These are tragic times. Our public policy responses to the pandemic have so far also been tragic. And this is especially true in the case of our new vaccination policy, which came into effect on May 1. It is a policy that fragments the market, lets private hospitals charge for vaccines without price caps and takes the onus of vaccination away from the Centre. We have written about it earlier, here and here, as have others elsewhere.
One piece arguing in favour of the new policy recently caught our attention. It was written by Ajay Shah and Amrita Agarwal, and it appeared in the Business Standard. Having read the piece, we had some questions. We outline them here and hope to get a response, either from the authors, or indeed from anybody who might be able to supply them.
We are particularly keen since we wrote this and predicted the dire consequences of the new vaccination programme. Inequitable distribution, a drying up of supplies in the public market, and in the short run, an increase in price without a commensurate increase in quantity – each of these have now come to pass. It is little consolation to us that we were right and many other eminent economists and public health experts are in agreement with our diagnosis and predictions.
First off the bat, however, is the fact we are in complete agreement about one point. The authors point out that winning the war against the virus can only be achieved through vaccines. About this, there isn’t – indeed, cannot be – any debate. Vaccines need to be manufactured, procured and distributed to all Indians as soon as possible. We find ourselves in complete agreement about what needs to be done. It is the “how” that has proven to be rather more contentious.
When it comes to the “how”, we find ourselves with plenty of questions. We have questions about the demand for (and procurement of) vaccines, the supply of vaccines, the price of procurement for these vaccines, and finally the strategy that the authors recommend. We will address each in turn, beginning with demand.
The authors approvingly note that the April 23 order about India’s new vaccination programme gives “freedom to private persons and state governments to buy vaccines.” The entire article contains multiple references to the fact there will be multiple buyers in the market, and that this is a desirable state of affairs. As they put it, it will “unlock the energy from varied Indian buyers — states, firms, communities, and individuals — and increase their accessibility to global supply”.
To us, this makes no sense.
As we have pointed out earlier, it would make no sense for each stand-alone McDonald’s restaurant to try and procure the raw ingredients required to make burgers. Efficiency is unlocked precisely because procurement is centralized. Covid-19 vaccines aren’t burgers, of course. They are currently a commodity that is much more inelastic in supply, and also much more inelastic in demand. Why then will decentralising procurement be a better outcome, whether from the perspective of the buyer or the regulator?
Consider the confusion surrounding our procurement policy. Our Health Minister has stated that all Indian states and UT’s are or will be negotiating prices and quantities of covid-19 vaccines. The government that he is a part of has put out an affidavit (see pt. 17) stating the exact opposite.
If, as per the affidavit, states are not free to negotiate prices, then how does one negotiate on quantities? If, as per the Health Minister’s statement, states are free to negotiate prices, then how do we ensure equitable domestic procurement across states? How can we hold a private monopolist supplier accountable for equitable allocation to states?
As if this wasn’t bad enough for the states, they’ll also be competing with private Indian entities. There’s more: the states and the private entities will also be doing this separately with the handful of global vaccine manufacturers that currently exist. Does this not increase transaction costs, and weaken the bargaining ability of the many entities involved on the buy side? Under which economic model is this desirable?
Worse, decentralised procurement will mean that states and private entities will have to price in fluctuating demand requirements. As caseloads and case fatality rates change across the country (and it is inevitable that they will), states will have to keep trying to renegotiate quantities, prices and the schedule of deliveries – assuming they are allowed to do so. That is, they will have to solve for procurement and compete for allotment at the same time.
It is or should be, at any rate a well known fact in public policy that multiple objectives serve to reduce accountability. In plain, non-economist English, states cannot be held to account for failure to distribute, since they can always point to the inevitable inability to acquire.
For all of these reasons, we strongly disagree with the notion that decentralised procurement is a good thing.
Next, the supply of these vaccines. The authors point out that
“Covid management may shape up as one booster/year per person. Indian buyers should plan for this scenario. In countries such as Israel and the EU, long-term contracts have been established with Pfizer and Moderna towards this purpose. Indian buyers need to demand that global vaccine makers track the variants prevalent in India for these long-term booster vaccine contracts.”
Our first question would be about the need to engage with global manufacturers in a market that is as supply constrained as this one clearly is. The Indian government’s ability to negotiate with local manufacturers is naturally far higher than with global players, and we should be looking to utilise this advantage to the fullest.
