What explains the sudden U-turn of central govt on covid vaccine policy

What led to this sudden U-turn?

The answer perhaps lies in the fact that the Supreme Court has been asking tough questions to the government on its vaccine policy. Also, it was a bad policy, to begin with. And very importantly, it wasn’t feeding into the government’s narrative of all is well.

Let’s examine the issues involved in detail.

When it came to those between 18 and 44, the state governments had to purchase vaccines on their own. Of the vaccines manufactured in India by Serum Institute (Covishield) and Bharat Biotech (Covaxin), state governments could buy 25% of the supply. The remaining 25% was available to private hospitals. This created a whole host of problems. Let’s look at this pointwise.

1) It created intense competition in a market as there were just two suppliers in the country. Clearly, this did not make any sense. The central government, in an affidavit to the Supreme Court on 9 May, said: “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."

Economists use the term monopsony to describe a situation when there is only one buyer in the market. When it came to vaccines for those in the 45 and above age bracket, the situation was a monopsony as the Central government was the only buyer and could negotiate good rates for covid vaccines with the two companies selling the vaccine. The companies were happy to oblige, given that it allowed them access to the big Indian market.

But when it came to those between the ages of 18 and 44, every state government had to purchase vaccines. This created a situation where many states (and Union territories) were looking to buy vaccines simultaneously in a market largely limited to two suppliers. Some state governments tried to approach companies whose vaccines aren’t currently available in India, and they were politely told by the companies that they deal only with Central governments.

On 31 May, this essentially led to the Supreme Court saying that the Central government justified the lower prices at which it bought vaccines because of its ability to place large purchase orders. This raises the question of why this rationale can’t be used for procuring vaccines for all age groups, the Court said. What’s good for the goose is good for the gander.

2) The central government’s justification for the so-called liberalized vaccination policy, where state governments had to purchase vaccines on their own for 18-to-44-year-olds was that higher prices would encourage competition, attracting more private manufacturers to the market and eventually driving down costs.

This thinking makes sense in a free market where anyone with the right amount of capital and drive can enter the market where prices have gone up thanks to a supply problem and increase supply and drive down costs. This is precisely what happened when it came to masks when the first wave of covid was spreading through the country. Prices first went up as masks disappeared from the market, and then they gradually came down, as more manufacturers entered the market attracted by the higher price. This led to an increased supply, and masks are now available for a reasonable price.

But this theory doesn’t work for vaccines because anyone and everyone cannot start producing them overnight. Also, as the Supreme Court told the government on 31 May: “

The justification for this policy has been adduced in a bid to spur competition which would attract more private manufacturers that could eventually drive down prices. Prima facie, the only room for negotiation with the two vaccine manufacturers was on price and quantity, both of which have been pre-fixed by the central government. This casts serious doubts on Union of India’s justification for enabling higher prices as a competitive measure."

The competition argument doesn’t hold in this case.

3) The current policy discriminated between citizens based on their age. As the Supreme Court had said on 30 April: “The vaccinations being provided to citizens constitute a valuable public good. Discrimination cannot be made between different classes of citizens who are similarly circumstanced on the ground." The Court had then said that under the right to life (which includes the right to health) under Article 21 of the Constitution, the central government should procure all vaccines and negotiate the price with vaccine manufacturers.

Further, “once quantities are allocated by it to each state government, the latter would lift the allocated quantities and carry out the distribution. In other words, while procurement would be centralized, distribution of the vaccines across India within the States/UTs would be decentralized."

4) A major part of the vaccination for 18-44-year-olds depended on private hospitals, which are not equally spread out across the country and are often limited to cities with large populations. This explains why a bulk of vaccinations continue to be carried out by government hospitals and clinics, despite the private hospitals being allowed to buy 25% of the supply.

Also, while large private hospital chains may have the wherewithal to talk directly with the vaccine manufacturers and arrange for purchases, the same is not true about the smaller hospitals and nursing homes. Hence, Jaideep Gupta and Meenakshi Arora, Amici to the Supreme Court pointed out: “The quota of 25% that is available to State/UT Governments, which is equivalent to the private hospitals is extremely disproportionate and not in touch with societal realities, as a large number of persons may not be able to afford two doses of a vaccine from a private hospital."

5) This disproportionate access to private hospitals also led to a situation where the hospitals got into tie-ups with big corporates and vaccinated their employees and families. This also led to a situation where enough vaccines were not available for the common people through the CoWin app. The policy incentivized the hospitals to sell at a higher price.

A point that Supreme Court made on 31 May: “Private hospitals also may not sell all their vaccine doses publicly through appointments on CoWin, but rather sell them for lucrative deals directly to private corporations who wish to vaccinate their employees."

In Mumbai, where I live, if you are in the 18-44 age group, all through May, it was next to impossible to get a booking through the CoWin app. Nevertheless, corporates seem to have been vaccinating their employees everywhere.

6) Before vaccination was opened up for 18-44-year-olds, the private hospitals were allowed to charge only ₹250 per dose. Once private hospitals were allowed to buy directly from manufacturers, this ceased to exist. Prices went up and, in some cases, went as high as ₹1,800 per dose. While it is okay to argue those who can pay in a market where there is no supply problem, this created a clear access problem, with the high prices ensuring that many people won’t take the vaccine even if they wanted to.

Monday’s announcement put a service charge cap at private hospitals of ₹150 per dose.

All these reasons clearly show that there was enough wrong with how the current vaccine policy was designed and administered. On 31 May, it led to the Supreme Court directing the central government to explain: “The Union Budget for Financial Year 2021-2022 had earmarked ₹35000 crores for procuring vaccines25. In light of the Liberalized Vaccination Policy, the Central Government is directed to clarify how these funds have been spent so far and why they cannot be utilized for vaccinating persons aged 18-44 years."

This is basically this, and other reasons explained above led to the U-turn by the central government on the vaccine policy front. In a way, it was trying to pre-empt what the Supreme Court would have to say the next time it met on this issue.

Of course, the spin now being administered is that they did this in the first place because the state governments asked for it. But that’s a feeble defence of a bad policy. Anyone who understood some basic economics and the concept of equality could have told the central government on the day it decided to implement this policy.

Also, state governments ask the central government to do a lot of things. But the central government doesn’t always oblige. It shouldn’t have in this case as well, assuming that many state governments asked for this in the first place.

The good part is that we are finally back on track on the vaccine policy front, though supply will continue to be a problem over the next month or two. The bad part is we have already lost a couple of months. This could have been done from day one.

Vivek Kaul is the author of Bad Money.