Vaccination: Explicit and implicit rationing

There is a difference between subsidising a set of people who cannot afford to pay and subsidising across the board, setting prices artificially low.

Published: 24th April 2021 07:15 AM  |   Last Updated: 24th April 2021 07:15 AM   |  A+A-

A video circulated of a Delhi-based couple violating lockdown rules, defying instructions to wear masks and abusing cops when taken to task. This is a metaphor for our aggregate responses to Covid after the hump of the first phase seemed to be over around November 2020. Laxity was evident in government responses to social, religious and political gatherings that are collective in nature and individual citizens throwing caution to the winds, among others.

A second phase and a double mutant was bound to be back. Evidence suggested that. Indeed, Covid is back with a vengeance. If one thinks present numbers are scary, with more than 15 million infections, 1,86,500 deaths and over 3,00,000 daily cases (at the time of writing), one needs to think again. Positivity and transmission rates, especially for some states, indicate numbers will get worse. There are also question marks about testing and quality of mortality data. While these have always been problematic, laxity may have made it worse. Projections are fraught with problems, both because of uncertainty about the nature of the virus and about our aggregate collective response. For what it is worth, the second peak is unlikely to taper before July. Therefore, other than the obvious point about behavioral responses, what does one do?

If one goes by the dictionary meaning of the word antidote, a vaccine isn’t quite that. Vaccination against a virus is innately different from vaccinating against bacteria. Hence, vaccination doesn’t mean one can forget social distancing norms. Notwithstanding reports of individuals with both doses having contracted the infection, vaccination reduces the likelihood of an individual getting infected. If infected, it reduces severity. At the time of writing, there have been nearly 135 million vaccination doses, with around 115 million people in India receiving at least the first dose.

These are cumulative figures. What’s an achievable daily vaccination target? Probably something like 5 million and no more. One can do the mathematics and figure out how long it will take to achieve universal vaccination coverage. India isn’t Israel, which has now gone mask-less, with a significant share of the population having been vaccinated. Nor is India Bhutan, with a coverage of more than 65% (the number is more for eligible adults). India’s population size, geographical expanse and regional heterogeneity make those comparisons meaningless. Success in vaccination is a function of administrative delivery capacity and availability of the vaccine. At the moment, availability of vaccines means Serum Institute and Bharat Biotech. Imports, including Sputnik, are subject to question marks.

Most economics is about supply and demand curves. They set a market-clearing price and clear the market, performing an allocative function. Any price control, set administratively, distorts the market, unless the administratively determined price is set above the market-clearing price. In this instance, that clearly wasn’t the case. A market-clearing price is a function of the vaccine and company producing it. Under the newly announced Phase 3 vaccination strategy, companies will pre-announce the price.

Pending that, one dose is unlikely to cost less than Rs 1,000. Hence, Rs 150 or Rs 200 was set below the equilibrium price. Unfortunately, there is always a tendency to set prices low, under the presumption that people cannot afford to pay. There is a difference between subsidising a set of people who cannot afford to pay and subsidising across the board, setting prices artificially low. Logically, this means demand will exceed supply and there won’t be an incentive to produce. That shortage needs an allocative mechanism and, in practice, is nothing but rationing.

Therefore, the question of vaccinating the entire population did not arise. There weren’t enough doses. The first rounds of rationing were for those 60+ and it then changed to 45+ with co-morbidities. At the risk of provoking people, this is a relatively unproductive segment of the population. Productive segments are younger. If economic activity and livelihoods are to be protected, and knee-jerk reactions of lockdowns avoided, that segment needed to be vaccinated first. Stated less provocatively, a better rationing strategy, from an all-India perspective, would have been to attempt universal coverage in centres of economic activity and ignore the geographical rest. But that’s politically impossible and lack of data also constrains such focused identification.

Ostensibly, Phase 3 recognises producer incentives and creates a dual and segmented market, by offering 50% of production to the Union government (for subsidised 45+ immunisation) and the remainder to state governments and private immunisation programmes at a market-determined price. It allows cross-subsidisation and opens up immunisation to 18+. But there are catches. (a) It will take Serum Institute and Bharat Biotech time to scale up production, even if capacities meant for other vaccines are switched. Both companies have commercial export commitments and India has GAVI commitments.

Therefore, we will have to wait till at least September 2021 for a ramp up and even then, there will be a shortage. (b) Hypothetically, other dormant public sector manufacturers can be revived, but that takes longer. (c) The US has used the Defence Production Act to restrict imports of inputs and these cannot easily be made in India, not without long timelines. (d) With the WTO dormant, at least till now, invoking compulsory licensing provisions is complicated and messy. Only one conclusion is possible and this is realistic, not deliberately pessimistic. There will continue to be implicit rationing, albeit in a dual market. There will be rationing in how the Union government allocates its 50% to states. And there will be rationing in how the remaining 50% is picked up by state governments and private entities.

Bibek Debroy

Chairman, Economic Advisory Council to the PM. Views are personal

(Tweets @bibekdebroy)


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