international organizations2. The effect of HIV/AIDS
on bed occupancy in public hospitals could still be
severe in the short-run, given that excess bed capacity
(supply of inpatient days less demand) appears to be
extremely limited at present in these countries. An
expanded HIV/AIDS epidemic could also pose future
problems for the health sector by constraining supply
and increasing the cost of medical personnel providing
services to people with HIV. A study in Sri Lanka35
suggests that medical personnel may need added
payments to compensate for increased risk of HIV
infection in health care settings with high HIV
prevalence rates; and there is evidence of
discriminatory behaviour in Indian hospital settings23.
In addition, if the Indian government continues on its
current path of providing ARV treatment to increasing
numbers of people with AIDS, one can expect not
only increased public health expenditures, but also
increased pressures on its limited infrastructure and
personnel capacity in the health sector as the HIV
epidemic expands in the future. These effects will
likely be exacerbated by the fact that most states in
India are currently undergoing a severe fiscal crisis,
and their finances can be overwhelmed in the short
run by even small increases in expenditures directed
towards ARV treatment and HIV/AIDS activities.
Even some of the poorer states, such as Uttar Pradesh
and Bihar where HIV prevalence rates have been
low so far, may not be able to escape this outcome
not just because they supply large numbers of migrant
labour who tend to be at increased risk of HIV
infection, but also because their fiscal situation is
especially dire39,40.
The influence of HIV/AIDS on the private health
insurance sector may not be as significant as on public
spending, given that insurance companies can screen
out HIV-positive individuals from the pool of insurable
individuals. However, it is possible that treatment
costs for opportunistic infections are passed on to
third-party payers without disclosure of an individual’s
HIV status. One Zimbabwean insurance company
estimated that 45 per cent of its health insurance
claims in 1995-96 were AIDS-related32. With private
voluntary health insurance in India still in its infancy
it is difficult to say what the future impact of AIDS
on this sector might be. Potential future sector-level
responses that may reduce the impact of HIV/AIDS
may include added screening to enforce exclusions
for HIV/AIDS, or greater participation of insurers in
prevention messages and in offering incentives to
corporate and other large clients to promote prevention
messages in return for more attractive insurance
packages, as in Thailand41.
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590 INDIAN J MED RES, APRIL 2005
State and national Effects: Output and output per
capita: With limited evidence of sector level impacts
one may suspect that evidence on national-level
impacts of HIV/AIDS is even weaker. In fact, there
is a significant literature focusing on the aggregate
impacts of health on growth of real gross domestic
product (GDP) per capita and real GDP, or their levels,
that sheds light on the way HIV can influence overall
economic performance of nations, through its impact
on the quantity and quality of the labour force and
the stock of physical capital42,43. Some of the literature
has also emphasized “indirect” ways in which health
can influence economic outcomes through influencing
human and physical capital formation, with Bloom and
Williamson44 demonstrating the long-term effect of
health improvements associated with the process of
demographic transition. Their work focuses on the
declines in child and infant mortality followed by
declines in fertility characteristic of the demographic
transition.  Taken together, these lead to an initial bulge
in the age distribution of the population in the very
young age groups. Initially, this process leads to an
increase in dependency ratios, with the situation
reversing when members of the age group belonging
to the “bulge” reach the working ages. In this latter
phase, there is the potential of contributing to
increased production and savings, a possibility that
Bloom and Williamson refer to as the “demographic
gift.”
The large size of the AIDS epidemic and its impact
on the more productive members of the labour force
suggests a large negative effect on growth in national
income (and national income per capita) in the context
of the existing economic literature. Moreover, taken
in conjunction with the work of Bloom and Williamson
discussed above, this implies a third way in which
economic growth can be adversely affected – a
“reverse demographic gift” as a result of the deaths
and morbidity among people in prime working ages
owing to AIDS. There are other channels through
with HIV/AIDS could have negative consequences
for economic growth as well.  These could include a
decline in savings rates owing to increased medical
treatment costs associated with HIV/AIDS. Savings
rates could also decline if people expect to live for a
fewer number of years owing to HIV/AIDS, and so
feel less need for saving to meet their old age
consumption needs, or to add to their skills. The future
stock of educational capital could also be affected if
children whose parents die prematurely due to AIDS
face economic barriers in efforts to continue their
education. Very little work on the influence of HIV
on technological progress exists at present, except
mainly through its impact on biomedical research.
