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Abstract
Health is considered to be an extremely important component of human welfare. By the
time India gained independence in 1947, achievement of good health had become an
important national goal in its own right. Nevertheless, a vast public health infrastructure in
India comprising of 145,000 Sub-centres, 23,000 Public Health Centres (PHCs) and 3222
Community Health Centres (CHCs) is estimated to be able to cater to only 20% of the
Indian population. There have been numerous attempts to understand and analyze the
causes underlying the failures of the health policies and thereby to provide meaningful
solutions. While most of the earlier attempts to understand health look at the role of
public and private institutions in the provision of health care, the focus of this paper is to
identify the role that households play in determining their health status and the
macroeconomic effects this decision can generate. The paper uses a CGE framework to
simulate the effects of complete tariff liberalization in the presence / partial withdrawal /
complete absence of health subsidy. Among major conclusions, this paper finds that
complete subsidization of health reduces overall disparity by favoring rural households
over urban. Withdrawal of health subsidy leads to domestic re-allocation of poverty
pushing down the wage rates in agricultural sector, the main stay of rural households.