This Is ‘Half-Reform’ On Covid-19 Vaccines. Fairly Regulate Monopoly Power

Half-knowledge, say the wise, is dangerous. Half-reform, say I, is equally destructive. Unfortunately, that’s what the government’s new vaccination regimen is, a ‘half-reform’.

On the plus side, scrapping an unviable price cap is spot on. This will allow manufacturers to get a productive ‘return on capital’ and is the only spur to new investments in enhancing capacity. No coercion or fiat will get entrepreneurs to put money on a losing proposition. Period.

But ‘free pricing’ is only a ‘half-reform’. Which is why, despite being the correct way to go, the government is encountering a tidal wave of criticism, for being ‘hasty’, ‘half-baked’, and ‘capitulating before big capital’. In fact, here is the distilled missive from Sonia Gandhi to Prime Minister Modi (I have excerpted relevant sentences):

The policy implies that the Government of India has abdicated its responsibility to provide free vaccination for citizens between the age group of 18 to 45 years. As a consequence of this policy, the vaccine manufacturer, i.e., the Serum Institute of India announced a differential pricing mechanism today, viz., Rs. 150/- per dose for the Central Government, Rs. 400/- per dose for State Government and Rs. 600/- per dose for Private Hospitals. This means that citizens will be compelled to pay these high rates to be vaccinated. This will also bleed the finances of State Governments.

This begs the question, how can the same vaccine manufactured by the same company have three different prices? There is no rationale or justification that allows for such arbitrary distinction. Even with regards to the fifty percent quota for vaccination available with the Central Government, the allocation must be transparent and equitable, in line with the spirit of cooperative federalism.

Stung by a similar blowback from academicians and experts, the government is hitting out, especially at ‘free-market liberals and intelligentsia’ who have been relentlessly campaigning for these changes. “Now that we’ve done what you guys have been asking for, you’ve flipped and become critical. That’s unfair!”, is the refrain one hears from government sources.

Is that correct? Are people like me (aka ‘free market liberals’) now condemning the government for doing exactly what we had been pushing for? No, that’s not quite correct. I applaud the fact that the state has relaxed its stranglehold on prices. I also cheer throwing open our market to foreign producers. Both actions will augment supplies. But is that it? Was there nothing more to be done?

The government defends itself, asking “what else was possible?”, thereby betraying an age-old blind spot, that is, our rulers equate free markets with laissez-faire. In fact, this equation captures the contempt they have for free markets. They have never understood – nay, they are not willing to understand – that free markets are as opposed to laissez-faire as Milton Friedman is to Karl Marx.

To think of free markets as being equal to laissez-faire is to broadcast your illiteracy to the world.

Why have I taken this tiny tutorial on laissez-faire? Because by freeing only Covid-19 vaccine prices, without defining collateral regulation, the Modi government has propagated laissez-faire and has not created a free/competitive market for vaccines.

Remember, the current market structure is akin to a ‘monopolistic utility’ – that is, there is one producer who dominates 90% of the market, and since the vaccine is a product that is critical to life, that producer can abuse his monopoly power. Imagine what would happen if a single water or electricity distributor (water and electricity being critical to life) could whimsically charge any price or deny any connection to any consumer? For example, he could ask me to pay Rs 100/litre while giving it free to my neighbour; he could even slap a 100-litre cap on my household while giving away gallons to my entitled neighbour. We would be living in a jungle, right? This is why monopoly power/pricing must be regulated fairly, not left unfettered.

So, until several other vaccines have entered India, and Serum Institute’s market share has fallen to about 30-40%, we cannot not regulate the vaccine market like a ‘monopolistic utility’. Transparent rules will have to be crafted to ensure fairness:

• How will limited vaccine supplies be apportioned among competing states? Clearly, all supplies cannot simply be given to a cash-rich state that is willing to pay upfront. The rights of poorer states will have to be equitably protected.
• How will supplies be apportioned between states and private hospital chains? Since Serum will be making an extra profit of 50% on hospital supplies, there is a severe conflict/bias that needs to be curbed. A formula will have to be mandated so that states are not starved of their legitimate claims.
• Since the central government is commandeering 50% of the output at a heavily discounted price, it should be bound by an equitable allocation algorithm. The central government should not be allowed to give a ‘higher than deserved allocation’ to some states at the expense of others, because that will create a financial burden on the excluded states. The losing state would be put back by Rs 250 cr for every consignment of one crore doses that the central government ‘knowingly misallocates’

I guess by now you’ve got what I mean when I say that the new rules on ‘free pricing’ of vaccines are a potentially destructive half-reform.

Unless a cogent framework is simultaneously created to curb monopoly power and ensure fair distribution among states and private hospitals, we are staring at chaos and abuse.

The ball is squarely in the Modi government’s court.

In the federal spirit, it should set up a Vaccination Council (on the lines of the GST Council) so that its actions are fair, and more importantly, seen to be fair.

Raghav Bahl is Co-Founder – The Quint Group including BloombergQuint. He is the author of three books, viz ‘Superpower?: The Amazing Race Between China’s Hare and India’s Tortoise’, ‘Super Economies: America, India, China & The Future Of The World’, and ‘Super Century: What India Must Do to Rise by 2050’.