Counteracting some of these negative influences
is the possibility that community responses and support
mechanisms could have immediate and long-term
consequences by sharing the economic and
psychosocial burden of HIV/AIDS. In a purely
technical sense, it is not obvious that declines in the
rate of growth of real income would emerge in
settings with substantial levels of unemployment.  In
the final calculus of course, these are issues that are
best settled empirically (Table III).
Recent work on the aggregate economic impact
of AIDS falls into mainly two groups. The first group
of studies relying on simulation models constructed
for a number of sub-Saharan African countries
concluded that the AIDS epidemic would have
significant adverse effects on the levels and rates of
growth of national income, and national income per
capita. Examples include Arndt and Lewis 45 who
concluded that over the period 2000-2010 the annual
rate of growth of real GDP in South Africa under
their projected AIDS scenario would be substantially
lower in comparison to a no-AIDS scenario, with the
difference ranging from 1 to 2.6 percentage points.
In similar vein, analyses for Tanzania and Malawi46,47
concluded that AIDS would depress their annual rates
of growth of real GDP per capita by an average of
0.25 percentage points over the period 1991-2010.
Not all of the simulation studies however, conclude
that AIDS would reduce both GDP and GDP per
capita. MacFarlan and Sgherri 48 examined the
macroeconomic impact of AIDS in Botswana for the
period 1996-2021 and concluded that overall GDP
under projected AIDS scenarios would be
substantially smaller in 2021 relative to a no-AIDS
scenario. However, HIV/AIDS also reduces
population substantially in their model, so that real
income per capita could grow at a rate faster than in
a no-AIDS scenario, or slower, depending on the
specific scenario.
591
Simulation studies do not always predict negative
economic consequences of AIDS. Young 49 argues
that in South Africa, the beneficial effect of HIV’s
restraint on population offsets the negative
consequences of human capital losses of AIDS and
implicitly bestows the South African economy with
extra resources, which may be utilised for the care
of the infected as well as improvement of the well
being of the population at large. Thus he concludes
that the AIDS epidemic is unlikely to be an economic
disaster.  Young’s view has been contested by Bell
et al50., who contend that in the absence of combating
measures, HIV would lead to widespread economic
collapse, because not only will AIDS destroy existing
human capital, but by killing mostly young adults it
also weakens the mechanism through which
knowledge and abilities are transmitted from one
generation to the next. Presumably, this would also
affect the rate at which the society is able to achieve
technological progress, or to absorb it effectively from
other societies. The consequences of this, according
to their model, are progressively cumulative, and so
will become apparent only after several generations.
In their forecasts for South Africa, if nothing is done
Table III.  Impacts on output or output per capita at the state and national levels
The overall national/state output depends on the quality and quantity of its employed workers (numbers, health and skill
levels), the size of physical capital (machinery, infrastructure such as roads and electricity), and the level of technological
sophistication with which inputs are used.
How HIV affects output levels and their growth over time, thus depends on its impacts on
Human capital:
Impact on the quantity of employed workers
Impact on the quality of employed workers (especially their education and health status) – impacting household
accumulation of health and education, and government resources to fund health and education services
Physical capital:
Impact on household savings – owing to increased medical expenditures
Impacts on savings of the government - owing to increased spending on treatment and prevention related to HIV/
AIDS – reduces budgets for road construction and maintenance and other infrastructure services
Impacts on savings of firms-owing to increased labor costs and impacts on revenues – reduces ability to reinvest in
new physical capital
Impacts on foreign direct investment and physical capital brought by it (whether foreign investors are scared off by
a workforce with high rates of HIV infection)
Technological prowess:
Impact of transmission of knowledge over time, and capacity to absorb technological developments owing to
declines in human capital
Impact of new technology brought in by foreign direct investment
Impact on R & D of domestic firms and the government
The Impact on national/state output per capita (output/population) depends on :
The relative impacts of HIV on output and population
Whether these impacts show up in nation statistics depends on the scale of the HIV epidemic.  Moreover, some (but not
all) of these impacts may be mitigated by the existence of substantial numbers of unemployed, or underemployed.  There
will then be a distributional consequence – as resources move away from households and individuals with HIV/AIDS, to
those who replace them in the workplace
MAHAL & RAO : ECONOMIC PERSPECTIVE OF HIV/AIDS
592 INDIAN J MED RES, APRIL 2005
to combat the epidemic, a complete economic collapse
will occur within three generations50.
