COVID-19 Vaccination- Steps to Improve the Pace of the Programme

[Read this post to understand the factual background of India’s vaccination programme]

[Note- From 1^st April, 2021, everyone above the age of 45 is eligible to get the vaccine]

The Government has capped the price of each vaccine dose at Rs. 250. Besides, only the Government can control the procurement of both the vaccines and distribute the same to the vaccination centres (private or Government). The hospitals charge Rs. 100 as a service charge, while Rs. 150 goes to the vaccine manufacturer. Therefore, the entire process is heavily centralised. As I am writing the article, just 6.5 crore people have been given doses, and the average over the last few days has been just over 20 lakhs. At this pace, vaccinating 30 crore people (which will require 60 crore doses) till July is improbable. Much, in this regard, has to do with the control-freak mindset of the Government and populist politics, resulting in improper interventions.

First, the Government imposed a price-cap at a meagre Rs. 250, ostensibly for political and electoral purposes. Second, it restricted the supply of vaccines to a particular age-group to solve the demand-supply mismatch it had created in the first place. Third, it continues to focus on centralisation and controls when it should instead be performing other essential functions.  

IMPACT OF PRICE CAPS ON INDIA’S VACCINATION PROGRAMME

A price cap of Rs. 250 was viewed negatively by the vaccine manufacturers. In January 2021, Adar Poonawala, the CEO of the Serum Institute of India (SII) had said that Covishield would cost around Rs. 1,000 in the private market. As per another report, an official from the Health Ministry confirmed that the estimates presented to them by the private hospitals envisaged a price of Rs. 400 per dose, including an administration cost of Rs. 100. Hence, it is clear that the cap is unconscionable for the manufacturers and the private healthcare facilities.

The vaccine manufacturers were not happy with the terms and expect the Government to subsidise them. According to a few healthcare experts, the lower price cannot cover the manufacturing and distribution overheads, thus causing prejudice to companies that developed a vaccine in record time, while others say that the cost of production and distribution will easily be covered by the price cap. “Even if doses are priced well above cost, courts and governments should not worry about the rich getting the vaccine first in the market. Unlike other essentials, vaccines provide a huge positive externality, and also protect the unvaccinated.”

The 2021-22 Union Budget set aside Rs. 35,000 crores for COVID-19 vaccination, but it is unclear on its coverage. Assuming that the amount is for the priority population, i.e., 30 crores people, the cost of a single dose would be around Rs 500-600. Thus, a cap of Rs. 250 is surprising. In fact, it is unclear how the Government even arrived at this figure, as it refused to share details upon an RTI filed by a journalist.

As a logical next step, the Government subjected the private sector to the same constraints it imposed upon itself in the inoculation programme, i.e., rationing the supply of vaccines to people above the age of 60 and in the age group of 45-59 with co-morbidities [From 1^st April, everyone above the age of 45 is eligible for vaccination]. As reported by Economic Times, the CEO of a small vaccine firm was also of the view that the industry must be allowed to compete for price discovery when the vaccination is allowed for all age groups.

It is perfectly fine for the Government to identify the priority groups (based on social and political considerations) and run its free vaccination programme to cater to that group. However, depriving adults who do not fall in the designated age group to procure vaccines privately is simply reducing the benefit to society.

Consider this– the percentage of vaccine wastage in certain states such as Andhra Pradesh (11.6%), Telangana (17.6%), Uttar Pradesh (9.4%) is very high compared to the nationwide average of 6.5%. As per the Ministry of Health, the main reason for wastage in India is the number of doses per vial. Covaxin has 20 doses per vial, and Covishield has 10 doses per vial, which have to be administered within 4 hours of opening. Some of these doses are wasted because of low turn-outs, and every dose wasted is a possible opportunity lost for another person to obtain the same. [I am personally aware of hospitals that are willing to give away vaccines to people under the age of 45 because of low turn-out rates].

