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Thursday, May 13, 2021

Free shots for all: This must be India’s vaccination strategy

It is bad enough that we depend on just two suppliers. What is baffling is that the government has now allowed them to set their own prices.

Written by Jean Dreze |
Updated: May 5, 2021 8:40:39 am
Why would we prefer central procurement to ‘liberalisation’?(Illustration by C R Sasikumar)

At a time when fair and speedy COVID-19 vaccination is of the essence, the Indian government has done a great job of putting us at the mercy of vaccine manufacturers. It is bad enough that we depend, as of now, on just two suppliers — the Serum Institute of India (SII) and Bharat Biotech. What is baffling is that the government has now allowed them to set their own prices — “whatever you want in terms of being reasonable and fair”, as SII chief Adar Poonawalla candidly explained in a recent interview to CNBC. For good measure, suppliers are also allowed to set different prices for different buyers (the Centre, states and private hospitals), enabling them to charge what different segments of the market can bear. This is the polar opposite of the “single-payer model” in healthcare, where the government tries to get the best possible deal from drug manufacturers by acting as the single buyer.

In the single-payer approach, the central government would order all the vaccines and then distribute them equitably between states, and possibly some private healthcare providers. This was, more or less, the situation in the first phase of the COVID-19 vaccination programme, when most of the vaccines were sold to the central government at a negotiated price of Rs 150 per dose. However, a radical change occurred on April 21 with the release of the central government’s policy note on “Liberalised Pricing and Accelerated National COVID-19 Vaccination Strategy”.

It is important to read the fine print of that policy, effective from May 1. The stated intention was clearly to supplement central procurement (limited to 50 per cent of vaccine supplies from then on) with a vaccine market where each manufacturer would charge one transparently declared price to all buyers other than the central government, that is, states and private hospitals. That intention, however, was defeated the very same day by SII, which announced different prices for states and private hospitals, with a much higher price (Rs 600 per dose) for the latter. And if suppliers can get a higher price from private hospitals, why would they take interest in selling to the states?

The danger of states being squeezed out was made worse by another aspect of the Centre’s new policy: It allows private hospitals to set their own prices for vaccination. Their prices will be “monitored”, but not controlled. In practice, monitoring is likely to be symbolic, giving private hospitals a free hand. In short, the stage has been set for a thriving vaccine market where private hospitals charge hefty prices for vaccination and manufacturers make money by selling a good portion of their supplies to private hospitals at inflated prices.

The central government’s policy note makes a virtue of “liberalised” pricing on the grounds that it will incentivise vaccine production. But production can equally be incentivised in the single-payer system by paying an adequate price — it’s just that the central government would have to foot the bill. So, the real function of this pricing policy is to save the central government some money. Why not tax the rich instead and foot the vaccine bill? It’s not a lot: Even if the price paid by the central government were to be raised from Rs 150 to (say) Rs 300 per dose, buying two doses for two-thirds of India’s adult population of 850 million or so would cost Rs 34,000 crore — less than what has already been allocated for COVID-19 vaccination in the 2021-22 Budget. Further, in a single-payer framework, the government would probably be able to negotiate a much lower price than Rs 300 per dose (perhaps even lower than Rs 150) without undermining production incentives.

Leaving the financial aspects aside, why would we prefer central procurement to “liberalisation”? The main reason is that it would lead to a more equitable distribution of vaccines in the population. Today, India is facing an acute shortage of COVID-19 vaccines. In the public sector, there is (or was, until now) a reasonably equitable system where vaccination is provided free of charge to everyone in expanding priority categories such as health workers, the elderly, everyone above age 45, and so on. In the private market, on the other hand, scarce vaccines are distributed according to their ability to pay: The poor are excluded as the rich jump the queue. The problem gets worse when private provision degenerates into an extortionate black market, as might happen in a situation of vaccine scarcity (much as with oxygen and COVID-19 medicines today).

If it were the case that expanded vaccination is held up by the government’s lack of capacity to vaccinate, rather than by a shortage of vaccines, there might still be an argument for promoting private provision: It would augment vaccination capacity. But the main constraint today is a shortage of vaccines. India’s public sector is perfectly capable of vaccinating en masse, if vaccines are available. This has been well demonstrated in earlier vaccination programmes, including some that involved 100 million shots in a single day.

As argued earlier, liberalisation does not really ease the shortage of vaccines, it just shifts some of the financial burden from the central government to private buyers. But the savings are at least partly illusory, since liberalisation also enhances the bargaining power of manufacturers in public procurement negotiations. In any case, trimming the vaccination budget is hardly a priority when COVID-19 threatens to sink the economy.

The central government’s vaccine policy is an extension of liberalisation to a domain where it does not belong. The way it came about, as Adar Poonawalla revealed in the CNBC interview, is that the private sector “lobbied” (sic) for it. As far as the public interest is concerned, free vaccination at public health centres is a much better strategy. Any proposed departure from it should be examined “not only with the most scrupulous, but with the most suspicious attention” as Adam Smith wisely advised us to consider business-sponsored proposals many years ago.

This article first appeared in the print edition on May 5, 2021 under the title ‘Needed: Free jabs for all’. The writer is visiting professor at the Department of Economics, Ranchi University

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