In contrast to the studies that rely on simulations
conducted under various assumptions of the time
profile and size of the HIV/AIDS epidemic, an
alternative approach is to statistically estimate the link
between HIV/AIDS and national economic
performance. The main value of using an empirical
approach is its ability to take into account not only of
influences of AIDS in simulation models of the type
discussed above, but also other factors (such as
community responses to AIDS) not readily captured
by the latter. Bloom and Mahal20 used this approach
to measure the nature and strength of statistical
associations between the prevalence of AIDS and
the rate of growth of real GDP per capita, using cross-
country data for 51 countries. They found that the
AIDS epidemic had a statistically insignificant effect
on the growth of real GDP per capita.
There are factors that can potentially confound
the results found in Bloom and Mahal’s analysis20, in
particular the possibility that their study was
undertaken at a time when HIV prevalence rates were
still too low to have a detectable economic effect at
the national level, and that it relied on cross-sectional,
as against longitudinal data. Recent empirical
work42,43 using panel data techniques offers more
robust methods that could potentially be modified to
serve as a means to understand the links between
HIV and economic growth. These new analyses
which point to strong causal linkages running from
life expectancy to growth of GDP and GDP per capita
provide strong support to the claim that AIDS will
negatively influence national economic performance
via its impact on life expectancy.
Existing empirical analyses do not predict huge
adverse aggregate economic impacts for India in the
near future. Even the most pessimistic scenarios
project HIV prevalence rates among Indian adults to
be no more than 5 per cent by the year 2025.  These
projected prevalence rates are considerably smaller
than say, South Africa and Botswana, whose
economic consequences have attracted much
attention from economists. This conclusion is only
slightly modified if we instead focus on individual
states rather than India in the aggregate. Current HIV
prevalence among women attending antenatal clinics,
often used as an indicator of HIV prevalence among
adults, is less than 1.5 per cent in even the most
severely affected Indian states (Mizoram, Karnataka,
Maharashtra and Andhra Pradesh), and trends over
the last 10 yr suggest slow rates of increase over
time in adult HIV prevalence 2. But data from a
recent behavioural surveillance survey suggests that
some states have relatively high rates of sexual
activity outside of their marriage : Andhra Pradesh,
Madhya Pradesh, Maharashtra, Gujarat, Bihar, Uttar
Pradesh and in the Northeast51.  If these behavioural
patterns translate into high rates of HIV infection in
the future, this set of states may face a relatively
greater longer-term risk of the economic impacts of
AIDS, compared to other states.
National impacts: poverty and economic
inequality: To the extent HIV/AIDS is associated
with declines in the rate of growth of per capita
income, all else being the same, it will also increase
the proportion of people living in poverty. Cross-
country evidence suggests that poverty rates, defined
as the proportion of population living below US$1per
day, and the magnitude of economic inequality, are
positively correlated with HIV prevalence 52. Going
beyond these simple associations to the causal impact
of HIV on poverty (or inequality) has not been
empirically demonstrated so far, at least with national
level data.
The previous findings notwithstanding, there is
fairly good micro-evidence in recent years to support
the assertion that the poor and the less educated are
at greater risk for HIV infection than other groups.
A study from Uganda, for example, shows that the
better educated are likely to be hit hardest during the
early stages of the epidemic, but that the infection
rates are now falling most quickly among those with
better education52. Poverty also forces people to make
sub-optimal choices that put them at risk for HIV
infection. Small-scale studies from sub-Saharan
African countries, Haiti, Sri Lanka and Brazil show
how poor women can be forced into sex work, into
providing sexual favours in return for money, and to
be less able to insist on condom use4,35,52. Thus the
end-consequence is likely to be a situation where the
593
poor disproportionately bear the economic
consequences of AIDS, thereby contributing both to
increased poverty as well as worsening economic
inequality.
With the less well off in India, especially sex
workers, truck drivers and unskilled migrant workers
at high risk for HIV infection, it seems inevitable that
HIV will contribute to increased poverty and
inequality in India. Less well articulated, but no less
noteworthy, is the negative impact of AIDS on the
pre-existing low relative economic position of women,
whether in the form of a loss of family support, or
foregone income from sex work, in the case of
commercial sex workers. Whether these effects
become evident in national level statistics is less
obvious, and depends crucially on the future scale of
the HIV epidemic.
