Vaccines: The Centre and states should divide tasks

The second wave of Covid-19 is overwhelming India. The official death toll is already inching towards 250,000, but this is almost surely a vast underestimate, as the virus sweeps through rural India and kills many whose deaths will never be captured in official data or in media reports. A rapid and universal vaccination programme is essential to control a surge of this magnitude and time is of the essence — for the virus is not standing still.

At this time, the blunt truth is that India has an inadequacy of vaccines. In December, one of us, in an article published in The New York Times, warned that the approval of vaccines may not be the beginning of the end, but the beginning of an endless wait. Unfortunately, the warning has materialised, with tragic consequences.

Vaccine procurement and ramping up of production are essential. Unfortunately, this cannot be “left to the market”. Price signals cannot elicit a rapid supply response in the short-run due to capacity constraints on the one hand, and high barriers to entry on the other. Vaccines are being produced today under exclusive vendor licensing and the market is a seller’s market. What is needed, therefore, is to alter this situation.

One step forward would be to use the flexibility that the World Trade Organization provides, and issue compulsory licences for vaccines. While that will be helpful, to allow for additional capacity to be built, more needs to be done. For vaccine production, after intellectual property rights considerations, there are other additional technological and regulatory complexities that India should be working hard to resolve.

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For a complex problem of this size, we may need a combination of old-fashioned planning, newer regulatory economics and an institutional policy structure to effectively coordinate between different units of the government.

Starting with the central government, because we are dealing with vaccine manufacturers with marketing power, it is best to have a single negotiator exercising countervailing monopsony power. The negotiations can involve several dimensions including price, quantity, schedule of delivery and so on. The Union government is best positioned to handle the production- and procurement-related leg of vaccines.

A reasonable price could be agreed upon — enough to meet production needs without too much concern immediately about fiscal cost, again a luxury afforded to the Union government (in any case, the fiscal cost from a fragmented state/Union strategy will likely be higher). As regulators, central institutions can also inspect the manufacturing facilities of these companies and identify bottlenecks.

In addition, the central government should continue to lobby foreign governments to relax Intellectual Property (IP) provisions and share technology. There has been some positive momentum on this front — with the United States and France backing IP suspension — but it will need to be taken to its diplomatic conclusion. Even if building new capacity takes a few months, we will need vaccines for the foreseeable future (to deal with variants and boosters). Again, it is the central government which has the diplomatic heft to carry out negotiations in this respect.

While the Union government has the clear advantage in facilitating production and procurement, it is state governments who hold the key at the distribution end. The states have localised information about vaccine requirements. They provide boots on the grounds. Since the federal units have complementary strengths and weaknesses, they should assume a division of labour that facilitates the most efficient production and distribution of vaccines.

Pandemic management will also have to overcome the knotty issue of political economy. The blame game between the Union and state governments over an essential commodity such as oxygen is visible in court proceedings. We need a transparent mechanism that is perceived to be fair and trusted by all the stakeholders. Apart from dealing with the allocation of vaccines and other essential medical supplies such as oxygen, this body could suggest the financing pattern for sharing the expenditure on Covid management, including vaccine procurement.

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To some extent, the Supreme Court is already playing this role. However, what is required is a standing mechanism, probably with a fixed sunset clause, that is trusted by all, and has the authority to arbitrate the claims of the powerful units and possesses the ability to process and understand scientific and medical knowledge.

Unfortunately, the current vaccination plan leaves much to be desired. Under this arrangement, states will struggle to procure vaccines and the Centre will struggle to efficiently distribute its share of vaccines. Emerging disputes would need to be settled in an ad-hoc manner.

The number of multiple purchasers, in theory, gives the producer a bargaining advantage. Consequently, some states will either be priced out of the market, or the supplier will be faced with the difficult task of managing the “queue”, which will distract from the main task of maximising production. Recent statements by the Serum Institute of India indicate that this is already happening.

Far too many lives have been lost to Covid. But as a challenge to India (and to humanity), it is certainly not an impossible task to manage the pandemic. But this can only happen effectively with cooperation, coordination, empathy, humility and scientific knowledge. It is not too late.

Arjun Jayadev and Avinash Tripathi teach economics at Azim Premji University, Bengaluru

The views expressed are personal