In a recent press release, the central government said it had given the Serum Institute an advance of Rs 1732.5 crore for 11 crore doses of the Covishield vaccine to be received over May, June and July. It had also paid Bharat Biotech Rs 787.5 crore for five crore Covaxin doses, to be received over the same period. Hence, the central government is paying a price of Rs 157.50 for every dose of the vaccine. The question is, why the price is not a round number. The answer lies in the fact that there is a goods and services tax (GST) of 5% on covid vaccines. Hence, the price of a single dose of the vaccine is Rs 150, on which the central government pays a 5% GST of Rs 7.50 per dose (5% of Rs 150) to the vaccine manufacturers.
These companies then subtract the GST they have paid in buying all the inputs they need in the manufacturing of the covid vaccines, or what is known as input credit, against the GST they receive from the central government, and pay the remaining amount back to the government as GST.
Given that a public health emergency is currently on, there is a need to lift the GST on the covid vaccines and the inputs that go into their manufacture. This is not the time when the government should be looking at money-making opportunities from the sale of covid vaccines. The fact that there is still a 5% GST on the vaccines perhaps tells us how serious the central government has been about vaccination against covid.
While the central government is buying vaccines at a price of Rs 150 per dose to vaccinate those aged 45 and above, the state governments and private hospitals must pay a higher price to vaccinate those in the age group of 18-44.
The state governments must pay Rs 300 or Rs 400, depending on whether they buy Covishield or Covaxin. Private hospitals must pay Rs 600 or Rs 1,200 respectively. A clear discrimination is being made between citizens of different ages who face the same risk on the ground of getting the covid disease. The point remains valid even though many state governments have decided to provide the vaccine shots free of cost even to those between 18 and 44.
As the Supreme Court recently put it: “Discrimination cannot be made between different classes of citizens who are similarly circumstanced on the ground that while the central government will carry the burden of providing free vaccines for the 45-years and above population, the state governments will discharge the responsibility of the 18 to 44 age group on such commercial terms as they may negotiate…The manner in which the current policy has been framed would prima facie result in a detriment to the right to public health.”
The court further said: “The vaccinations being provided to citizens constitute a valuable public good.” A public good is something that should be made available to everyone or, as economists put it, it should be non-excludable. The rule of law, public safety or public infrastructure are good examples of public goods. They should be available to everyone (though they are not).
Vaccines lead to a positive externality; the benefit of taking the vaccine goes beyond just the person taking it. Once someone has taken both the doses, their chances of getting covid and spreading it to people around them go down. This is why most countries are vaccinating for free. It is the quickest way to ensure that the pandemic is brought under control and economic activity gets back on track.
Further, ensuring that vaccines are available for free to everyone ensures that everyone has access to them on the same terms. As UNESCO said in a statement in February 2021: “Vaccines be treated as a global public good to ensure they are made equitably available in all countries, and not only to those who bid the highest for these vaccines.”
The central government’s vaccine strategy falls short on this front. It should basically be dealing directly with the two suppliers, compensating them adequately for the risk they have taken on, and ensure that the competition among state governments, between state governments and private hospitals and among private hospitals, for doses of the covid vaccine is brought to an end. Also, these vaccines should be supplied for free at least at all government vaccination centres, with the central government bearing the cost, and not the state governments as they currently are for the 18-44 age group.
The other important characteristic of a public good is that it should be ‘non-rival’ — that is, my consuming it shouldn’t mean there is less of it for others. My breathing of fresh air, which is not polluted, doesn’t mean that there is less of it available for others.
Given the demand-supply mismatch that currently prevails when it comes to covid vaccines, if I take the vaccine, it means that someone else can’t. This is likely to get sorted out over the next six to eight months as the current vaccine suppliers expand capacity and foreign suppliers hit the market as well.
But that would mean losing out on precious time. In this scenario, India needs more vaccine manufacturers. The Covaxin vaccine has been jointly developed by Bharat Biotech and Indian Council of Medical Research. Given this, money of the people of India was used to develop the vaccine. Hence, the government needs to license this vaccine to other vaccine manufacturers, and to as many as possible.
This is the only way to ensure that vaccines can become a valuable public good.
(The author lives to read crime fiction, and unlike his honest ancestors, makes a living writing on economics)