There is hardly anyone left in India, including yours truly, who has not lost a loved one to the devastation wrought by the second wave of the coronavirus. Although some states are doing a relatively decent job, like Kerala, states and areas such as Delhi, Uttar Pradesh and Gujarat are in utter chaos. Patients are dying in homes because the healthcare infrastructure has collapsed. They are dying in hospitals because hospitals are not getting oxygen supply in time. Incinerators in crematoriums are melting down because of overuse. Parking areas and animal crematoriums are being converted to makeshift human crematoriums. The stories coming out of India are mind-numbing. As one newspaper sombrely put it: India has descended into "Covid hell".
In such an apocalyptic situation, the only weapon India has is vaccines. However, with each passing day, it becomes evidently clear that India's vaccination drive has floundered as well. As of the first week of May, India administered a total of 156 million doses of vaccines. In absolute terms, these numbers look impressive, but they amount to only 2.6 percent of the population fully vaccinated with both doses. This is a far cry from the 70-80 percent required for a country to achieve herd immunity. With its current vaccination policy and administrative ineptitude, India is unlikely to achieve that number anytime soon. This is an embarrassing situation for a country that has decades of experience in mass vaccination programmes.
When this unprecedented global pandemic began, India was blessed to be in a unique position. Dubbed as the "pharmacy of the world", India is the manufacturing hub for vaccines. For instance, the vaccine developed by AstraZeneca and Oxford University was licensed to the Serum Institute of India (SII), the largest producer of vaccines in the world. SII would then have exclusive rights to manufacture and sell these vaccines in India. Additionally, Indian scientists were also able to develop an indigenous vaccine. Bharat Biotech (BB), another pharmaceutical company in India with a stellar reputation, developed its own vaccine against the virus. Although questions still remain about the hastened approval process for the BB vaccine, and lack of peer-reviewed efficacy data even till date, there is, by and large, a consensus in the scientific community that it is a vaccine that works and is safe to use. Thus, the Modi government had the most powerful weapon to fight the pandemic handed to him in a silver platter.
Despite being in such an advantageous position, India's vaccination policy has now become an unmitigated disaster. India should ideally be vaccinating at twice or thrice the speed of what it was doing before. Appallingly, the daily vaccination rate has dipped to about half of what it was a few weeks ago. The question, of course, is why? There are two main reasons: supply constraints and vaccine pricing.
The main reason why India is falling behind in its vaccination drive is that there simply aren't enough vaccines. As of April, SII had a capacity to manufacture 60-70 million vaccine doses a month. BB, on the other hand, had a much lower manufacturing capacity of 12-15 million doses. To vaccinate everybody in India above the age of 18, India needs almost 2 billion doses of vaccines. It simply did not have the manufacturing capacity to produce enough vaccines to vaccinate everybody within a reasonable time frame. The Indian government knew this but did nothing to shore up production capacities.
For some inexplicable reason, the Modi government did not see the urgency to vaccinate Indians. Even more shocking was how the government was treating other pharmaceutical companies such as Pfizer and Russia's Sputnik, who had applied for approval of their vaccines in India but were denied. The only explanation for such a hare-brained approach was that the government did not think they needed to vaccinate Indians at a mass scale. This false belief was bolstered by government-friendly "economists" and "experts" who had begun opining in leading newspapers that India had "achieved" herd immunity. Modi himself declared early this year that India had won the war against Covid. When a government begins to believe its own propaganda, the country is bound to be in trouble.
The second reason for the unravelling of India's vaccination drive was the policy with regards to vaccine pricing. Initially, the central government was the sole buyer of vaccines from both the manufacturers. When the central government first ordered vaccines, the price agreed was reasonable but at the same time allowed the vaccine manufacturers to make some profits. The central government then distributed these vaccines to the states, and some to private hospitals, who then began administering them to Indians aged 60 years and above (later reduced to 45 years) for free (or a token administration fee).
In mid-April, the central government was under pressure to appear to do something to stem the mayhem caused by the second wave. It hastily widened the vaccination drive and included anyone above the age of 18. However, there was a catch. The Centre was not going to purchase the vaccines to inoculate those below 45 years. The government allowed the two home-grown manufacturers to sell half of their manufactured products to state governments and private players at a price that the companies had the freedom to set.
The government's arguments were two-fold. First, they argued that this would give flexibility to states, as they can now directly engage with not just the two Indian vaccine producers but also foreign vaccine producers, and buy directly from them as per the state health policy. Secondly, the policy would open up the private market and engage the private healthcare infrastructure to deliver vaccines at higher prices to those who could afford to pay. This, they argued, would speed up the vaccination rate. So far, the opposite has happened.
There are two problems with the government's approach. The first glitch in this model is that it operates under the assumption of no supply constraints—that any buyer could buy without impacting the prospect of others buying vaccines as and when they need. As stated earlier, the manufacturing capacity of vaccines in India is severely limited (and buying from other foreign manufacturers is a distant reality). Such severely limited supply constraints provide unfettered profiteering opportunities to the two vaccine manufacturers. True to this cause, both SII and BB quickly seized the opportunity and set exorbitantly high prices for state governments and private players. States now have to shell out from their severely limited finances and buy vaccines from manufacturers, whose price had now jumped three-fold.
The second problem is that since the government has left it to the vaccine producers to set their price, the vaccine producers have set three different prices: one for central government, one for state government and one for private players. The vaccine producers now have incentives to shift as much of their supply to private players as possible to maximise their profits. This can potentially impact the public vaccination drive as manufacturers may prioritise delivering to private participants over states. The pricing also incentivises corruption as supplies delivered to state governments can be illegally diverted to the private market to make arbitrage profits from the price differential. This is bound to increase leakages in the public vaccination programmes. Not to mention, the high price of vaccines will increase vaccine hesitancy as the price of two doses in the private market has now become higher than the average monthly income in India.
Thus, severe supply constraints and uncertain delivery timelines, coupled with confusion over who should buy and who would pay (state governments or centre), have crippled India's vaccination drive. Relying on free market principles during a pandemic is a bad idea. For what it's worth, even the citadel of capitalism, the United States of America, is not relying on free market forces to vaccinate its citizens. They are simply buying in bulk and providing it to their citizens for free.
Dr. Asad Rauf is Assistant Professor of Economics, University of Groningen, Netherlands.