Over the past few weeks, the second wave of Covid-19 infections and the acute shortage of vaccines had led to considerable public anger against the government.
Despite being fully aware of a potential vaccine shortage, the Union government had held back permissions for new vaccines, such as the Sputnik V, to be used in India. Instead, it relied disproportionately on the ability of two private companies – the Serum Institute of India and Bharat Biotech – to ramp up their production capacities.
The failure of these firms to supply adequate quantities of vaccines had resulted in several vaccination centres suspending operations and beneficiaries being turned away.
As a result, as developed countries are racing to vaccinate as many of their people as they can in the shortest time span, India is a laggard. As of April 17, the share of population vaccinated in the United Kingdom stood at 48.2%, at 38.2% in the United States and at 18.9% in Germany – but just 7.7% in India.
When Narendra Modi called for a tika utsav or vaccine festival between April 11 and April 14, the number of doses being administered during that period was actually lower than it had been on previous days in the month.
The policy shifts
This is the context in which the government on April 20 took the important decision to expand the vaccine rollout to every person above 18 years of age from May 1. At present, only people 45 and above can receive the vaccine. This decision has been welcomed by all.
However, more importantly, the Union government also announced a series of new measures that would essentially liberalise vaccine sales and deregulate vaccine prices. There is genuine fear that these new guidelines will make vaccines unaffordable and exclude millions of India’s poor from access to vaccines.
Until now, the Union government has been supplying vaccines to states free of cost. The Serum Institute, which produces a vaccine named Covishield, and Bharat Biotech, which makes Covaxin, were selling their products to the Union government at subsidised prices. Excluding taxes, Covishield was sold at Rs 150 per dose while Covaxin was sold at Rs 206 per dose.
However, both these companies were unhappy at being asked by the Union government to sell at these subsidised prices. They and other industry bodies were lobbying for the price ceiling to be removed and for the freedom to sell vaccines in the open market.
It should be noted that even the subsidised price of Covishield and Covaxin provided a normal profit per dose to both firms. Serum Institute CEO Adar Poonawalla confirmed this in an interview to NDTV on April 6.
“Is it still profitable today, on a per dose basis? Yes, absolutely,” he said. “…I would not say we are not making any profits, but we have sacrificed what we call super profits.”
He added that the Serum Institute would be content with normal profits only for “a temporary period”. On super profits, he said, “We can always make those profits after a few months.”
India’s plan to fragment the vaccine market across the states is mind-bogglingly bad economics
Vaccine manufacturers will now be able to play off one Indian state against the other. The rich will get their vaccines, at the cost of the poor.
Doing the maths
What would constitute a super profit? Poonawalla said that while the Oxford-AstraZeneca vaccine was being sold at present at about $ 3 per dose, “the average price of this product is $20 upwards in the world”. By “this product”, he was referring to the prices of other Covid vaccines.
For instance, Pfizer’s vaccine was priced at $19.50 per dose (Rs 1,431), Moderna’s vaccine was priced at $32-$37 per dose (Rs 2,348-Rs 2,715), Sinovac’s vaccine was priced at $14 per dose (Rs1,027 ) and Johnson & Johnson’s vaccine was priced at $ 10 per dose (Rs 734).
Compared to these prices, the subsidised price of Covishield in India is low and Poonawalla was staking a claim to have the freedom to fix the Indian price of Covishield at a much higher level than Rs 150 plus tax per dose. In an interview with ANI, he stated the expected price: “In the private market, for those who want to purchase the vaccine, the price would be ₹1,000” per dose.
Bharat Biotech’s Covaxin was developed by the National Institute of Virology, Pune, which is a laboratory of the Indian Council of Medical Research. Production was entrusted to Bharat Biotech. The company had agreed to supply the first 16.5 lakh doses to the Union government free of cost. For the remaining 38.5 lakh doses, it is charging Rs 206 plus tax per dose.
No estimate of the expected open market price of Covaxin is publicly available at this point, though prices of Covaxin too are expected to rise.
According to the Union governments decision on Monday, it will provide vaccines free of cost for only the first 30 crore vulnerable persons. After that, vaccines will not be subsidised as they are being at present. The Union government will be entitled to a 50% share of the vaccines being produced, while state governments will have to buy the remaining 50% directly from the vaccine manufacturers.
For this sale to state governments, “private vaccination providers shall transparently declare their self-set vaccination price”, the Union government said in a press release.
Rise in prices
Two questions immediately arise. First, will there be any ceiling on the “self-set vaccination price”? It appears not. In short, Union government has fully deregulated the vaccine prices after May 1.
If we go by Poonawalla’s expectation of “super profits…after a few months…”, the price of Covishield is likely to rise from Rs 150 plus tax per dose to close to Rs 1,000 per dose and Rs 2,000 for two doses, which is the course that beneficiaries are expected to take. State governments would have to pay this higher price and buy the vaccine from the Serum Institute.
Secondly, the Union government will allocate a certain quantity of vaccines to the states from its 50% quota. Monday’s press release provides no indication of whether this allocation would be free of cost. It is most likely that once the coverage of the first 30 crore persons is completed, state governments will have to pay the Union government for the allocations from the Central quota.
Either way, vaccine prices will rise sharply unless the state governments decide to subsidise the vaccine from their budgets. However, given the poor financial status of the states, they are unlikely to be able to shoulder this financial burden.
Assuming a vaccine price of Rs 1,000 per dose, purchasing two doses for 100 crore persons would collectively cost the state governments Rs 2 lakh crores. Thus, the most likely outcome is that high vaccine prices will end up excluding millions of people from voluntarily coming forward to take the vaccine.
There is another catch. If a private agent buys directly from the vaccine manufacturers, they will have to do so from the 50% of the production allotted to the states. While the press release notes in its title (though not in the text) that sales to states would be at a “pre-declared price”, it is likely that states will have to compete with private buyers of vaccines for the best price.
Though the Union government has not clarified this adequately, the pre-declared price may turn out to be just a base price from which states would have to bid with vaccine manufacturers, particularly given the limited production of vaccines and the inevitability of rationed supplies.
Shifting the blame
There is an additional reason the Union government appears to changed its vaccine policy. As mentioned earlier, all data show that the Union government was guilty of poor planning in anticipating the demand and supply of vaccines.
Several state governments have criticised the Union government for its inability to adequately plan the smooth flow of vaccine supplies. Public opinion about the Union government has already soured.
On its part, the Union government appears to have anticipated that vaccine supplies would not improve even by May and that it would increasingly become a subject of ridicule in the eyes of the state governments and the public. Prime Minister Narendra Modi clearly wanted to avoid this. Thus, Monday’s decisions were also a disingenuous attempt to deflect criticism from the Union government.
By asking the states to directly procure 50% of India’s vaccine production, the Union government can shrug off all responsibility for future vaccine shortages and transfer the blame on to state governments if they fail to procure stocks.
The Union government’s decision to deregulate vaccine prices in the midst of the pandemic is a generous gift to private vaccine companies. This gift is in addition to the Union government’s decision to provide new credit lines of Rs 3,000 crore to the Serum Instute of India and Rs 1,500 crore to the Bharat Biotech to help them expand capacities. Both companies are also likely to be among the recipients of the Union government’s research and development grants worth Rs 900 crore under the Covid Suraksha Mission.
Regardless of such generosity, the vaccine producers insisted on their right to make super profits, and the Union government has succumbed to the pressure.
R Ramakumar is a Professor at the Tata Institute of Social Sciences in Mumbai.