Further, as argued by noted economist Ajay Shah, it is futile to assume that the policy-maker knows the ‘correct order’ of priority groups that must be administered the vaccine. People perceive their threats differently. The demand for the vaccine is shaped not just by its price but by the odds of the person turning out positive. A person who has recovered from the disease, or realised that the people she interacts with daily have recovered, will be willing to pay far lesser for the vaccine as she feels relatively safe. Similarly, threat perceptions vary depending upon a person’s occupation. A teacher, for instance, is more likely to pay for the vaccine given that her job involves a high level of physical interaction. Similarly, a person below the age of 45 may have a high willingness to pay for the vaccine because of a co-morbidity. A central planner does not know where the demand for vaccines might arise, and hence, it must allow the private market to figure it out by itself.

Now, a possible counter-argument may be that the slow pace of vaccination is a manifestation of ‘vaccine hesitancy’ rather than ‘price caps.’ Vaccine hesitancy, in the present case, has arisen due to the vague and ad-hoc approval process coupled with the possible threat of adverse effects post immunisation. The phenomenon, in general, is well-documented in India and also has to do with socio-cultural notions and superstitions. While the argument is perfectly logical, this is all the more reason for the Government to unshackle the private sector and allow them to sell their vaccines to every adult. The shortfall in turn-out in the designated groups can easily be offset by others who are not currently eligible to get the vaccine and maximise the gains to the society. Also, ‘vaccine hesitancy’ must be tackled through other policy instruments, as explained later.

There are other advantages that come along with deregulation. It will allow charitable trusts, companies, and businesses to undertake the vaccination costs of their employees in a bid to begin operations quickly. For instance, Swiggy has pledged to cover the vaccination costs of about two lakh delivery partners. Similarly, Reliance made a promise of vaccinating their employees and family members (estimated to be around 12 Lakhs). These are just two prominent examples. However, until the Government allows the purchase of vaccines from the open market, these efforts cannot fructify efficiently.

Now, there are two market failures that can arise when the Government pursues price deregulation and does not impose any price caps as has been done- uncompetitive market practices and positive externalities. I deal with them in the next section.

MARKET FAILURES AND SOLUTIONS

At the outset, it must be noted that the price caps were imposed without affording the free market to function in the first place. Hence, the decision cannot be attributed to a market failure, and the approach was wrong on a first-principles basis. The Government should have refrained from intervening without demonstrating a market failure. Be that as it may, a free market for private vaccines can lead to two market failures- positive externalities and uncompetitive market practices (since there are only two firms authorised to sell vaccines in the country).

The latter can be resolved easily since there are many vaccines in the pipelines that will soon hit the Indian markets. Sputnik V (a Russian vaccine), for instance, is completing a bridging trial on 1,500 participants in India and seeking an Emergency Use Authorisation (which was provided to the current vaccines). About 350 million doses of the vaccine can be produced in India by the end of this year. Another promising candidate is ZyCov-D, which is currently completing Phase-III trials. The company expects its vaccines to hit the markets in May. About 150 million doses of the vaccine can be produced in a year.

Apart from these, India can import vaccines such as J&J (which is single-shot and hence, logistically feasible) and Pfizer (which can be stored at higher temperatures). Both these vaccines can be granted EUA, as they have proven to be very effective in various countries. Also, Covishield and Covaxin have a capacity of about 1.2 Billion and 150 Million doses by the end of this year. With many candidates, the supply of vaccines will improve, and so will the competitiveness of the Indian manufacturers. It will also allow people more options to choose from in the private market, thus freeing up supplies for the Government, which it can use for its free vaccination programme.

The former requires Government intervention, but it can be achieved in a non-intrusive manner. Positive externalities refer to the benefits that accrue to society when a private individual is vaccinated. Whenever an individual is vaccinated, he/she protects not only himself but the people around him as well, as the chain of transmission stops at him. A free market, left to itself, underproduces things that have positive externalities. For example, individuals tend to under-invest in education, as they do not factor in the social benefits of their education. Therefore, the Government funds education by running its own schools for free.

Ideally, in the case of vaccines, the private market would be allowed to fix its own prices without interference from the Government. [1] The initial demand would be very high, given the perceived benefits from the vaccine. Let’s say, for instance, that 40 % of the population gets vaccinated, but beyond that, no person is willing to pay more than his/her private benefit from the vaccine. [Note that a significant amount of societal benefit has been generated already, and threat perceptions have decreased, thus affecting demand]. The Government can then step in and cover the difference with a voucher (an often-used method to solve the externality problem). After that, if herd immunity (which experts believe can be achieved at a minimum of 70 % coverage) has not been achieved, the Government can run a free vaccination programme for the rest of the population.

