Covid-19: How to meet vaccine costs?

In 2020, when the Covid-19 pandemic appeared to be coming under control, the vaccine story was developing. The government had assured the citizens that the entire cost of vaccination would be borne by the states and hence the 140 crore population would be protected. As vaccines came up for trials, pharmaceutical companies pledged their support to the country and said that profit would not be the motivating factor and the focus would be on producing vaccines.

Beginning 2021, as vaccines started getting administered, the story line took a new course. Both the government and industry started talking of the cost. Industry said that the first set of the stock was given to the government at a breakeven cost, if not loss, and they should be permitted to sell to others at market rates. The government changed track and brought in the concept of private centres charging Rs 250 for a single shot and government centres providing the same free of cost.

Late March things changed again, when infections started mounting, and it was realised that lockdowns would not help, especially so as there were large social gatherings encouraged by the State in various regions for different purposes. There was a vaccine shortage, and this is when the conversation course changed.

Pharmaceutical companies have spoken of aid from the government to produce vaccines as capacities are limited. This was the course adopted in the West, especially the US, where the government gave funds even before the research started. The government now has made it more universal in India in terms of age groups, but has devised a formula that will have some free vaccines, some at Rs 250, and the others at market prices which the states and the private sector can purchase based on quotas. There is ambiguity about whether the pharmaceutical industry is breaking even or not, as the Rs 150 per dose which was earlier considered to be profit-making has changed to Rs 600 today. The government and the industry can work this out.

Two issues stand out here. First, the government is looking at the fiscal numbers when changing the stance of ‘free vaccine for all’ to ‘free vaccine for some’. Second, pharmaceutical companies cannot be doing philanthropy at this scale as they have to make a nominal profit and it is the job of the State to ensure subsidisation of the product.

The big question, however, is how do we price the vaccine to the final user, which is the citizen? At one level, if 140 crore of the population were to get two shots (if 18 years is the cut-off, then 40% of the population would be excluded) at a manufacturing cost of, say, Rs 500 at the upper limit, then the cost would be Rs 1.4 lakh crore, which is 0.7 % of nominal GDP. As this would, broadly speaking, be a two-year exercise, Rs 70,000 crore per year is a cost that is doable for the government. In fact, the split between the Centre and the states will make it not more than 0.35% of GDP, and is insignificant when calculating the fiscal deficit. The Centre has provisioned for Rs 35,000 crore for this year, and if this amount is not going in administrative costs, it will actually cover the share for FY22. A simple solution is to just allow the states 0.35% of flexibility on fiscal deficit based on population to be vaccinated, and the basic cost of the vaccine can be absorbed without much ado.

The other route is to have differential pricing for the population based on the ability to pay. Several corporates have evinced interest in vaccinating their employees and families at their cost, which is a positive development. As this population is quite large, with the top 2,000 companies having a headcount of 4-5 million (around 50 million EPFO registered staff are there in the country), around 20-25 million can be charged a market price and the government can offer the sop of these funds coming from the CSR commitment. This is a win-win solution. Corporates, however, have to figure out how this can be administered and have to work through hospitals, but can pay a higher cost for the same.

There is another class of people who have the ability to pay a higher price, but avoid the inconvenience of rushing from centre to centre to get vaccination shots. Here, even a price of Rs 1,000 or Rs 2,000 per shot is not a concern, and while it may sound ‘siding with the rich’, a certain section can be made to pay and enable cross-subsidisation. This way, everyone gains: the private hospital finds it worthwhile (currently the Rs 100 taken of the Rs 250 does not cover overheads as it involves space and diversion of staff), the pharmaceutical company charges more here to subsidise the sale to the government, and the individuals don’t really mind the cost. There can be strict quota here where a pre-registration is required.

For the larger section of the population that have the ration card to denote being below poverty line or those who find the cost of Rs 250 or Rs 600 onerous, the government facility should be open where there is zero cost and where the allocation is the highest. Here, rather than have the Centre and the states divide the quota, there should be one bucket that is distributed to the states based on a criterion. This can be population of the state or population in the most infected districts, which the NITI Aayog can draw up so that there is a transparent system in place.

The progress of the infection cases looks scary as there is only hope of the number plateauing before coming down. Economic lockdowns, as had been witnessed last year, were not really effective which made the trade-off of lives and livelihoods extremely rigid. The only hope is to vaccinate people as fast as possible which is possible provided the doses are available.

For manufacturing the same, the pharmaceutical industry has to be incentivised as it requires money. Companies cannot make a loss to subsidise the government. Governments actually have no constraints except self-imposed ones on widening their deficits by making these provisions. The amount is not really much.  For states that honour leaders by constructing statues costing Rs 3,000 crore or more per head, spending on vaccinations cannot be questioned. The clue is to get all the stakeholders involved and create a pricing structure that is a win-win solution, which is possible. More importantly, there should be consensus here and no further delays.