An important change of course by policy in Indian Covid-19 vaccination

by Amrita Agarwal and Ajay Shah.

Strategy for Covid-19 and vaccination

A global race took place on building vaccines for Sars-Cov-2. By late 2020, it became clear that vaccine development was progressing rather well.

With the vaccines in sight, the standard economics knowledge about vaccination came into play. Each vaccinated person reduces the possibility of spread of the disease. While the individual who gets a vaccine is gaining protection, that individual is also imposing a positive externality upon the population. There is a market failure — a positive externality — as an individual would tend to under-spend on buying a vaccine. There is a case for state financing, to augment personal expenditure on personal protection, to tip more people over into vaccination. The end goal of vaccination is not to vaccinate everyone, but to change the disease dynamics by achieving herd immunity.

A debate took place in India in 2020 about two alternative pathways to roll out vaccines, on a significant scale.

On one hand was the vision of a centrally planned program, where the government would control everything, and the citizenry would obediently wait for their turn. This involved (a) Using the coercive power of the state to block any vaccination activities in India other than the union government, and (b) Organising a nationwide vaccination program at the union government. This was similar to the vaccination efforts prevalent in many other countries.

An alternative approach involved recognising that in India, state capacity is limited. A centrally planned effort was likely to work out poorly. It was better to harness all the energy available in the country to do more vaccination — whether it was at a state government, city, club, association, educational campus, private non-health firm, health care firms, etc. This involved (a) Not using the coercive power of the state to block any other energy in vaccination, alongside (b) Some work on vaccination that state organisations undertake in order to address market failure. An example of this perspective is in an article from 30 November, and this talk, at an NCAER event on 29 December 2020. Shruti Rajagopalan, Mihir Sharma, Naushad Forbes were some of the thinkers who wrote on this.

In the event, decision makers in government chose the first path. There were difficulties [8 March, 5 April]. Using data for 19 April 2021, the New York Times tracker shows India at rank 62 in the world, with 1.2% of the population fully vaccinated, in roughly the league of Malaysia (rank 61) at 1.4% or Bangladesh (rank 64) at 1.0%.

At present, the union government is able to push out 3.5 million doses a day. Looking forward, the rate achieved (by the unreconstructed union government program) is likely to go down:

1. It is likely that the process design used, in any centrally planned union government program, would work for one (hopefully modal) use case, but peter out once we reach out beyond this zone.
2. The present vaccine production for the Indian market [SII, Bharat Biotech] is below the required 100 million doses a month.

By this reasoning, the present run rate, of 3.5 million doses a day, may not be sustainable. If we are to get to half the Indian people fully vaccinated in the coming four months, this requires about 10 million doses a day or 300 million doses a month. We need to get up to 10 million doses/day and we face difficulties in maintaining the present rate of 3.5 million doses/day.

An important change in course

On 19 April, the union government has announced an important change in course. The nature of state coercion will now change as follows:

1. Indian vaccine makers are forced to sell half their output to the union government, at an unspecified price, the remaining half being available for sale to state governments and private persons in India (at a publicly announced price),
2. Private firms which perform vaccination services are forced to publicly announce the price at which these services are provided,
3. All providers of vaccination services are forced to supply data to the union government’s CoWin IT system, and
4. Private persons and state governments are free to import vaccines.

This is important progress. The union government has stepped back from blocking every other energy in the country in vaccination. State governments, and private persons, will be able to buy/import vaccines and run vaccination programs. Vaccine makers remain in the grip of central planning, but it is a step forward when half of their output can be sold to state governments and private persons at market-based prices.

Implications

The 19 April decisions harness energy in thousands of organisations all across the country. Some state governments and many private organisations will now be able to embark on vaccination efforts. Each of them would tailor their process designs for local conditions and the practical problems as seen by them. The sum total of resourcing and energy that would go into vaccination, in India, would go up. This would improve the overall progress in conquering the pandemic.

The private sector will surprise us with innovation in business models, billing arrangements, etc. Perhaps some firms will find it easier to deliver the one-dose J&J vaccine in difficult locations. Perhaps telecom companies will call their vast subscriber base and sell vaccination services. Private firms know how to segment the users into a large number of categories, and devise strategies for each of them. This is what a union government, which solves for one use case, finds it difficult to do.

In the short run, it is hard for SII to drastically change its production. Import of vaccines holds the key. In the world market for vaccines, a buyer asks for a price quotation at a certain quantity. These prices are on the decline. Vaccine supply in India will go up through imports.

There are some concerns about the AZ vaccine with younger persons and particularly with young women. Availability of mRNA vaccines in India would help address the needs of these users.

If India were an AZ vaccine monoculture, there is greater vulnerability to a new strain that is able to breakthrough, and then a major new health crisis would arise. The self-organising system will bring diverse vaccines to play into the Indian populace, and generate greater pandemic security.

The second wave will not be the last one. Existing vaccine makers will regularly make booster doses through which people will become safe against new variants. Covid-19 is only one among many infectious diseases which call for sustained large-scale adult vaccination programs. The work done this year, flowing from the 19 April decisions, will matter not just in conquering the second wave. Thousands of organisations in India need to view this not just as a one-off, but as a sustained activity. As an example, it would make sense for every large employer to organise quarterly vaccination camps for their employees and their family members, through which an array of adult vaccines are regularly delivered.

Improvements required in the policy framework

The pathway to elicit better production by private firms does not lie in coercing them with quantity restrictions. Such coercion will bring out reduced output by Indian manufacturers. We learned, in the 1960s and 1970s, that it is impossible for a state organisation to go inside the firm, and discuss elements of the cost function with the firm. It is not the job of the state to be a financial service provider for a firm. There should be market-based engagement with vaccine producers, limited to the language of prices, quantities and foreign competition, and free of coercion.

The union government can play a useful role by wielding its coercive power to limit the vaccines that are permitted for use in India to the class of vaccines which have achieved approval in an advanced economy such as the US, UK, Japan or Germany.

The use of coercive power by the union government, to drive higher state legibility through CoWin, alongside the absence of legal protections against state access to the data, will have unintended consequences. State surveillance is particularly harmful when it comes to health data.

The decisions of 19 April are important and will get India up from 3.5 million doses a day. It is, however, likely that we will not get up to 10 million doses a day. It is useful to think about two distinct problems on the demand side:

The rich

If protecting a family of five costs Rs.5,000 to Rs.10,000, many individuals / employers will spend this much. While a positive externality influences the decision making, the decision will be correct as long as the personal gains from protection exceed the price of the vaccine.

The poor

Many poor families might balk at this magnitude of expenditure. This is where market failure bites, in generating the wrong decision because there is a gap between the gains to society as a whole vs. the gains for the individual. Vaccine vouchers are the precise instrument through which this market failure can be addressed. State governments and the union government need to step into this breach.

Conclusion

Central planning has worked well for Covid-19 vaccination in countries like the US and the UK. These countries intelligently used private sector energy [example] as opposed to many varieties of coercion. But central planning works poorly under conditions of low state capacity. It is better to harness the energy of the self-organising system.

The 19 April announcements make important progress in stepping back from a centrally planned system, in increasing freedom, and in harnessing the power of the self-organising system.

The role of the state lies in addressing market failure. There is a need to use the coercive power of the state to require that vaccines used in India must have achieved approval in an advanced country. Poor people will make better decisions when nudged towards vaccination through the tool of vouchers.