The economic roots of the AIDS epidemic
The contribution of economics to the understanding
of AIDS epidemic is not limited to quantifying its
impact in monetary terms.  Economics also provides
a powerful way of examining the pattern of the
epidemic’s spread.  The central assumption is that
HIV is not spread randomly, as is the case for
example with influenza, but rather that HIV is most
often transmitted as a consequence of purposeful
behaviour that has a strong economic foundation.
Below we present a few examples that have attracted
the attention of economists.
Firstly, economic deprivation and HIV/AIDS
incidence are linked. Consider for example, the supply
side of the sex industry where extreme poverty often
leads women and young girls to join the sex industry,
a high risk for HIV infection.  Studies of female sex
workers in Sri Lanka indicate that “survival” is a major
reason for their entry into the sex trade, or for parents
selling their children into sex work35,53.  Analyses for
Uttar Pradesh and Sangli district in Maharashtra reach
similar conclusions54,55. Economic circumstances also
influence condom use.  The Sri Lanka study showed
that sex workers at the lower end of the market, such
as streetwalkers, were less likely to use condoms
with their clients because of the relatively high degree
of competition that they faced for their services,
relative to higher-end sex workers 35. Of course, not
all women enter the trade for “survival”. The pure
economic gains from entry into the sex trade are also
relevant, especially if alternative economic
opportunities are not as attractive.  For instance, a
study of Bangkok massage parlors in 1980 indicated
that the average earnings of masseuses exceeded by
nearly 1,700 per cent possible salaries in occupations
elsewhere 56.
Secondly, the demand side of the sex industry is
driven obviously by the fact that clients can financially
afford the services of sex workers. Thus mobile
populations, such as migrant labourers, truck drivers,
merchant seaman, the armed forces, and possibly
tourists, who often have considerable amounts of cash
to spend, are especially likely to demand commercially
available sex, or engage in multiple-partner sex4. This
connection is strengthened by the fact that the
behaviour of migrants is not easily subject to
monitoring by their families and communities, and
because they may be lonely due to separation from
their families. Thai long-haul truck drivers have
routinely sought alcohol and sex at truck stops4. In
India, HIV infection rates in samples of some truckers
have ranged from 1.9 to 10.9 per cent, much higher
than the national average for adults, and suggest
similar risk factors at work36. There is also evidence
that overseas migrant workers, members of the armed
forces, and domestic migrants may all be at high risk
for HIV infection in India41,57,58.
Even if engaging in multiple partner or commercial
sex, it is not apparent that the sex has to be at high
risk for HIV infection, that is, without condoms.
Previously, we highlighted the role of market
competition in influencing sex worker insistence on
condom use by their clients35. Analyses of household
data from several Asian, African and Latin American
countries shows a strong correlation between wealth
and education, the knowledge that condoms prevent
AIDS, where condoms can be obtained, and the use
of condoms. Recent research in Cambodia 43, the
country with the most advanced epidemic in Asia,
demonstrates that poorest members of society have
much less knowledge of how AIDS is transmitted
and prevented, are more likely to have sex at a younger
age, and use condoms less frequently.  A study in
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594 INDIAN J MED RES, APRIL 2005
Brazil showed that three-quarters of people newly
diagnosed with HIV in the early 1980s had a university
or secondary education, but by the early 1990s this
share had fallen to one-third52. Table IV summarizes
the role of economic factors in heightened risk of HIV
infection in the commercial sex industry.
Basu et al15 in their examination of the impact of
adult death on households in India found considerable
socioeconomic variation in AIDS awareness among
individuals.  Specifically, indicators such as income,
asset holdings, quality of housing, occupation and the
level of educational achievement were all strongly
and positively associated with awareness of HIV/
AIDS.  A study of 365 individuals who visited the
STD clinic and outpatient department of a hospital in
Vellore 59  in the late 1980s indicated that economic
status and literacy were positively associated with
awareness of HIV/AIDS. Condom use among Indian
sex workers has been founded to be negatively linked
to the price of a sexual act, and positively associated
with the level of education, suggesting the key role
that economic returns and education play in
implementation of HIV prevention policies 60.