Second, even if we were to negotiate with vaccine makers (global or national), who is more likely to succeed? More than thirty Indian states negotiating separately, or the Central government with a naturally much larger order? In fact, in an affidavit submitted to the Supreme Court recently, the central government itself makes this point:
“It is pertinent to note that the Central government by nature of its large vaccination programme, places large purchase orders for vaccines as opposed to the State Governments and/or Private Hospitals and therefore, this reality has some reflection in the prices negotiated.”
Onwards to the price for these vaccines. The authors say that:
“The Johnson & Johnson and Sputnik vaccines are being sold globally at $10 per dose. Indian buyers should be willing to pay $15 per dose to get fast delivery of high quantities. Paying higher prices would also increase domestic and global suppliers’ ability and willingness to scale up production at the earliest.”
Why $15? That is, why stop at $15? If increasing the price that we are willing to pay gets us fast delivery of high quantities, and if getting everybody vaccinated is clearly a desirable state of affairs, then what is the rationale for stopping at $15?
Let us be very clear: we do not ask this question frivolously. In all seriousness, what is the economic model or rationale that says that a price increase of $5 is the optimum amount? Is it $15 for every procuring state/entity, irrespective of quantity demanded, and irrespective of delivery schedule? If yes, on what basis? If not, then how do we expect it to differ, and how does this impact people living in different states in this country? If it affects Indian citizens differently in terms of prices, quantities and delivery schedules, how do we reconcile this with the fact that this is a national emergency? Will we have dynamic pricing for vaccines, like the stock or the commodity markets?
Are private entities allowed to acquire and sell onwards to other private entities, i.e, trade in vaccines? Or to the states? If no, why not? If it is a liberalized market, surely this should be allowed! And if yes, then have we thought through the economic, moral and political consequences? Should, at the margin, at least some consideration be given to the fact that the AstraZeneca vaccine is being sold globally at an average price of around $4? Does this reference price enter whatever calculations have been made to assert that a price of $15 is justified (even if that is for a different vaccine)?
Finally, and most importantly, each of these questions stems from the choice of strategy that has been made by the authors. They favor a decentralized, market driven, voucher-based approach to the procurement (and therefore allotment) of these vaccines.
First, the voucher based system. The authors say that:
“There is a public health objective and equity objective of influencing the vaccine purchase decision of super-spreaders, at-risk populations, and the poor. These should be addressed through vaccine vouchers. Vaccination vouchers should be given under Pradhan Mantri Jan Arogya Yojana (PMJAY), state insurance schemes, and Employee State Insurance Scheme (ESIS).”
Our response: simple systems are easiest to build and deploy, and complexity ought to be added in based on experiences gathered, to paraphrase Gall’s Law. What are the benefits in trying to implement a voucher based system as opposed to a universal vaccination programme? Have these benefits been measured against the costs? Have the costs and benefits of a simpler-to-administer universal vaccination programme been taken into account? What is it about India that makes us uniquely suited to this particular model, in opposition to the rest of the planet?
Second, the Supreme Court, in In Re: Distribution of Essential Supplies and Services During Pandemic (Suo Motu Writ Petition (Civil) No.3 Of 2021) asks if any studies and figures were relied upon to arrive at the conclusion that this strategy would be best for India under the present circumstances.
It is a question we would like to ask and expand upon ourselves. Neither Israel nor the EU – both having been held up as examples worthy of emulation in the article – have adopted the strategy recommended by the authors. Indeed, we aren’t aware of any country that has adopted the strategy that is being recommended. We ourselves haven’t adopted this strategy in the past for any of our vaccination programmes and none of the global health bodies which have studied and implemented immunisation programmes has recommended this.
For us to adopt such a strategy during a period of such unprecedented crisis, there must surely be precedence for it. What is that precedence? And if there is no precedence, then what is the underlying model that proves that this approach is better? And if neither exist, then why has this route been recommended and adopted?
We eagerly await responses that will help us answer these questions.
Ashish Kulkarni teaches courses in economics and statistics at the Gokhale Institute of Politics and Economics, Pune, and blogs daily at econforeverybody.com
Murali Neelakantan is the principal lawyer at amicus. He was formerly global general counsel at Cipla and global general counsel and executive director at Glenmark.
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