In the present case, the Government is already running its free programme, so the externality problem does not arise. If run efficiently, along with a de-regulated private sector, they can cater to the people who are not willing to pay beyond their private benefit.

WHAT ROLE SHOULD THE GOVERNMENT PLAY?

The Government’s primary objective currently must be to tackle the widespread vaccine hesitancy and low-turnouts at vaccination centres. As per the World Health Organisation (WHO), vaccine hesitancy is defined as ‘delay in acceptance or refusal of vaccines despite availability of vaccination services.’ It needs to target people who are genuinely worried about the safety of the vaccines and the ones who fail to turn-up because ‘it is too much of an effort.’

Now, the Government’s strategy to nudge people to get vaccinated would depend on various factors, including a well-funded information campaign and confidence-building measures. It can take inspiration from the steps adopted by the State Governments of Goa and Maharashtra. As reported by PIB, “Maharashtra and Goa have chosen to take the creative route to ensure the key messages are shared using popular art forms to find resonance among local communities. Cultural troupes have been deployed to perform street plays in local languages to get advocacy messages at 11,400 strategic locations across 36 districts of Maharashtra and 2 in Goa through the month of February to May 2021 in a unique outreach advocacy programme.” The outreach campaign must be information-oriented, and threats (of IPC and Disaster Management Act) must not be used as a tool to fight vaccine hesitancy. The Government needs to put across the message that the vaccines may not protect against the infection but are a sure-shot immunity against death. Also, the question of ‘who is communicating’ becomes crucial, as people generally tend to trust the scientists and the doctors and dis-trust the politicians.

Another way is that the Government can make vaccination a default choice and make people actively choose not to get vaccinated (as suggested in ‘Poor Economics’). The authors, Abhijit Banerjee and Esther Duflo, expound on the idea expressed in Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard Thaler and Cass Sunstein in the following terms“An important idea is that of default option: The government (or a well-meaning NGO) should make the option that it thinks is the best for most people the default choice, so that people will need to actively move away from it if they want to.” In the same chapter, they also noted that a large number of persons in the rural areas did not come for vaccination as they would rather go to work and earn a wage. Thus, a nudge strategy can be effective for such people. Perhaps, imposing a small cost (in the form of fines) if they fail to make a choice can further improve their willingness.

The Government must also focus seriously on the First-Dose-First (FDF) Approach. In simple terms, this means that the Government must delay the second dose of the vaccine to ensure that the maximum number of people get the first dose quickly (this will provide adequate protection to two people, instead of complete protection to one and zero to the other). From 1^st April 2021, this approach will be partially followed, as the second dose for Covishield has been extended to 8 weeks compared to 6 weeks earlier. But there is a scope for increasing it further to 12 weeks. “India already has a large window of 12 weeks to prioritize the first dose, because the Oxford-AstraZeneca (Covishield) vaccine is 76 percent effective after the first dose and 82 percent effective with the second dose after a 12-week interval. When the second dose was given within six weeks after the first one, the effectiveness was actually lower—54.9 percent.”

In India, the Government has resisted a further increase because it does not face any scarcity of vaccines which the other countries do. However, the logic is flawed, as prioritising first doses can help achieve herd immunity much faster. In fact, abundant production is the reason why an FDF in India can be immensely beneficial.

Further, the Government, if need be, can use the private hospitals for their programme to increase the programme’s reach. But they must ensure that the manufacturers are adequately subsidised, so that they are not disincentivised in the future. As posited in this article, there can be several distribution strategies- “reimbursing the poor for getting vaccinated, reimbursing private vendors for each patient administered, setting up a government-provisioned free vaccination drive, etc.” But, as has been argued through the article, allowing a private vaccine market to develop simultaneously is essential. The Government must expedite its approval processes for foreign-made vaccines and allow a vibrant vaccine market to develop in the country to balance the interests of both the producers and the citizens.

[1] I have formulated the argument after an interaction with Prof. Ajay Shah recently.

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