Economic inequality is also likely to influence HIV
transmission.  Earlier we focused on how extreme
poverty influences entry into the sex trade.  Economic
inequality might also matter if it leads to demanders
of sex work to be able to financially compensate other
less well off individuals, even if not in abject poverty,
to have unprotected sex 61. Rural-urban economic
differences play a role in migration, a standard feature
in most models of economic development, and in turn
can facilitate HIV transmission. In many cases the
economic inequality reflects an underlying social
inequality – lower status of women relative to men,
for example, which is manifested in their lower
educational status relative to men, fewer remunerative
opportunities and assets, and in access to health. The
low status of women in India and their literacy levels
have obvious implications for women’s ability to
protect themselves against the risk of HIV infection.
Finally, economic and educational status has also been
associated with other forms of high-risk behaviour.
For instance Basu et al 15 also found that the use of
disposable needles for injections associated with
health care in the sampled households increased with
socio-economic status.
Purposive behavior and its implications : By
clarifying the underpinnings of behaviours at risk for
HIV infection, economic analysis has also contributed
to understanding the complexity of the mechanisms
associated with the transmission of HIV. In particular,
the hallmark of economists’ approach is to explain
Table IV.  Economic roots of the AIDS epidemic : The case of the commercial sex industry
Economic factors that increase the supply of unsafe commercial sex :
Poor parents sell children to sex-traffickers, who sell them to brothels
Poor women join sex industry for “survival,” with fewer economic opportunities elsewhere
Condom usage low among lower-end sex workers owing to competition in the commercial sex market
Condom-usage low among child sex workers who are effectively “owned” by brothel madams who seek to recoup
their investment quickly
Women lack information and knowledge about risks of unsafe sexual activity, a correlate of their low socio-
economic position
Economic factors that increase the demand for unsafe commercial sex :
Migrant workers move to cities in search of jobs, leaving families behind
Professions involve considerable mobility and long time periods away from families (truck drivers, armed forces,
merchantmen)
Incomes from work enable individuals to afford commercially available sex
Lack of information and education among lower strata workers means greater reliance on unsafe sex
595
individual and organizational behaviour on an
assessment of potential benefits, relative to its costs
for the individual (organization).  This framework for
explaining behavior has been extensively used by
economists and turns out to be extremely useful in
providing policy insights.  We provide three examples
to illustrate these points.
The first example relates to HIV transmission via
the sharing of needles among injecting drug users.
To reduce the rate of HIV transmission, some
policymakers have suggested banning opium
cultivation to constrain its supply. From an economist’s
perspective, however, this might actually promote
raise the price of opium/heroin, which in turn might
lead individuals who are habitual smokers of drugs to
switch to injecting, a more efficacious mechanism of
obtaining a “high.” The illegality of drug possession
also means that drug users might prefer to stay
underground, and so are unable to obtain ready access
to prevention messages associated with HIV.  Finally,
when either drug or paraphernalia possession is illegal,
it would be beneficial for injecting drug users to share
injecting equipment and not have everyone carry their
own equipment, as a means to reduce the risk of being
suspected of carrying drugs. The net result might be
a promotion of HIV transmission, a result opposite to
the intended policy objective.
The above reasoning does not, of course, imply
that government ought to promote opium production
as a way to drive prices down and encourage smoking
in place of injection. However, such economic
reasoning does help explain calls for decriminalizing
the sale, possession and use of drugs and needles
voiced in North America and Europe and for the
promotion of needle exchange programmes.
As a second example, consider a policy of isolating
or imprisoning HIV-positive commercial sex workers.
At first sight, this policy might seem a sensible way
to curb HIV transmission, because it prevents HIV
infected sex workers from selling sex.  However, such
a policy fails on two counts. It fails to influence the
demand side of the market for commercial sex, and
fails even to address the deeper economic roots of
the supply of commercial sex workers. Under the
economic conditions that currently prevail in India,
the continuing demand for commercial sex will be
satisfied by a newly migrating group of women who
will supply sex commercially, not because they are
social deviants but because they lack better economic
opportunities.  Economic models of migration can be
used to show that the likelihood of frequent arrests
of commercial sex workers, and their consequent
withdrawal, will enhance the work opportunities for
newer participants to the industry, Moreover, the
incarceration of sex workers in rehabilitation homes
and prisons is also likely to result in the industry
remaining “underground”, an approach that could
potentially result in these women not being able to
access health messages. Without information about
HIV and the power to negotiate the use of condoms,
they too will become infected and then infect others.
