Vaccine Pricing: Why The Latest Policy Changes Seem To Have Balanced Various Objectives Well

Ideally, Covid vaccination should be given free to everyone in India since public health is involved. Indeed, in a pandemic which respects and knows no border, every affluent country, especially those which have stockpiled vaccines by preordering, must help the vaccine have-nots wholeheartedly now that its own people have been vaccinated or can be vaccinated with the ample stock at its disposal. In other words it must practice at least the back-handed version of charity, as it were, which consists in donating the leftovers.

Covid mutant strains have the knack of sneaking in afar insidiously and contagiously. Be that as it may.

Unfortunately, India finds itself in a situation where it cannot vaccinate it entire eligible population in a relatively short duration due to its humungous population that is four times that of the US. Indian manufacturers are ramping up production, which still will take a couple of months to hit peak rollout.

In the meanwhile, the government did a fine balancing act by unveiling a new vaccine policy under which the central government would procure 75 per cent of the domestic production (at Rs 150 per jab) and distribute them free to the states leaving private hospitals to procure the remaining 25 per cent. And the private hospitals will have to pay what the manufacturers demand and get in a crunch situation not with a view to profiteer but to compensate for the losses entailed in cheap supply to the central government. Thus Rs 600 per dose charged by Serum Institute and Rs 1200 per dose by Bharat Biotech seem to be justified prima facie. The latter perforce has to charge double given its smaller stature in terms of volume. It is a volume game at the end of the day when it comes to pricing.

To the dyed-in-the-wool economists two things stand out----cross-subsidy to the poor and incentive to the domestic manufacturers, especially Bharat Biotech, which is working on its own invention together with ICMR for commercial production.

Any government has to balance the conflicting interests of the poor and the domestic manufacturers. This it has done by making 75 per cent vaccine available free through state government facilities and the remaining 25 per cent to private hospitals who in fact would be the instrumentalities compensating the domestic manufacturers for the inevitable loss in selling virtually at cost to the central government. In the process all the three stakeholders have been taken care of:

• The poor through free jabs;

• The relatively well-heeled and who also want quick jabs; and

• The domestic manufacturers.

The private hospitals are not only going to recover higher vaccine prices they have to pay but also recover their salary and other overheads for which the government has permitted a maximum of Rs 150 per shot which Rahul Gandhi has taken a potshot at. In the ultimate analysis, those who pay say Rs 750 per shot for Covishield or Rs 1350 per shot for Covaxin at private hospitals are cross-subsidizing those who are getting them free at government facilities.

They are in a way giving up their claim on free vaccine both in the larger national interest as well as in their own enlightened self-interest which consists in getting vaccinated as early as possible to get immunity from the raging virus as well as perhaps to shun the relatively crowded public facilities.

This is of a piece with the give-it-up LPG gas subsidy initiative as well as give-it-up senior citizen concessional fare initiative on the Indian Railways. It is a virtuous cycle---the higher price paid by the well-heeled funds the poor and keeps the bio reactors at the manufacturers churning the vaccines. It is a small sacrifice they happily take in their strides.

Cross subsidy marks every walk of our life. US Universities give education to its own nationals at 25 per cent the fee they charge from foreign students. Airlines earmark a portion of their aircraft space for first business class travelers thus subsidizing the economy class fliers. The 25 per cent well-heeled who are getting vaccinated at private hospitals in India in the ultimate analysis would be sustaining the interest of the domestic manufacturers besides helping the poor get their shots free.

Indeed income tax itself is the classical albeit unstated example of cross subsidy---it is collected from those who have the capacity to pay and spent on welfare schemes designed for the poor besides of course bankrolling government expenditure and projects. Sometimes of course it proves to be counterproductive as is the case with fuel taxation in India----the higher taxes purportedly meant to help the government run welfare programmes for the poor alas hits the latter hard because higher fuel prices translates into higher prices of essential commodities as well. Net-net, cross subsidies serve a purpose and cannot be wished away.