Price caps will choke supply; the Centre must bridge the gap between what vax-makers are charging & what the states can pay
The Centre has made ‘advance payments’ to SII and Bharat Biotech, but could offer additional support; at the very least, it could pay the asking rate.
At fewer than 3 million inoculations a day on several days in the past few weeks, the pace of the Covid-19 vaccination drive has slowed sharply; there are long queues at vaccination centres and BMC commissioner Iqbal Chahal told a television channel on Monday that Bombay was down to some 25,000 doses. It’s somewhat disquieting, therefore, to hear that the Centre wants to renegotiate prices with vaccine makers and ask them to cut prices for the next round of supplies. This is ostensibly in response to complaints by the states that they are being charged more than the Centre was. The Serum Institute of India (SII) has priced Covishield at Rs 400 per dose for state governments and Rs 600 per dose for private hospitals while Bharat Biotech is charging state governments Rs 600 per dose of Covaxin and private hospitals Rs 1,200 per dose. The Centre, however, had procured 110 million doses of Covishield from SII at Rs 150 per dose; so, the new prices are definitely higher.
Be that as it may, rather than ask the manufacturers to pare prices, the Centre should step in to pick up part of the tab; it can easily make good the difference between the price that the states pay and that charged by the manufacturer. India Ratings estimates the Centre has so far spent a little over Rs 5,000 crore for procuring 214 million doses; it pegs the cost of vaccinating 842 million—all above 18 years—at close to Rs 67,200 crore at Rs 400 per dose.
We can ill-afford any delay; moreover, the states’ finances are not in good shape. The Centre had allocated Rs 35,000 crore for spends relating to Covid-19 vaccination, and given the crisis, this amount can be topped up. Asking the vaccine-makers to cut prices is not a good idea. Indeed, price controls, in themselves, are not desired; we must rid ourselves of the notion that corporations are always profiteering and must stop being impressed by government enforcing price controls. Price caps can have deleterious effects on the supply of a product, leading to hoarding and black-marketing—the very last thing we need now. Given how the states have their hands full with the day-to-day management of a fast-deteriorating situation, they shouldn’t be burdened with another crisis of vaccine shortages. Unless a sizeable chunk of the population is vaccinated, it would be hard to arrest the infections. So, not only would producers be hit by price caps, consumers, too, would suffer because a significantly large chunk would not get access to vaccines; this is what economists call a deadweight loss. This paper has pointed out that it is critical to step up production of vaccines, and manufacturers can do that only if they divert capacity from other products to make the vaccines. Since that would result in a financial loss, it is only fair they should be compensated; SII CEO Adar Poonawala had indicated this would be about Rs 3,000 crore. The Centre has made ‘advance payments’ to SII and Bharat Biotech, but could offer additional support; at the very least, it could pay the asking rate.
At well over 3 lakh infections a day—even with very low testing levels—the Covid curve is not about to flatten anytime soon. With healthcare facilities across the country now collapsing, we must step up the pace of vaccinations. We may not be completely sure of the efficacy of these vaccines and their ability to fight the new strains but, for now, they are our best hope against the pandemic.