Estebanez  et al 62. lend further support to this
conclusion by noting the failure of methods focusing
on isolation and imprisonment in order to control
syphilis in the early twentieth century.
The third example has to do with commercial
donation of blood for transfusion purposes. This
example is particularly relevant for India, where
commercial donation of blood has been banned since
1997 and yet, as late as 2003, only 50 per cent of
blood donated in India was obtained from voluntary
donors 63. Commercially donated blood is deemed to
be at greater risk of being contaminated with HIV,
since the donors are likely to be the poor who, in turn,
are more likely to be at risk for infection from HIV.
Presumably the ban has not worked because
alternative economic opportunities do not exist for
thousands of young people who commercially donate
blood. India has increasingly adopted efforts to
promote voluntarily (unpaid) donated blood - the
appropriate policy under the circumstances for at least
two reasons.  Firstly, it increases share of blood
donated by people less likely to be at risk for HIV
infection, given that the general population has a lower
rate of infection than of commercial donors.
Secondly, by enhancing supply of blood for a demand
that can reasonably be taken to be medically
determined, voluntary blood donation puts a
downward pressure on the price of paid blood, thereby
reducing the attractiveness of supplying blood on
commercial terms.  This strategy still does not address
the issue of lack of economic alternatives for paid
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596 INDIAN J MED RES, APRIL 2005
donors, but it is a policy superior to one focused
exclusively on banning commercial blood, which
would simply raise the price of blood and increase
economic hardships to the poor.
The three examples are not meant to suggest that
economic reasoning provides a complete explanation
of individual decisions about drug consumption, the
supply and demand for sex, and the quality of donated
blood.  These do, however, illustrate one of the
hallmarks of economists’ approach to policymaking:
the need to understand the mechanism that is
generating undesirable outcomes as a prelude to
effective policy design and implementation.  These
also highlight the fact that many practical policies for
HIV prevention may conflict with other social goals
and policies. For instance, decriminalizing the use and
possession of drugs and needles may promote drug
use; promoting information about sex and condoms
may enhance promiscuity; and policies promoting the
use of condoms in brothels may undermine the legal
status of prostitution.
Economic evaluation of HIV/AIDS policies and
concluding remarks
In thinking about appropriate policy interventions,
it becomes clear that good economic reasoning
encourages policymaking directed at underlying
problems, not merely superficial symptoms.  This
means taking account not only of the beneficial
consequences of an intervention, but also its
unexpected consequences, including any adverse
effects.
Supplementing these insights, economists also offer
a set of tools that are often extremely useful for
policymaking.  The tools of cost-benefit and cost-
effectiveness analyses, that compare the benefits of
a policy to its opportunity costs, are standard methods
utilized by economists to evaluate alternative policy
options. Cost-effectiveness analysis typically
compares an outcome indicator such as lives saved,
or disability adjusted life years averted that is not
measured in monetary units, with costs that are
measured in monetary units. This method ranks
alternative programmes in terms of their economic
efficiency in achieving a particular non-monetary
outcome.  Examples include studies demonstrating the
potentially high cost-effectiveness ratio of
programmes such as needle exchange programmes,
STD prevention and HIV prevention information
provision 64,65.
Cost-effectiveness analyses for health
interventions (including HIV/AIDS) are not always
useful for policymakers when the choice is between
alternative policies, some of which are being planned
in non health sectors, or across health activities whose
outcomes are not directly comparable. An example
is when a decision is being made regarding whether
to allocate funds to HIV prevention, for hospital
construction, or for bridge construction. In these
circumstances, cost-benefit analysis is typically the
method of choice since in this method both benefits
and costs are measured in monetary units. Several
studies that use cost-benefit analyses exist. A striking
example of such an analysis for the region was a
series of studies in Sri Lanka, which showed that
preventing HIV transmission via the screening of
blood used for transfusion, and the use of disposable,
instead of reusable injecting equipment in hospital
settings can yield benefits that are much greater
relative to costs35.
An alternative formulation of cost-benefit analysis
that yields a rate of return to the monetary investment
in the policy is also useful, and is referred to as the
internal rate of return (IRR) method.  By examining
the rates of return on alternative policy programmes,
a policy maker can adopt a simple rule to choose
projects: first, the policy with the highest IRR, then
the one with the second-highest IRR and so on, until
the budget is exhausted. Recent research provides
an example of the application of IRR methodology to
evaluating HIV prevention efforts in Thailand.  Under
conservative estimates of the impact of prevention
campaigns on changes in behaviour, the IRR on
Thailand’s prevention programmes was estimated to
be between 12 and 55 per cent. To the extent that
some of the behaviour change that took place in
Thailand would have taken place irrespective of any
intervention owing to individual preventive action,
these rates of return may be upper bounds to the true
returns on HIV prevention. On the other hand, if such
private preventive reactions were relatively slow to
597
occur, the revised rate of return that takes account
of such behaviour change would not be very
different.
The methods of economic evaluation discussed
above can be used to address other crucial policy
questions, including whether antiretroviral treatment is
cost-effective, and how treatment interventions
compare with prevention programmes. As one
example, a recent report by the World Bank assessed
the cost-effectiveness of three alternative anti-retroviral
treatment strategies in India, finding that the cost per
life saved ranged from $146-$280 in present value
terms. However, it is quite clear that these returns pale
in significance to the returns yielded by prevention
strategies, including promoting the use of condoms 6.
One can also inquire, using these methods, whether
there are greater returns from intervening earlier
rather than later, in the HIV/AIDS epidemic, and the
nature of optimal strategies involved.  Few analyses
of this type have been conducted this far in India,
although one can suppose  that prevention strategies
are more likely to be cost-effective and best introduced
early in the epidemic. A blood screening programme
is an obvious candidate, particularly at low initial rates
of HIV infection.  Less immediately clear are the
implications for a programme such as HIV/AIDS
information provision, or condom promotion. This is
because such an intervention may not influence
behaviour at risk for HIV infection if people perceive
the risks to be small, as is likely to be the case during
the very early stages of the HIV/AIDS epidemic. This
may suggest introducing the policy a little later. On
the other hand, in (relatively) high prevalence settings,
people are much more likely to be aware of and may
curtail risky behaviour even in the absence of policy
intervention, and so reduce the additional gains
brought about by policy change. This may call for
publicly supported prevention programmes to be
introduced early.  The net effect on the optimal timing
of policy will depend on the relative strengths of these
two effects, as well as concerns of financial
affordability, and whether people have freedom of
action. This last is not guaranteed for many women,
an obvious case being of brothel sex workers who
may be forced to have unprotected sex with their
partners.
The tools of economic evaluation discussed here
are just that – they help us in assessing interventions,
but they do not free researchers and policymakers
from the need to clarify the underlying mechanism
driving the epidemic.  For instance, perfectly sensible
programmes such as condom distribution and
information provision on safe sex practices may turn
out to be cost-ineffective if women’s inability to
influence condom use by their sexual partners, quite
commonly the case in India, is not simultaneously
addressed by the intervention. Analogously, if people
with HIV are discriminated against, or harassed by
the police, it would be difficult to introduce them to
cost-effective counselling and education programmes
that lead them to practice low risk behaviour, or
access services to improve their health.
Clearly, economics can contribute usefully to
thinking about and measuring the potential impacts
of the HIV/AIDS epidemic in India and in the
development of optimal strategies to address it.
Although at the present time, such research is sorely
lacking in India, we believe that a few salient points
do emerge from the literature discussed in this paper.
First, it is unlikely that effects on output due to AIDS
at the all India, or even at the state level, will be large
in the next 15-20 yr. Second, there may be sector
level effects, particularly in the health sector in the
form of growing use of health services and increased
public spending on health.  Perhaps most importantly,
AIDS will substantially lower the well being of
affected households and their members. Female
members of households and households belonging to
the poor and less educated groups appear to be at
especially high risk of bearing the economic burden
of AIDS. Policies aimed at ameliorating, or preventing
these effects are likely to be among the most cost-
effective.
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Reprint requests: Dr Ajay Mahal, Department of Population and International Health,
Harvard School of Public Health,665 Huntington Avenue, Boston MA 02115
e-mail: amahal@hsph.harvard.edu